Fertile Environment For Agrium
Miriam Marcus, 06.12.08, 1:05 AM ET
These are good times to be in the fertilizer business.
Shares of Agrium (nyse: AGU - news - people ) soared to record heights Wednesday after the Calgary, Canada-based company boosted its second-quarter profit outlook, on the back of rapidly increasing demand for fertilizer and a healthy farm retail sector.
Agrium's stock peaked at a record $101.97 early Wednesday, closing up $7.97, or 8.7%, to $100.79, in New York.
The smallest of Canada's three potash producers said it expects to earn $2.80 to $3.00 per share in the second quarter, far higher than the previous outlook of $1.92 to $2.22, a result of "very strong results" from its retail and wholesale operations, with half of the increase coming from retail.
Excellent results are "particularly impressive given that the North American spring application season has been hampered by excessively cold and wet weather this year," said Chief Executive, Michael M. Wilson of Agrium. "Continued strong global crop prices have created unprecedented demand for crop inputs and we foresee an extended demand-driven cycle."
The fertilizer industry has been on a high as major companies across the sector have reported first-quarter profits that more than doubled--and occasionally nearly tripled--in the past year. Farmers, eager to boost crop yields in order to feed growing global demand for crops, are relying on nutrients to turn impressive harvests. (See Bountiful Times For Fertilizer Sector)
The rising global demand for food is largely a result of increased wealth in developing countries. As affluence grows, so does meat consumption, increasing the demand for cereal-based animal feed. Increased biofuel production has also pushed up commodity prices.
In the first quarter, higher realized nutrient prices helped push Agrium to a profit of $195.0 million, or $1.23 a share, from a loss of $11.0 million, or 8 cents a share, in 2007's first-quarter. Sales rose 34.8%, to $1.2 billion, from $861.0 million in the previous year. Analysts forecast earnings of 55 cents a share and sales of $1.0 billion. (See Agrium's Fertilizer Hit Paydirt)
"It's just evidence of how strong the ag cycle is," Chief Financial Officer Bruce Waterman said.
The improved outlook beat market expectations. Analysts polled by Thomson Financial had expected Agrium to earn $2.50 per share in the second quarter.
Ian Nakamoto, director of research at investment dealer MacDougall, MacDougall & MacTier, has a $117.99 price target on Agrium, said most analysts had expected the company to beat its previous outlook amid surging fertilizer prices. "It wasn't totally unexpected because fertilizer prices and the outlook for agriculture continues to be very strong," he said. "But it's still nice to see and to confirm my positive view on the agricultural sector and, in particular, the fertilizer companies."
Agrium said its improved outlook excludes its recent UAP Holding (nasdaq: UAPH - news - people ) acquisition, which is expected to add a significant contribution this quarter. (See Not So Fast,' FTC Tells Agrium)
Separately, Agrium warned Wednesday that the syndicate of banks funding its EAgrium joint venture in Egypt had alleged "a condition of default" following a halt to construction at the site. The company reported that work stopped at the site on April 21 due to permitting and other delays created by the Egyptian government.
Because of a political dispute between the central government and local authorities, Agrium is concerned that the issues may not be resolved in the near term, which would expose shareholders to a loss. Agrium said currently has $165.0 million invested in the project, and a total equity commitment of $280.0 million.
Nakamoto noted that in the grand scheme, the company should easily be able to handle that loss if it had to.
Booming food prices have farmers scrambling to increase crop yields, making it fruitful times for fertilizer producers.
Potash (nyse: POT - news - people ), Bunge (nyse: BG - news - people )and CF Industries (nyse: CF - news - people ) have posted skyrocketing profits.
Shares of Potash, the world's largest fertilizer company which is based in Saskatoon, Saskatchewan, have soared more than 200% over the past year. "We have a lot of pricing power" Potash Chief Executive William J. Doyle said Wednesday at at a conference in Toronto on Wednesday. "We're nowhere near peak pricing."
July futures for U.S. corn hit a record high of $7.56 per quarter bushel Wednesday because of concerns about flooding and excess rain in the U.S. corn belt.
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