Agrium Inc. (AGU) saw a sharp drop in its net earnings in the fourth quarter of 2009. Earnings fell 76% to 19 cents per share in the quarter compared with 79 cents in the year-ago period, driven by one-time charges and weaker crop prices. This was partially offset by an increase in sales volumes and a lower cost of production. 

However, excluding one-time charges, the company posted earnings of 36 cents, far ahead of the Zacks Consensus Estimate of 26 cents. Full-year earnings fell 72% to $366 million, or $2.33 per share, compared with $1.32 billion, or $8.34 per share, during the same period the year before. 

Quarterly revenue fell 24% to $1.5 billion from $1.99 billion during the prior-year period. For the full year, revenue fell 9.2% to $9.33 billion. 

Segmental Performance 

Retail: Net sales for the quarter were $738 million, down 26% from $1.0 billion in the fourth quarter of 2008. Crop nutrient net sales were $431 million, compared to $631 million in the same quarter last year. Lower prices for the primary nutrients more than offset an increase in sales volumes compared to the same period last year. 

While crop nutrient sales volumes were above last year’s levels, they were still 20% below expected volumes due to the shortened fall application season. Crop nutrient margins averaged 11% in the quarter, slightly higher than both the previous and the year-ago quarters. 

Crop protection net sales were $234 million in the reported quarter, a 19% decrease from $288 million for the same period last year. This was mainly due to lower sales prices for glyphosate, which was partially offset by an 83% increase in glyphosate volumes. Crop protection product margins were 42% for the quarter, compared to 46% in the same period last year. 

Net sales for seed and services decreased 29% year over year to $73 million. Seed sales were $16 million in the quarter, a decrease of 65% from the same period last year due primarily to fewer wheat acres being planted. 

Wholesale: Net sales in the segment were $716 million for the quarter, down 27% from last year’s $982 million. The reduced performance was due to lower selling prices, more than offsetting a 44% increase in sales volumes. 

The key factor driving the higher volumes during the quarter was a return to stronger demand from North American customers for the nutrients, despite the shortened application season this fall. Domestic and international ammonia and urea volumes were up significantly in the quarter, compared to the same period last year. Agrium’s nitrogen margins averaged $102 per ton this quarter, compared with $197 per ton in the fourth quarter of last year. 

Agrium’s overall natural gas cost was $4.82/MMBtu in the reported quarter versus $7.41/MMBtu in the fourth quarter of 2008. The average realized potash sales price was $382 per ton this quarter, down from $678 per ton for the same period last year. Potash sales volume totaled 353,000 tons, an increase of 25% year over year. 

Domestic demand was up 81%, compared to the same period last year. International sales remained significantly lower than the fourth quarter of 2008 due to continued uncertainty in international markets since the negotiations for a new supply contract with China were not complete. 

Realized sales prices for phosphate averaged $392 per ton, down $725 per ton compared to the record $1,117 per ton achieved in the same quarter last year. Sales volume this quarter was 232,000 ton, representing a 69% increase from the same quarter in 2008. 

Advanced Technologies: Advanced Technologies’ quarterly net sales were $95 million, compared to $76 million in the fourth quarter of 2008. The increase was primarily attributed to the inclusion of the new turf and ornamental business that was transferred from Retail to Advanced Technologies in 2009. 

Although ESN sales volumes were up 88% in the quarter, compared to the same period in 2008, net sales were impacted by lower average realized sales prices in ESN and other controlled release products as a result of a decline in the price of urea. 

Cash provided by operating activities was $904 million in the quarter, compared with $671 million in the same period of 2008. Net-debt to net-debt plus equity continued to decline in the quarter, reaching 16% compared to 26% at the end of the previous quarter. 

Agrium is witnessing recovery in the crop input sector. The company has experienced an increasing demand for domestic potash and a tight supply situation for nitrogen and phosphate products. 

Agrium anticipates crop nutrient margins to improve significantly in 2010 as demand is expected to be strong and inventory costs are below current replacement costs. Agrium expects a strong demand for crop nutrients and other crop inputs in the coming spring, despite some recent weakening in crop prices.
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