Agrium Inc. (AGU) reported adjusted net earnings of 29 cents per share in the third quarter of 2009, missing the Zacks Consensus Estimate of 32 cents. Year over year, earnings declined a significant 87% on lower volumes and prices. Revenues were down 41% year over year to $1.9 billion on weak corn prices and lower consumption of crop protection products at retail level. 

Retail segment: Retail segment revenues plunged 25% to $1.2 billion in the quarter on a 41% decline in crop nutrient sales to $345 million due to a significant decline in crop nutrient prices. Crop nutrient volumes in the quarter remained flat. Gross profit from the crop nutrients business almost halved to $31 million. Crop protection sales were $768 million in the quarter, down 12% from the same period last year. The decline was driven by lower volumes for fungicides and lower pricing for glyphosate products. 

Gross profit in the quarter was $169 million, down 12% from the previous year. Profit from the nutrient business was down significantly due to lower sales volumes from Legacy Agrium Retail and significantly lower margins resulting from the carry-over of high priced crop nutrient inventories, which were sold at lower prices. Sales for seed and services decreased 14% to $114 million. 

Wholesale segment: Wholesale’s net sales were down 59% to $658 million in the quarter, driven by lower sales prices and volumes for nitrogen and phosphate products combined with significantly lower potash sales volumes. Nitrogen sales were down 48% to $260 million while potash sales declined 56% to $109 million. Phosphate sales were down 64% to $114 million. 

Following lower sales, nitrogen profits shrank 61% to $80 million while potash profits declined 81% to $47 million. Phosphate profits of $1 million were negligible compared with $195 million in the year-ago quarter. 

Both international and domestic demand were significantly lower than usual due to a combination of delayed contract settlements in China and India, credit issues in many other international markets and the current cautious approach to replenishing stocks of retailers and distributors in North America and globally. 

Advanced Technologies segment: Sales in the Advanced Technologies segment were down 33% to $60 million year over year, driven by lower volumes and margins in turf and ornamental business due to lower household expenditures as a result of the slower economic growth. Cash provided by operating activities was $229 million in the quarter compared to $300 million in the prior year. 

Compared to the end of the third quarter of 2008, net debt to net debt plus equity dropped 10% to 26% at the end of the quarter. Agrium sees a significant recovery in demand across all crop inputs starting early 2010, particularly for the retail and potash businesses. Corn prices are recovering and the growth for food products is set to remain strong. 

Through all three operational business units – Retail, Wholesale, and Advanced Technologies – Agrium is well positioned to benefit from a recovery in the agriculture and crop input market. Agrium expects earnings per share of 14 cents to 44 cents in the fourth quarter of 2009. Meanwhile, Agrium repeated its commitment to acquire Deerfield, Illinois-based CF Industries (CF) and its willingness to increase its offer of $40 in cash plus one U.S. dollar-denominated Agrium share. 

CF has steadfastly rejected Agrium’s takeover offer. Despite two upward revisions in the offer price, CF had turned down Agrium primarily on the grounds of substantial undervaluation. CF Industries has meanwhile made a hostile takeover bid for rival Terra Industries. Terra, which produces and markets nitrogen products, has repeatedly rebuffed CF’s proposal. 

However, CF remains committed to acquire Terra. Agrium also remains committed and has extended the deadline several times. The company has stated that its cash reserves are sufficient and has committed financing to complete the deal. Should the acquisition go through, Agrium would become the world’s fourth-largest fertilizer producer.
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