Agrium's stock has been getting beaten up recently in the commodities sell-off but its earnings have been shining. Agrium has surprised on estimates 3 out of the last 4 quarters by an average of 57.04% as fertilizer prices have soared.
Fertilizer prices continue to remain high making Agrium, with a forward P/E of only 5.82, an attractive value stock.
Company Description
Agrium Inc. (NYSE: AGU - News) produces and sells agriculture products in North and South America.
Headquartered in Calgary, Alberta, the company is the largest direct-to-grower agricultural retailer in the United States. AGU also supplies materials to the industrial sector which produces goods such as mining explosives, household products, pulp and paper and fiberboard.
Agrium has three segments. The Wholesale segment produces and distributes fertilizers, including nitrogen, phosphate and potash, as well as micronutrients from 12 production facilities in North America and Argentina.
The company produces ten million tonnes of fertilizer products annually, including about 6.1 million tonnes of nitrogen, 2.1 million tonnes of potash and 1.3 million tonnes of phosphate.
Approximately 15% of Agrium's Wholesale sales are to the industrial market, which uses the same ingredients as farmers in many of its products.
The Retail segment sells seed, fertilizers and crop protection chemicals and services from 500 retail centers in the United States, Argentina and Chile.
The Advanced Technologies segment produces controlled-release nutrients, micronutrients and plant protection products to agriculture, professional turf and ornamental markets in North America.
Impact of Potash of Saskatchewan's Strike
500 miners are currently striking at 3 of Potash of Saskatchewan's (NYSE: POT - News) mines in Canada. The strike began on Aug 7 and, from press reports, looks no closer to being settled as there are no contract talks planned. The 3 mines produce 30% of Potash's potash production.
Why should Agrium investors care about a competitor's strike? Because the tight market is about to get even tighter.
About 5% of Potash's customers are industrial, as compared with 15% of Agrium's. Already, Potash has put its industrial customers on allocation due to supply shortages. If the strike continues, farming customers may also soon see allocation.
Prices of phosphates and potash for industrial usage has soared. It's unclear to what extent Agrium is benefiting from the supply shortage- in terms of being able to raise its own prices on these products.
The longer this strike continues, the more price pressure there will be on potash. Stay tuned to see if Agrium can use this to its advantage in the third and fourth quarter.
Agrium Easily Beats Wall Street Estimates for the Second Quarter
Soaring fertilizer prices have boosted Agrium's earnings throughout 2008. The second quarter was no exception.
On Aug 6, Agrium reported second quarter earnings that surprised on estimates by 28.21%. Net income more than doubled to $636 million, or $4.00 per share, from $229 million, or $1.70 per share a year ago. Analysts expected $3.12, despite increasing estimates throughout the quarter.
Sales rose sharply in each of the company's segments. Retail saw sales of $2.506 billion compared to $1.147 billion a year ago. Wholesale's sales grew 57% to $1.397 billion compared to $890 million in the second quarter of 2007. Advanced Technologies', the smallest segment, saw sales rise to $107 from $81 million in the year ago period.
Agrium is Bullish About the Rest of the Year
Given the strong quarterly earnings for the first two quarters, the company is optimistic going into the second half of the year.
'We anticipate continued strong demand for our products and services that help farmers around the world improve both crop quality and yield,' said Mike Wilson, President and CEO.
'Specifically, the outlook for the second half of the year remains solid with corn, wheat and soybean prices at two to three times historic levels. This should support crop input demand and continued strength in the nutrient markets benefiting our Retail, Wholesale and Advanced Technologies businesses,' he said.
The company will provide full year earnings guidance when it releases its third quarter earnings on Nov 6.
Consensus Estimates Continue to Rise
Despite the commodities sell-off and the stock's decline, covering analysts continue to be bullish about Agrium's third quarter and full year earnings. Consensus estimates for the third quarter are up 7 cents in just the last week to $1.65 from $1.58. Estimates were at $1.31 only 90 days ago.
Full year estimates also continue to move higher, up 11 cents to $9.34 from $9.23 in the last month.
Value Fundamentals
Agrium was an attractive value stock even before the recent stock sell-off. Now, the company is trading with a forward P/E of only 5.82. Its price-to-book is 2.71. The company has an outstanding 5 year average return on equity (ROE) of 24.33%.
AGU also pays a small dividend. Its current yield is 0.10%.
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