Agrium Reports Third Quarter Results
CALGARY, AB--(Marketwired - November 07, 2017) -
ALL AMOUNTS ARE STATED IN U.S.$
Agrium Inc. (TSX: AGU) (NYSE: AGU) announced today its 2017 third quarter results, with a net loss from continuing operations of $69-million ($0.52 diluted loss per share) compared to a net loss from continuing operations of $38-million ($0.28 diluted loss per share) in the third quarter of 2016. The third quarter results were driven by lower overall sales volumes and higher cost of product sold related to several scheduled maintenance turnarounds and higher share-based payments due to a year-to-date total shareholder return of 10 percent at September 30th.
- 2017 third quarter loss from continuing operations, adjusted for items not included in guidance, was $27-million or $0.23 diluted loss per share (see page 2 for adjusted net earnings (loss) and guidance relevant earnings (loss) reconciliations).
- Wholesale conducted a number of scheduled maintenance turnarounds this quarter, some of which took longer than expected, but operating rates are now back at normal levels.
- The Retail business unit reported a 9 percent increase in EBITDA1 this quarter, despite the impact of severe dry weather in Australia and Canada. U.S. Retail earnings were up 22 percent as contributions from acquisitions and stronger proprietary sales more than offset the impact of severe hurricanes in the southern U.S.
- Retail made additional acquisitions in the third quarter with Southern States Cooperative in Georgia and Florida (20 locations). Year-to-date, Retail has purchased 38 locations with estimated annual revenues of approximately $250-million.
- Agrium has updated our 2017 annual guidance to a range of $4.65 to $4.80 diluted earnings per share from continuing operations, primarily reflecting lower volumes resulting from facility downtime (see page 4 for guidance assumptions and further details).
- Agrium recently completed the sale of our Conda phosphate and North Bend nitric acid facilities and the merger recently received regulatory approval in China. The sale of the Agrium assets are being reviewed by the U.S. Federal Trade Commission and is the only remaining approval required on the merger. The parties still expect the close of the merger by the end of the fourth quarter of 2017.
- A loss of $182-million, net of tax was recorded in discontinued operations associated with the sale of Conda.
"Our results this quarter were impacted by a particularly intense summer maintenance schedule, extreme dry weather in Canada and Australia and the two hurricanes in the southern U.S. Looking at the fall season and into 2018, we see solid grower demand for fertilizer and other crop inputs, and expect fertilizer markets to demonstrate continued strength," commented Chuck Magro, Agrium's President and CEO. "The sale of Conda and North Bend and China's recent regulatory approval are significant steps toward completing the merger with PotashCorp by year end and we are excited to move forward as Nutrien in 2018," added Mr. Magro.
1 Net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations.
|ADJUSTED NET EARNINGS (LOSS) AND GUIDANCE RELEVANT EARNINGS (LOSS) RECONCILIATIONS|
Three months ended
September 30, 2017
Nine months ended
September 30, 2017
|(millions of U.S. dollars, except per share amounts)||Expense||
Net earnings (loss)
|Per share (a)||Expense||
Net earnings (loss)
|Per share (a)|
|Foreign exchange loss (gain) net of non-qualifying derivatives||7||5||0.03||11||8||0.06|
|Merger and related costs||11||8||0.05||42||30||0.22|
|Impact of Egyptian pound devaluation on investee earnings||-||-||-||(16)||(11)||(0.08)|
|Adjusted net earnings (loss) (b)||(27)||(0.23)||531||3.81|
|Gain on sale of assets||-||-||-||(7)||(5)||(0.04)|
|Guidance relevant earnings (loss) (b)||(27)||(0.23)||526||3.77|
|(a) Diluted per share information attributable to equity holders of Agrium.|
|(b) Forecasted annual tax rate of 28.5 percent was used for the adjusted net earnings (loss), guidance relevant earnings (loss) and per share calculations. These are non-IFRS measures which represent net earnings (loss) adjusted for certain income (expenses) that are considered to be non-operational in nature. We believe these measures provide meaningful comparison to our guidance by eliminating share-based payments expense (recovery), gains (losses) on foreign exchange and related gains (losses) on non-qualifying derivative hedges and significant non-operating, non-recurring items. Our guidance is forward-looking information. We present guidance relevant earnings (loss) per share to provide an update to this previously disclosed forward-looking information. These should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS and may not be directly comparable to similar measures presented by other companies.|
Agriculture and Crop Input Fundamentals
- Mild temperatures and timely precipitation in key areas of the U.S. Corn Belt stabilized and improved U.S. corn and soybean crops, leading to increased yield forecasts and a seasonal decline in prices. The United States Department of Agriculture ("USDA") projects that national average U.S. corn yields will be just under 172 bushels per acre, which would be down from the record yields in 2016, but the second highest in history. Grower economics are similar to last year.
- We expect a normal fall application season in North America, even though corn harvest is behind average levels for this time of year. There has been relatively widespread rain across dry areas of the U.S. Corn Belt over the past month, which is expected to support an average to above-average fall application season.
