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Agrium Jumps on Higher View

Zacks Equity Research

Shares of leading fertilizer company Agrium Inc. (AGU) shot up as it raised its earnings forecast for fourth-quarter 2012, citing a strong fall application season in North America and continued strength in grain and oilseed pricing. An extended fall season in the U.S. boosted the demand for its nutrients in the quarter.

The Canada-based company said that it now expects earnings (excluding one-time items) for the fourth quarter to be a tad higher than $2.00 per share. Earlier, it expected earnings of $1.50 to $1.90 per share. The current Zacks Consensus Estimate for the quarter is $1.69 per share.

The company envisions its Retail business unit to bring in more than $120 million of EBITDA (earnings before interest, taxes, depreciation, and amortization) in the fourth quarter. Its Wholesale segment is expected to generate EBITDA in excess of $500 million.  

Agrium’s shares rose as high as $4.20 (or roughly 3.8%) following the announcement yesterday.

The company expects high crop prices and tight grain inventories to continue to create higher demand for its nutrients. It envisions strong demand for top quality seeds in the 2013 growing season.

Agrium stands to gain from rising crop prices and overall strong fundamentals for the agriculture and crop input market. The company follows a strategy to grow along the value chain through a combination of acquisitions and organic development.

The acquisition of AWB has expanded Agrium’s Retail division and provided access to the growing Southeast Asia market. Moreover, the acquisition of Viterra’s agri-products business is expected to support its earnings in 2013.

However, weak overseas potash demand stemming from the uncertainty associated with new supply contracts with China and India is impacting pricing for the nutrient and may affect overseas shipment volumes in the fourth quarter.

Agrium, which is among the prominent fertilizer companies along with CF Industries (CF), Mosaic (MOS) and Potash Corp. (POT), will report its fourth quarter and full-year 2012 results on Feb 22.  

Agrium currently retains a short-term (1 to 3 months) Zacks Rank #3 (Hold).

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