OCI to Expand U.S. Operations as Second-Quarter Profit Falls
The company will build a $1.4 billion fertilizer plant in Iowa and is finalizing the acquisition of Des Moines-based builder The Weitz Co., it said in a statement late yesterday. The company reported a 28-percent decline in profit to $119.4 million for the three months that ended in June. Revenue retreated 8.5 percent to $1.35 billion.
The fertilizer plant is OCI’s second in the U.S., following the phased start of production at its $250 million ammonia and methanol plant in Beaumont, Texas, over the last year. The company wants to take advantage of low natural-gas prices and growing U.S. demand for fertilizers, Chief Executive Officer Nassef Sawiris said in a phone interview yesterday from New York.
“Although we view this as a positive indicator for share price momentum in the near term, the actual value accretion for OCI should happen not before 2016,” Allen Sandeep, equity analyst at Beltone Financial, said by phone. The fertilizer plant, which will have an annual capacity of as much as 2 million tons, plans to start production in 2015, Sawiris said. Iowa is the biggest corn-producing state and the largest consumer of nitrogen-based fertilizer, according to OCI.
OCI shares gained 1.7 percent to 289 Egyptian pounds at 1:52 p.m. in Cairo, heading for the highest close since January, 2011. The stock has climbed 44 percent this year, compared with a 53 percent increase for the benchmark EGX 30 Index (EGX30), valuing the company at 60.4 billion pounds ($9.9 billion).
Profit “was impacted by a high effective tax rate due to higher contribution from our European operations,” Sawiris said in the earnings release. OCI continues to incur startup costs on Sorfert Algeria and OCI Beaumont, fertilizer makers that started production within the last year, he said.
Sawiris declined to disclose details about the acquisition of Weitz, which he said will be involved in building the fertilizer plant, because the negotiations haven’t been completed. Weitz had a backlog of $787.7 million as of the end of June, which is expected to increase by about 30 percent when it starts work on the plant.
The planned demerger of the company’s construction and fertilizer units is on track and the approval of Egypt’s General Authority for Investments is “imminent”, he said. The split is expected to be completed in the fourth quarter, according to OCI’s statement.
Sawiris expects 2013 to be a “strong year” for construction investments in Egypt, he said in the interview.
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