Agrium reported a 43 per cent rise in quarterly net profit Wednesday, sending its shares up 3.3 per cent in early trading, as higher crop prices led to stronger demand for the seeds, fertilizers and other agricultural products it sells.
Agrium and its competitors have benefited in recent years from strong grain prices and increased food demand from emerging economies. The company quadrupled its semi-annual dividend payout recently following a steady steam of strong results.
That trend continued on Wednesday as the Calgary-based company said its fourth-quarter net income increased to $193 million, or $1.20 a share, from $135 million, or 86 cents a share, a year earlier (all figures US$).
Excluding an impairment charge and other one-time items, Agrium said earnings were $2.34 a share. Analysts on average had forecast $1.99, according to Thomson Reuters I/B/E/S.
The company, a major producer of nitrogen-based fertilizers like ammonia and urea, is also the largest North American retailer of agricultural inputs such as seeds, nutrients and crop protection chemicals.
Agrium’s better than expected performance in the quarter was largely driven by strength in bulk sales of nitrogen-based crop nutrients. This bodes well for rival CF Industries, another large player in this sector. Shares of CF, which is set to report results next week, rose 1.5 per cent in early trading.
Agrium’s quarterly sales rose 32 per cent to $3.18 billion, helped also by the acquisition of the retail operations of Landmark Australia.
Analysts also view Agrium’s 53 per cent jump in seed sales at the retail level as a positive for Monsanto, the world’s largest seed company. Shares of Monsanto rose slightly in early trading on the New York Stock Exchange.
"The underlying fundamentals for the agriculture sector remain strong as crop inventory levels for most crops remain well below normal levels and in some cases are critically low," Agrium CEO Mike Wilson said in a release.
Sales at Agrium’s wholesale fertilizer arm, which produces nitrogen, phosphate and potash-based nutrients, rose 25 per cent, while earnings jumped 64 per cent on the back of higher realized selling prices and improved margins.
While global macroeconomic uncertainty spurred a pullback in grain prices toward the end of the fourth quarter, hurting both fertilizer demand and pricing, Agrium said it remains optimistic entering the big spring planting season in North America.
Corn prices are staying strong and analysts believe that this will lead to greater corn acreage this year. This is good news for Agrium as the crop typically needs large amounts of nitrogen-based fertilizers.
Agrium was cautious on the outlook for potash demand, however, noting that Chinese and Indian inventories of the nutrient were higher than normal for this time of year. The two Asian countries are among the world’s largest importers of the nutrient.
"A number of potash producers have indicated they have lowered their operating rates given the recent slowdown in demand, however a seasonal pickup in demand is expected in the coming months given the continuation of strong crop prices," the company said.
Saskatoon-based PotashCorp, the world’s largest producer of its namesake nutrient, recently shut down potash production temporarily at three of its mines, due to the slump in demand.