On Oct 8, Zacks Investment Research downgraded fertilizer company Agrium Inc. (AGU) to a Zacks Rank #5 (Strong Sell).
Agrium, which is a prominent Canadian fertilizer company along with Potash Corp. (POT), suffered a double-digit drop in its second-quarter 2013 profit (reported on Aug 7), hurt by cold weather in North America and pricing pressure. However, both revenues and adjusted earnings beat the Zacks Consensus Estimate. The company witnessed higher retail sales in the quarter, but weak global demand and pricing continued to hurt its phosphate business.
The company delivered negative earnings surprises in two of the last four quarters with an average negative surprise of 10.27% for the trailing quarters.
Sales from the company’s wholesale segment also fell 9% to $1.5 billion. The segment’s EBITDA of $517 million represented a decline of $160 million from the year-ago quarter. The results were affected by lower realized sales prices for urea, potash and phosphate as a result of global market pressures accompanied by an unplanned outage at the company’s Redwater nitrogen facility.
While Agrium may benefit from high crop prices and overall strong fundamentals for the crop input market, demand for potash and phosphate is expected to be weak in India, a key market. Changes in pricing and subsidy policies by the Indian government are expected to continue to affect demand in the country.
Moreover, the pricing environment for phosphate is expected to remain soft in the near future. The global phosphate market is expected to remain weak, partly due to lower demand from India (a major phosphate import market). Phosphate import is expected to decline in India in 2013 and the next year due to the change in subsidy and currency devaluation.
The Zacks Consensus Estimate for 2013 for Agrium has gone down roughly 9.2% to $8.51 per share since the second-quarter earnings release. The Zacks Consensus Estimate for 2014 has also declined 12.7% to $8.46 per share.
Other Stocks to Consider
Other companies in the basic materials sector with favorable Zacks ranks are China BlueChip ADR (CBLUY) and Ferro Corp. (FOE). Both carry a Zacks Rank #1 (Strong Buy).