* Adjusted profit $1.34 a share vs $1.82 estimate
* Sales down 6 pct, retail business hurt by drought
* Sees 4th-qtr profit below analysts' view
By Rod Nickel
Nov 7 Canadian fertilizer company Agrium Inc
's shares slumped 7 percent after it reported a
56 percent drop in third-quarter profit Wednesday on lower
potash sales and offered a weaker-than-expected outlook for the
Downtime at Agrium's Saskatchewan potash mine and drawn-out
contract talks with China and India hurt third-quarter
performance, CEO Mike Wilson said.
Agrium's Toronto-listed shares dropped 7.2 percent to around
$98.78 in early trading. The stock was up 55 percent this year
through Tuesday, helped by spiking grain prices due to the U.S.
"We believe negative initial market reaction could prove
pessimistic," said analyst Edlain Rodriguez of Lazard Capital
Markets, in a note to clients.
Fertilizer fundamentals remain strong, especially with U.S.
farmers likely to plant a near-record-large acreage of corn, a
heavy user of crop nutrients, in the spring, he said.
Rival Potash Corp of Saskatchewan last
month reported third-quarter earnings down 22 percent due to a
standoff on new contracts with China and India. Agrium, Potash
and Mosaic Co sell potash from Western Canada to
offshore markets through marketing agency Canpotex.
New contracts with China and India, the world's top two
potash consumers, were anticipated by late summer but are now
expected by late this year for China and possibly early 2013 for
Both are believed to be seeking discounts from Canpotex,
with China currently amply supplied and potash too expensive for
some Indian farmers after a cut in government subsidies.
Agrium sells nearly half its potash in North America.
The company's Vanscoy, Saskatchewan mine was shut down due
to expansion-related work for at least eight weeks in the
quarter, dropping potash sales by more than half to 160,000
tonnes, including some supplies the company had to buy from
other producers to meet sales commitments.
Potash helps plants develop strong roots and retain water,
boosting yields and helping them resist disease, drought and
insects. Unlike nitrogen, however, farmers don't usually apply
it every year.
Agrium's net earnings for the third quarter ended Sept. 30,
fell to $129 million, or 80 cents per share, from $293 million,
or $1.85 per share, a year ago.
Excluding one-time items, earnings were $1.34 per share.
Analysts were expecting, on average, $1.82, according to Thomson
Agrium posted weaker earnings despite strong performance in
its sales of nitrogen, which has returned big profit margins due
to low costs of natural gas, a key ingredient.
Sales at Agrium's retail business of selling seed, chemicals
and fertilizer to farmers - the largest in the United States -
dropped 10 percent as the US faced its worst drought in over
half a century.
"The negative impact of the U.S. drought on the company's
retail segment was much stronger than we expected, and appears
to have caught most sell-side analysts by surprise," said Robert
Winslow, analyst at National Bank Financial. "This may not be
well viewed by investors since retail results are supposed to
help moderate overall earnings volatility."
Agrium is attempting to fend off a push by its largest
shareholder, Jana Partners, to spin off its retail division,
which Jana says would provide a bigger return to investors than
Agrium's integrated strategy.
On Monday, rival nitrogen producer CF Industries Holdings
Inc posted a better-than-expected quarterly profit as
low-cost natural gas offset a drop in sales from the dry North
Total sales for Agrium fell 6 percent to $2.96 billion,
below analysts' average forecast of $3.13 billion.
The Calgary, Alberta-based company forecast fourth-quarter
earnings of $1.50 to $1.90 per share, below analysts'
expectations of $2.10.
Agrium said it expects to use 10 percent less of its potash
mine's capacity in the fourth quarter year over year, due to
weak international demand.