Agrium's (AGU) Q4 Earnings Beat Estimates, Sales Trail

Agrium Inc. AGU posted net earnings from continuing operations of $200 million or $1.45 per share in the fourth quarter of 2015, compared with $70 million or 46 cents per share recorded a year ago. The bottom line was supported by healthy performance of the company’s Wholesale business unit stemming from higher overall sales volumes for all three nutrients with lower production costs.

Barring one-time items other than stock-based payment expense (post-tax) of $12 million or 9 cents per share, Agrium’s adjusted earnings came in at $1.43 per share, surpassing the Zacks Consensus Estimate of $1.40.

For full-year 2015, net earnings from continuing operations were $988 million ($6.98 per share), up 23.8% from $798 million ($5.51 per share) in 2014. Agrium’s adjusted earnings for 2015 were $6.99 per share compared to $5.92 in 2014.

Revenues decreased 11% year over year to $2,407 million in the reported quarter. The top line also missed the Zacks Consensus Estimate of $2,927 million by a wide margin.

For full-year 2015, Agrium reported revenues of $14,795 million, down 7.8% from $16,042 million reported in the prior year.

Segment Review

Revenues from the Retail segment fell 14.2% year over year to $1.77 billion. Gross profit declined 2.4% year over year to $599 million. Results were hurt by lower crop input prices and wet weather across the U.S. impacting the fall application season. The Retail segment’s EBITDA was $199 million, up 10% year over year.

Within the Retail business, crop nutrient sales declined nearly 13% year over year to $843 million, owing to weaker global pricing and lower application volumes stemming from weather challenges. The segment witnessed a 6% decrease in sales volumes of crop nutrients. Crop protection sales went down 2% to $541 million as higher sales in North America were offset by lower sales in the company’s International operations. Seed sales decreased 18% year over year to $75 million in the reported quarter.

Sales from the Wholesale segment came in at $888 million, down roughly 1% year over year, impacted by lower global nutrient prices and Agrium’s decision to sell non-core, low-return assets. Gross profit was $320 million in the reported quarter, improving significantly from $130 million in the year-ago quarter. Adjusted EBITDA rose $222 million in the quarter to $372 million from $150 million in the prior-year quarter. The improvement was driven by lower production costs per ton and higher utilization rates from the company’s potash and nitrogen operations.

Within the Wholesale business, nitrogen gross profits surged roughly 65% year over year to $186 million, attributable to higher sales volumes and significantly lower cost of production. Sales volumes increased roughly 4% year over year to 912,000 tons owing to stronger urea and ammonia sales volumes. Potash sales volumes were 656,000 tons in the reported quarter compared to 19,000 tons in the prior-year quarter. Phosphate sales volumes also grew 6.6% to 325,000 tons.

Financial Position

Agrium ended 2015 with cash and cash equivalents of $515 million, down roughly 39% year over year. Long-term debt increased around 27% year over year to $4,513 million in 2015. Cash provided by operations improved around 27% year over year to $1,663 million in 2015.

In 2015, Agrium repurchased 5,574,331 million shares at an average share price of $100.25 for a total consideration of $559 million under its present authorization plan.

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 $5.50−$7.00 per share. The company maintained this broad range with around $300 million of EBITDA variability taking into consideration the risk and opportunity related to crop nutrient prices and demand for crop inputs.

Agrium anticipates normal spring and fall application seasons this year, with its earnings guidance assuming modest recovery from current nitrogen prices during the key application seasons.

Agrium expects its Retail EBITDA to be in a range of $1.075–$1.175 billion and Retail nutrient sales volumes in the band of 9.8−10.2 million tons in 2016.

The company also stated that based on its predictions of improved utilization rates of its nitrogen assets, it expects nitrogen production in the band of 3.5−3.7 million tons. Moreover, the company continues with its active hedging program for its gas requirements in 2016 as it anticipates natural gas prices to remain at 2015 levels.

Agrium sees potash production for 2016 in the band of 2.4−2.6 million tons. This incorporates additional production from the completed expansion at its Vanscoy mine.

The company expects effective tax rate to be 27%–28% for 2016, unchanged from 2015.

Agrium currently carries a Zacks Rank #3 (Hold).

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