(AGU) Agrium Reports Record Second Quarter Earnings

Agrium Inc. (AGU) reported record net earnings of $718 million or $4.54 per share in the second quarter of 2011, surpassing the Zacks Consensus Estimates of $4.21 per share. It also exceeded the prior-year net earnings of $518.0 million or $3.28 per share. Excluding one-time charges, Agrium recorded net earnings of $728 million or $4.60 per share in the second quarter of 2011.

The second-quarter results include a pre-tax share-based payment expense of $10 million or 4 cents diluted earnings per share.

Results benefited from record high crop prices and overall strong fundamentals for agriculture and the crop input market.

Revenues in the quarter rose 39.9% year over year to $6.2 billion. The company’s gross profit increased by $612 million to $1,675 million, primarily due to higher gross profit across all major products.

Segmental Performance

Retail: The segment’s net sale for the quarter was $4.6 billion, up 39% year over year, driven by robust demand for all crop inputs and related services globally, including strong benchmark prices for all major nutrients. Gross profit was $996 million versus $719 million in the prior-year quarter. EBIT also improved to $486 million versus $361 million in the second quarter of 2010.

Crop Nutrient net sales jumped significantly 50% year over year to $2.1 billion driven by a combination of higher nutrient sales prices and volumes.

Crop protection products’ net sales increased 18% to $1.5 billion, primarily due to a combination of the addition of the Australian Landmark business and generally higher sales volumes across major portions of North America.

Net sales for seed and services were $687 million in the second quarter of 2011 compared with $588 million in the same period last year. North American sales accounted for over 75% of the increase.

Merchandise sales were $208 million in the second quarter of 2011 compared with $29 million in the second quarter of 2010.

Application services and other net sales were $180 million, up $87 million versus the prior-year quarter.

Wholesale: The wholesale segment posted strong net sales of $1.7 billion in the quarter, an increase of 54% from the comparable quarter last year. Gross profit was a record $620 million, which is more than double of $274 million reported in the prior- year quarter. EBIT was $569-million, substantially higher than $276 million earned in the second quarter of 2010. The improvement in earnings was due to higher realized crop nutrient prices and margins, as well as excellent product demand, which occurred later in the spring season.

The cost of nitrogen products sold was higher at $274 per ton, similar to $273 per ton in the prior-year quarter. The natural gas price in the second quarter of 2011 was $4.00/MMBtu compared with $3.91/MMBtu in the prior-year quarter.

Potash gross profit was $165 million compared with $109 million in the same quarter last year. The significant increase was due to the continued expansion in margins driven by stronger domestic and international prices on tight global supply/demand conditions. The cost of product sold was $173 per tonne, slightly higher than $161 reported in the same period last year due to increased freight costs and higher labor and maintenance costs.

Realized phosphate price was $795 per ton versus $553 per tonne for the same quarter last year. Phosphate cost of product sold was $475 per ton, down 7.6% year over year.

Advanced Technologies: Advanced Technologies’ gross profit was $37 million, up from $31 million in the second quarter of 2010. This was due to higher prices and sales volumes for Environmentally Smart Nitrogen (“ESN”) and turf and ornamental products.

Acquisition

On May 2, 2011, Agrium acquired 100% of Cerealtoscana S.p.A. (“CT”), and its subsidiary Agroport, for a total consideration of $27 million plus working capital. CT is a fertilizer distribution company in Italy and Agroport is its subsidiary in Romania. The acquired business is included in the Wholesale operating segment.

Discontinued Operations

Discontinued operations include the operation of Commodity Management businesses and AWB Harvest Finance Limited sold on May 11, 2011 along with the operations and assets. However, liabilities of the Commodity Management businesses were not included in the sale. Net loss from discontinued operations was $10 million for the second quarter of 2011 compared with nil in the same period of 2010.

Financial Position

Cash provided by operating activities was $326 million in the second quarter of 2011 versus ($34) million in the prior-year quarter. Capital expenditure was $136 million versus $110 million in the prior-year quarter.

Cash and cash equivalent at the end of June 30, 2011 was $966 million versus $805 million at the end of June 30, 2010. Long-term debt at the end of June 30, 2011 was $2.1 billion versus $1.6 billion at the end of June 30, 2010.

Outlook

With the strength in markets across most products and services, Agrium expects a solid third quarter and believes industry fundamentals will remain strong in 2011.

Agrium faces stiff competition from CF Industries Holdings Inc. (CF) and Potash Corp. of Saskatchewan Inc. (POT).

Currently, Agrium maintains a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months.

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