agrium shares up on Q2 outlook
High nutrient prices, strong retail drive climb
agrium Inc. shares jumped Monday on news the Calgary-based fertilizer giant raised its second quarter earnings outlook due to high nutrient prices and strong retail performance.
The company’s shares rose to a high of $82 on the Toronto Stock Exchange before settling at $81.34, up $3.33 — or 4.27 per cent — from Friday’s close.
Agrium said in a note released Sunday it expects to earn $4.10-$4.40 US in diluted earnings per share during the second quarter, up from a previous forecast of $3.38-$3.88 per share.
President and CEO Mike Wilson said “record global crop prices” are driving demand for all inputs.
Agrium expects wholesale fertilizer sales volumes will remain consistent with the same levels in the second quarter of 2010, with retail North American sales volumes slightly below last year’s volumes for the same quarter.
At an investor conference Monday in Englewood, Col., Wilson said his company plans to more than double annual earnings before interest, taxes, depreciation, and amortization from 2010 levels of $1.4 billion US to upwards of $3 billion in 2015, supported by a strong commodity sector and Agrium’s unique business model, which allows growth across the value chain — from raw inputs to retail.
“We’re on a clear path of growth,” Wilson said.
Prices of crop nutrient ingredients — nitrogen, phosphates and potash — have been boosted lately by soaring agricultural commodity prices.
“I think the key thing, however, for the second quarter, is nitrogen prices have just been on fire,” said Richard Kelertas, research analyst at Dundee Securities Corp., in an interview.
Kelertas, who has a 2011 price target for Agrium shares of $115 Cdn, said there will be a global need to plant more crops to reign in high food prices.
He noted agricultural stocks-touse ratios that measure of supply and demand are at near historic lows for corn, soybeans, rice and cotton, which means inventory is low globally for most products, except wheat.
Raymond Goldie, research analyst with Salman Partners Inc., rated Agrium a sector “top pick,” with a price target of $124.00, in a Monday note.
Goldie cited the company’s revised higher guidance and that Agrium’s share price dropped 6.7 per cent last week on news the U.S. Senate voted to end $6-billion US in subsidies for ethanol production — making it a good time to buy.
But the White House vowed not to fully repeal ethanol subsidies and either way, Salman Partners doesn’t expect reduced production of corn for ethanol.
The fertilizer most strongly leveraged to corn production is nitrogen, Agrium’s major product for its wholesale business.
Patricia Mohr, Scotiabank vicepresident of industry and commodity research, said agricultural prices should keep rising.
“Unless U.S. and world grain and oilseed crops are very good this fall, prices will likely remain unusually high due to low stocks relative to demand,” Mohr wrote in an e-mail.
“Potash prices in the U.S. and overseas markets continue to move higher, partly because of good demand in Brazil.”
Agrium, with a market capitalization of $12.8 billion Cdn, employs some 10,000 people globally.