Agrium Inc. AGU posted net earnings of $675 million or $4.71 per share in the second quarter of 2015, up 8% from $625 million or $4.34 per share recorded a year ago. The bottom line was supported by higher volumes at the company’s Wholesale unit and lower production costs for most of its products.

Barring one-time items other than stock-based expenses of $4 million or 3 cents per share, Agrium’s adjusted earnings came in at $4.87 per share, falling short of the Zacks Consensus Estimate by a penny.

Revenues dropped 4.7% year over year to $6,992 million in the reported quarter. The fall was due to a sales decline in both the Retail and Wholesale businesses of the company. Sales also missed the Zacks Consensus Estimate of $7,250 million.

Agrium’s shares rose 1.3% in the trading session following the announcement, before closing lower at $99.83 on Aug 6.

Segment Highlights

Revenues from the Retail segment dropped 3.7% year over year to $6.16 billion. Gross profit fell 6.3% year over year to $1,264 million. The Retail segment’s EBITDA was $713 million, down 9.9% year over year. Results were hurt by reduced crop prices and lower corn plantations in the U.S. North American operations were affected by drought in Western Canada and California, and excess moisture across the U.S. Corn Belt and the southern and northeastern states during June.

Within the Retail business, crop nutrient sales declined nearly 4% year over year to $2.6 billion, primarily due to lower nutrient selling prices. The segment also witnessed a 1% decrease in sales volumes of nutrients. Crop protection sales went down 1.4% to $2,169 million due to dry conditions in Australia and South America, and foreign currency translations.

Sales from the Wholesale segment came in at $1,174 million, down roughly 3% year over year, impacted by lower prices for nitrogen products and the company’s decision to scale back the majority of its product purchased for resale business. Gross profit surged around 80.2% year over year to $409 million in the quarter. Adjusted EBITDA soared roughly 67% year over year to $438 million in the quarter, driven by strong nitrogen results from higher production volumes and reduced cost of products sold.

Within the Wholesale business, nitrogen gross profit surged 167% year over year to $270 million, attributable to higher sales volumes and lower cost of product sold. Sales volumes increased roughly 35% year over year to 1,223,000 tons due to stronger operating rates and a drop in inventories. Potash sales volumes slumped around 10% year over year to 509,000 tons in the reported quarter due to significantly low opening inventory. Phosphate sales volumes also fell 8% to 290,000 tons.

Financials and Shareholder Returns

Agrium ended the quarter with cash and cash equivalents of $647 million, down roughly 14.8% year over year. Long-term debt increased roughly 48% year over year to $4,533 million. Cash flows from operations went up around two-and-half-fold year over year to a record $91 million in the quarter.

Agrium’s board approved a dividend of 87.5 cents per share, to be paid on Oct 15, to shareholders on record as of Sep 30, 2015.

Outlook

Agrium, which is among the prominent fertilizer companies, along with Mosaic MOS, Potash Corp. POT and CF Industries CF, revised its annual guidance for 2015. The company lowered its earnings per share guidance for 2015 to a range of $7.00–$7.50 from $7.00–$8.25 expected earlier. The revision was done to reflect the impact of low crop prices on growers’ decision and anticipated lower potash and phosphate pricing in the second half of 2015.

However, the company expects a normal fall season owing to the risk to fall nutrient applications in areas affected by drought or a delay in North American harvest. This led management to alter its expected Retail EBITDA to a range of $1–$1.05 billion from its earlier forecast of $1.15–$1.22 billion. This includes the challenges that may be faced by the company’s Canadian retail operations owing to drought and lower crop prices. However, the company anticipates earnings from its U.S. Retail operations to be in line with 2014 levels.

Agrium, however, reaffirmed its projections for annual nitrogen and potash production. Additionally, higher sales in the second quarter led to low beginning inventories at the start of the third quarter and may consequently impact sales volumes in the quarter.

Agrium also revised its finance costs to a range of $240–$255 million for 2015, incorporating higher costs of financing for its customer pre-payment programs.

Zacks Rank

Agrium currently carries a Zacks Rank #3 (Hold).

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