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Agrium Inc.’s (AGU - Analyst Report) third-quarter 2012 adjusted (excluding one-time items other than stock-based compensation expenses) earnings of $1.11 per share fell well behind the Zacks Consensus Estimate of $1.81.

Profit, as reported, plummeted 56% year over year to $129 million (or 80 cents per share) from $293 million (or $1.85 per share) a year ago as weak potash market conditions and downtime at the company’s Vanscoy potash facility in Saskatchewan dragged down its sales in the quarter.

Revenues dipped roughly 6% year over year to $2,962 million, also missing the Zacks Consensus Estimate of $3,094 million. The Canada-based fertilizer company saw lower sales across its Retail and Wholesale divisions in the quarter.

The company noted that weak potash demand stemming from the uncertainty associated with the timing of new supply contracts with China and India impacted pricing for the nutrient in the quarter and is expected to have a major impact on overseas shipment volumes in the fourth quarter.

Segment Highlights

Revenues from the Retail segment fell 9% year over year to $1.8 billion in the quarter. Sales fell as early harvest and severe drought conditions in the U.S. impacted demand for some crop inputs products and services. The company witnessed lower sales from crop nutrient (down 8%), crop protection (8%) and seed (34%) in the quarter. Segment gross profit slipped 12% year over year to $438 million.

The wholesale segment sales fell 3% to $1.1 billion in the quarter. Gross profit fell 10% to $385 million. The results were impacted by the downtime at the Vanscoy facility, partly due to the company’s brownfield expansion project. Nitrogen sales volume expanded 30% on the back of strong demand for domestic and South American urea.  Potash sales volume, however, slid 54% in the quarter. Phosphate volume also fell 6%.

Revenues from the Advanced Technologies division remained flat at $125 million. Gross profit rose 17% to $28 million, helped by strong sales and margins from Environmentally Smart Nitrogen (ESN), the company’s advanced nitrogen fertilizer product.

Financial Position

Agrium ended the third quarter with cash and cash equivalent of roughly $1.9 billion, a roughly two-and-a-half fold year over year increase. Long-term debt declined 2% year over year to $2.1 billion.


Moving ahead, the company expects high crop prices and tight grain inventories to create increased demand for its nutrients. It expects strong demand for top quality seeds for the 2013 growing season. Attractive crop nutrient prices are expected to lead to strong crop input demand.
The company expects earnings of $1.50 to $1.90 per share for the fourth quarter. The current Zacks Consensus Estimate for the quarter is $1.70.

Agrium is a leading global wholesale producer of all three key agricultural macronutrients − nitrogen, potash, and phosphate. It is the biggest farm products retailer in North America. The company stands to benefit from high crop prices and overall strong fundamentals for the agriculture and crop input market.

Agrium, which competes with CF Industries Holdings Inc. (CF - Analyst Report) and Potash Corp. of Saskatchewan Inc. (POT - Analyst Report), maintains a short-term Zacks #2 Rank (Buy). We currently have a long-term Outperform recommendation on the stock.

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