Agrium Drops After Cutting Full-Year Profit Outlook

  • Co. lowers full-year earnings forecast second time this year
  • Crop-nutrient prices have fallen amid agriculture rout

Agrium Inc., the largest agricultural retailer to U.S. farmers, fell after the company cut its full-year profit forecast for a second time this year amid an agriculture slump that has dragged down prices for crop nutrients.

Earnings in 2016 will be $5 to $5.30 a share, the Calgary-based company said Wednesday in a statement. That compared with a May forecast of $5.25 to $6.25 a share. The stock fell 0.9 percent to close at C$116.52 in Toronto, after slumping as much as 2.7 percent, the biggest intraday loss since June 27.

Over the past year, prices have fallen for the potash, phosphate and nitrogen fertilizer Agrium produces as cheaper commodities have reduced the appetite for agricultural chemicals. Three straight annual declines for corn, soybean and wheat futures have cut farmer spending. The company also lowered its full-year guidance when it reported first-quarter profit in May.

Depressed crop and fertilizer prices are “going to be a weight that sticks with them for a while here,” Steve Hansen, a Vancouver-based analyst with Raymond James, said in a telephone interview.

Acquisition Opportunities

Still, the company posted better-than-expected earnings in the second quarter amid strong margins and lower costs. Profit excluding one-time items was $4.18 a share, beating the $4.12 average of 20 analysts’ estimates compiled by Bloomberg.

Even as fertilizer prices have been under pressure, there are signs a rebound could be coming amid expectations for high U.S. crop yields, Chief Executive Officer Chuck Magro said Thursday on an earnings call. Higher yields strip significant nutrients from the soil.

“This will mean significant nutrient depletion will drive solid nutrient demand through the fall season,” Magro said.

Agrium likes North American retail assets and would like to add other wholesale assets into its integrated network, Magro said on the call. The company sees a lot of acquisition opportunity and the average size of deals are rising, executives said on the same call.

Wet conditions in most North American growing regions have created an ideal environment for disease development and delayed herbicide applications, the company said in the statement. There will probably be strong fungicide and herbicide demand this summer as growers try to protect strong yield potential, Agrium said.

“Agrium’s retail business continues to hold up well despite pressure on fertilizer prices,” Jeffrey Stafford, an analyst at Morningstar Investment Service in Chicago, said in an e-mail. “We think worries expressed by some investors that retail profits would collapse amid a weaker portion of the ag cycle are largely unfounded.”

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