AGRIUM INC. (Toronto symbol AGU; 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 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 were $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.
Commodity stocks: Colder weather, delay in planting crops cuts into Agrium’s earnings
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.
As of March 31, 2014, Agrium’s long-term debt was $3.1 billion, or 24% of its market cap. It also held cash of $592 million, or $4.11 a share.
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 current annual dividend of $3.00 a share yields 3.3%.
In the latest edition of The Successful Investor, we consider Agrium’s prospects in light of its expanded retail operations. We also look at its earnings outlook through 2015 and whether it is likely to raise its dividend. We conclude with our clear buy-sell-hold advice on the stock.
(Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation in the latest issue. Be sure to log in first.)
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Many see the need to grow larger and better crops for an expanding global population as an opportunity for investors. Which agricultural stocks do you think are the best buys—fertilizer companies, seed and grain handling companies, food processing firms or farm equipment companies? Have you had big success with any agricultural stocks?
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AGRIUM INC. (Toronto symbol AGU; 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.
