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Agrium's (AGU) Q1 Earnings Beat Estimates, Sales Trail

Agrium Inc. AGU posted net earnings (attributable to its equity holders) of $2 million or 2 cents per share in the first quarter of 2016, a roughly 83% plunge from $12 million or 8 cents per share recorded a year ago. The bottom line was affected by weaker selling prices across all nutrients.

Barring one-time items other than stock-based payment expense (post-tax) of 2 cents per share, Agrium’s adjusted earnings came in at 3 cents per share. Analysts polled by Zacks were expecting a loss of 7 cents on an average.

Revenues decreased 5.1% year over year to $2,725 million in the reported quarter. The top line also missed the Zacks Consensus Estimate of $2,752 million.

Shares of the company rose 2.2% to close at $86.16 on May 4.

Segment Review

Revenues from the Retail segment increased 1.2% year over year to $2.29 billion. Gross profit rose 8.4% year over year to $402 million. The strong results were driven by solid margins across the company’s major product offerings and lower operating costs, an early start to the spring application season in the U.S. and record results in its South American operations.

Within the Retail business, crop nutrient sales declined nearly 8% year over year to $839 million, owing to weaker global pricing across all nutrients. The segment witnessed a 4% increase in sales volumes of crop nutrients. Crop protection sales went up 5% to $831 million as farmers in North American took advantage of the favorable weather to apply herbicides to control weeds. Seed sales increased 22% year over year to $376 million in the reported quarter while Merchandise sales fell 18% to $117 million.

Sales from the Wholesale segment came in at $649 million, down roughly 25.1% year over year, as realized sales prices were pressured by weaker nutrient prices globally. Gross profit was $153 million in the reported quarter, declining significantly from $234 million in the year-ago quarter.

Within the Wholesale business, nitrogen gross profits fell roughly 33.6% year over year to $95 million, attributable to significantly lower global benchmark nitrogen prices, partly offset by reduced cost of production.

Sales volumes decreased roughly 2.6% year over year to 741,000 tons as Western Canadian dealers were slow in their nitrogen buying decisions early in the season. Potash sales volumes were 456,000 tons in the reported quarter compared to 185,000 tons in the prior-year quarter. Phosphate sales volumes fell 22% to 220,000 tons.

Financial Position

Agrium ended the first quarter with cash and cash equivalents of $276 million, down roughly 64.6% year over year. Long-term debt decreased around 2.6% year over year to $4,415 million as of Mar 31, 2016. Cash provided by operations declined around 51.3% year over year to $343 million in the quarter.

Outlook

Agrium, which is among the prominent fertilizer companies, along with Mosaic MOS, Potash Corp. POT and CF Industries CF, provided its annual earnings guidance for 2016 in the range of $5.25−$6.25 per share, down from its prior view of $5.50–$7.00.  The company lowered the guidance range due to a challenging pricing environment for all nutrients and expectations of a stronger Canadian dollar, partly offset by reduced natural gas costs and continued momentum in its Retail business. For the first half of 2016, Agrium expects earnings to be in the range of $4.00–$4.30 per share.

Agrium also reduced its full-year expectation for potash production to 2.3–2.4 million tons from the prior view of 2.4–2.6 million tons.

Retail crop nutrient sales tons for 2016 are now forecast to be in the range of 9.8–10.3 million tons (compared with 9.8–10.2 million tons expected earlier). The modest widening of the range is due to a projected increase in U.S. planted corn acres.

Agrium currently carries a Zacks Rank #4 (Sell).

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