- A key region to monitor in the months to come is the dryness in parts of Brazil which is delaying soybean planting. Drought has also been a problem in Australia, where the USDA projects wheat production will decline by 36 percent in 2017/18.
- Nitrogen prices have rallied in recent months, with benchmark urea prices increasing by more than 50 percent since July. This has been due largely to weak Chinese urea exports, which in combination with robust Indian import demand has significantly tightened the global supply and demand balance. Chinese urea exports were down 53 percent or close to four million tonnes year-over-year through the end of September. Chinese production rates remain at low levels, despite higher global urea prices, partly due to the substantial increase in coal prices.
- Indian urea imports have been strong and the prospects for the remainder of 2017 are positive as there has been a significant drawdown in Indian urea inventories in 2017. Looking ahead to 2018, there are some risks to Indian demand, including the Direct Benefit Transfer program, which will provide the urea subsidy to the grower at the point of sale as opposed to being provided to the upstream distributor. In addition, the Indian government has indicated that the allowable urea bag size will be reduced from 50 kilograms to 45 kilograms, which may negatively impact urea application rates.
- The U.S. urea trade balance turned positive from June to August 2017, as offshore urea exports exceeded offshore imports by 5 percent during the slower seasonal demand period. However, a seasonal urea deficit in the U.S. is expected in late 2017 and/or early 2018 which should lend support to prices. Taking into account all these factors we expect the nitrogen market to remain relatively tight through into the spring of 2018.
- Global potash shipments have shown continued strength, which has led most global benchmarks to increase. Trade into key markets has remained at high levels as imports on a year-to-date basis are up 12 percent in Brazil, 36 percent in India and 28 percent in China over the same period last year.
- Producers have increased production but have remained comfortably sold forward, which we expect to lead to relatively low producer potash inventories at the end of 2017. We expect there to be limited supplies available from new capacity for the remainder of 2017 and into the first half of 2018 and anticipate an annual average growth in potash demand of approximately 3 percent in 2018.
- U.S. offshore imports of potash are also on a record pace, which is indicative of the strong demand in the market. While fall applications are always dependent on weather conditions and harvest pace, current prices are still affordable and are expected to support strong demand.
- Phosphate export prices have strengthened due to tightened export availability from China and the impacts of Hurricane Irma on Florida production and inventories.
- Finished phosphate import demand has been mixed as demand continues to be strong in Pakistan and is up year-over-year in Brazil, but Indian imports have continued to be lower than expected, which is expected to tighten domestic inventories and support imports in 2018 assuming import economics improve.
- Key raw material costs have increased significantly in recent months as ammonia prices have increased between 40 and more than 70 percent, while sulfur prices have increased between 40 and more than 120 percent.
2017 ANNUAL GUIDANCE
Based on our assumptions set out under the heading "Market Outlook", Agrium expects to achieve annual diluted earnings per share from continuing operations of $4.65 to $4.80 in 2017 compared to our previous estimate of $4.75 to $5.25 per share. We have reduced our annual guidance range to reflect the lost production volumes in the third quarter and the impact of challenging weather conditions on our Retail operations, particularly those areas impacted by hurricanes. We have also narrowed the range width encompassing approximately $30-million of EBITDA variability.
We have updated our Retail EBITDA range between $1.160-billion to $1.190-billion compared to our previous guidance of $1.150-billion to $1.20-billion, while our estimate for Retail crop nutrient sales volumes has been reduced to between 9.9 million and 10.2 million tonnes in 2017.
Based on our expected utilization rate for our nitrogen assets, we are updating our nitrogen production range to between 3.3 and 3.4 million tonnes. Our earnings per share guidance assumes NYMEX gas prices will average between $2.95 and $3.15 per MMBtu for 2017.
We have also revised our expected potash production range for 2017 to between 2.4 and 2.5 million tonnes.
Total capital expenditures in 2017 are expected to be in the range of $650-million to $700-million, of which approximately $425-million to $475-million is expected to be sustaining capital expenditures.
Agrium's annual effective tax rate for 2017 on continuing operations is expected to range between 27 and 29 percent.
This guidance and updated additional measures and related assumptions are summarized in the table below. Guidance excludes the impact of share-based payments expense (recovery), gains (losses) on foreign exchange and non-qualifying derivative hedges, and merger related costs. Except as described under the heading "Market Outlook", volumetric and earnings estimates assume normal seasonal growing and harvest patterns in the geographies where Agrium operates.
|2017 ANNUAL GUIDANCE RANGE AND ASSUMPTIONS|
|Diluted EPS from continuing operations (in U.S. dollars)||$4.65||$4.80|
|EBITDA (millions of U.S. dollars)||$1,160||$1,190|
|Crop nutrient sales tonnes (millions)||9.9||10.2|
|Sustaining capital expenditures (millions of U.S. dollars)||$425||$475|
|Total capital expenditures (millions of U.S. dollars)||$650||$700|
November 7, 2017