AGRIUM INC. $99 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 144.0 million; Market cap: $14.3 billion; Price-to-sales ratio: 0.9; Dividend yield: 3.3%; TSINetwork Rating: Average; www.agrium.com) continues to benefit from its plan to expand its retail operations, which sell seed, fertilizer and other products to farmers. Steady sales from the company’s stores help offset its exposure to volatile fertilizer prices.
Agrium’s 1,400 outlets in North America, South America and Australia now supply 75% of its sales and 40% of its earnings. The remaining 25% of sales and 60% of earnings mainly comes from making fertilizers from natural gas. Agrium also operates potash and phosphate fertilizer mines.
Sales, earnings up sharply
Sales jumped 82.8%, from $9.1 billion in 2009 to $16.7 billion in 2012 (all amounts except share price and market cap in U.S. dollars), thanks to rising fertilizer prices and acquisitions of retail stores, particularly in Australia. However, lower fertilizer prices cut its 2013 sales to $15.7 billion.
Earnings soared from $2.33 a share (or a total of $366.0 million) in 2009 to $9.55 a share (or $1.5 billion) in 2012, but fell to $7.31 a share (or $1.1 billion) in 2013.
In October 2013, the company bought 210 retail stores in Western Canada and Australia from Viterra for $485 million. It is making good progress integrating these operations, which should add $1.7 billion to its annual revenue. In addition, Agrium expects closing overlapping operations to save it $15 million annually by the end of 2015.
New projects have strong potential
Meanwhile, Agrium is expanding its Vanscoy potash mine in Saskatchewan. Due to bad weather and labour shortages, this project will now cost $1.9 billion, or 25% more than the company’s original estimate. However, it should increase Agrium’s potash production by 60% by early 2015.
In addition, Agrium is spending $720 million to upgrade its nitrogen fertilizer plant in Borger, Texas. This project will let the plant make both dry and liquid fertilizers. Agrium expects to complete these upgrades in late 2015.
Agrium’s balance sheet remains strong. As of March 31, 2014, its long-term debt was $3.1 billion, or a moderate 24% of its market cap. It also held cash of $592 million, or $4.11 a share.
Cold snap is a short-term setback
Colder-than-normal weather in North America has prompted farmers to delay planting new crops. That will probably cut Agrium’s 2014 earnings to $6.00 a share. The stock trades at 15.2 times that estimate. However, Agrium’s new projects should help boost its earnings to $9.27 a share in 2015. The stock trades at just 9.8 times that forecast.
Higher earnings will also give Agrium more room to increase its dividend. The current annual rate of $3.00 a share yields 3.3%.
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