Agrium drops to $60M loss in Q1

Agrium’s run of record quarterly profits has dropped into the red as it posted a net loss for its first fiscal quarter of 2009.

The Calgary-based fertilizer and farm retail giant on Wednesday posted a net loss of $60 million on net sales of $1.75 billion (all figures US$), down from its 2008 Q1 profit of $195 million on $1.11 billion in sales.

“The first quarter is traditionally our weakest quarter, as we build inventories in preparation for the spring season,” CEO Mike Wilson said in the company’s release. “This year’s results were also impacted by the drop in potash demand, a short-term squeeze on retail nutrient margins and the late spring.”

Among the line items dragging on its Q1 bottom line, Agrium cited non-qualifying natural gas and power hedge losses of $69 million; a $10 million expense in “stock-based compensation;” and an inventory writedown of $18 million tied to its wholesale-purchase-for resale-business.

Barring those costs, Agrium said, its net profit for the quarter would have been about $7 million.

As well, “the decrease in potash volumes versus 2008 and the costs associated with production curtailments resulted in reduction in gross profit of approximately $180 million,” Wilson said.

That said, he added, “spring applications have now commenced in all of our North American markets and the outlook for our business is strong…We anticipate demand for potash to recover in the second half of 2009.”

Agrium’s retail crop nutrient margins also took a hit in Q1 from the “significant decline” in nitrogen and phosphate prices in the fourth quarter of 2008.

But “despite these conditions, we expect to largely sell out of our current crop nutrient inventory positions by the end of the spring season and do not anticipate any inventory write-down in our retail business,” the company said.

“The strength of our crop protection and seed sales will continue to be evident this year, and despite lower than average crop nutrient margins in the first half of 2009 we expect (earnings before interest, taxes, depreciation and amortization, or EBITDA) from our retail business to be close to ($500 million) in 2009.”

Results from the company’s retail operations can’t be directly compared, as its Q1 in 2008 didn’t yet include ag retail firm UAP, which Agrium bought in May last year.

Net Q1 sales in Agrium’s wholesale business dropped to $695 million from $708 million due to lower sales volumes and prices for nitrogen and phosphate and “substantially lower” potash sales volumes, offset by higher potash selling prices and increased product purchased for resale sales volumes.

“The decrease in sales volumes in the first quarter of 2009 was a result of a cautious approach to replenishing stocks by retailers and distributors, lower grower demand for potash and phosphate, and weather delays impacting the start of the spring season in some markets.”

Looking ahead, Agrium reiterated that it’s still “fully committed” to its unsolicited takeover bid for U.S. fertilizer firm CF Industries “and will continue to seek discussions with CF for a mutually beneficial transaction that delivers additional value for our respective shareholders.

“We have repeatedly advised CF and its shareholders that we would be prepared to increase our offer further if CF can demonstrate additional value,” Wilson said.

Agrium’s current offer is US$35 in cash plus one Agrium common share for each outstanding share in Chicago-based CF, for a total value of about US$3.8 billion.

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