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Agrium Reports Third Quarter Results

CALGARY, AB--(Marketwired - November 07, 2017) -

ALL AMOUNTS ARE STATED IN U.S.$

Agrium Inc. (AGU) (AGU) announced today its 2017 third quarter results, with a net loss from continuing operations of $69-million ($0.52 diluted loss per share) compared to a net loss from continuing operations of $38-million ($0.28 diluted loss per share) in the third quarter of 2016. The third quarter results were driven by lower overall sales volumes and higher cost of product sold related to several scheduled maintenance turnarounds and higher share-based payments due to a year-to-date total shareholder return of 10 percent at September 30th.

Highlights:

  • 2017 third quarter loss from continuing operations, adjusted for items not included in guidance, was $27-million or $0.23 diluted loss per share (see page 2 for adjusted net earnings (loss) and guidance relevant earnings (loss) reconciliations).
  • Wholesale conducted a number of scheduled maintenance turnarounds this quarter, some of which took longer than expected, but operating rates are now back at normal levels.
  • The Retail business unit reported a 9 percent increase in EBITDA1 this quarter, despite the impact of severe dry weather in Australia and Canada. U.S. Retail earnings were up 22 percent as contributions from acquisitions and stronger proprietary sales more than offset the impact of severe hurricanes in the southern U.S.
  • Retail made additional acquisitions in the third quarter with Southern States Cooperative in Georgia and Florida (20 locations). Year-to-date, Retail has purchased 38 locations with estimated annual revenues of approximately $250-million.
  • Agrium has updated our 2017 annual guidance to a range of $4.65 to $4.80 diluted earnings per share from continuing operations, primarily reflecting lower volumes resulting from facility downtime (see page 4 for guidance assumptions and further details).
  • Agrium recently completed the sale of our Conda phosphate and North Bend nitric acid facilities and the merger recently received regulatory approval in China. The sale of the Agrium assets are being reviewed by the U.S. Federal Trade Commission and is the only remaining approval required on the merger. The parties still expect the close of the merger by the end of the fourth quarter of 2017.
  • A loss of $182-million, net of tax was recorded in discontinued operations associated with the sale of Conda.

"Our results this quarter were impacted by a particularly intense summer maintenance schedule, extreme dry weather in Canada and Australia and the two hurricanes in the southern U.S. Looking at the fall season and into 2018, we see solid grower demand for fertilizer and other crop inputs, and expect fertilizer markets to demonstrate continued strength," commented Chuck Magro, Agrium's President and CEO. "The sale of Conda and North Bend and China's recent regulatory approval are significant steps toward completing the merger with PotashCorp by year end and we are excited to move forward as Nutrien in 2018," added Mr. Magro.

1 Net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations.

 
ADJUSTED NET EARNINGS (LOSS) AND GUIDANCE RELEVANT EARNINGS (LOSS) RECONCILIATIONS
  Three months ended
September 30, 2017
  Nine months ended
September 30, 2017
 
(millions of U.S. dollars, except per share amounts) Expense   Net earnings (loss)
from continuing
operations
impact
(post-tax)
  Per share (a)   Expense   Net earnings (loss)
from continuing
operations
impact
(post-tax)
  Per share (a)
        (69)   (0.52)       475   3.40
Adjustments:                        
  Share-based payments   40   29   0.21   40   29   0.21
  Foreign exchange loss (gain) net of non-qualifying derivatives   7   5   0.03   11   8   0.06
  Merger and related costs   11   8   0.05   42   30   0.22
  Impact of Egyptian pound devaluation on investee earnings   -   -   -   (16)   (11)   (0.08)
Adjusted net earnings (loss) (b)       (27)   (0.23)       531   3.81
  Gain on sale of assets   -   -   -   (7)   (5)   (0.04)
Guidance relevant earnings (loss) (b)       (27)   (0.23)       526   3.77
(a)  Diluted per share information attributable to equity holders of Agrium.
(b)  Forecasted annual tax rate of 28.5 percent was used for the adjusted net earnings (loss), guidance relevant earnings (loss) and per share calculations. These are non-IFRS measures which represent net earnings (loss) adjusted for certain income (expenses) that are considered to be non-operational in nature. We believe these measures provide meaningful comparison to our guidance by eliminating share-based payments expense (recovery), gains (losses) on foreign exchange and related gains (losses) on non-qualifying derivative hedges and significant non-operating, non-recurring items. Our guidance is forward-looking information. We present guidance relevant earnings (loss) per share to provide an update to this previously disclosed forward-looking information. These should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS and may not be directly comparable to similar measures presented by other companies.
 

MARKET OUTLOOK

Agriculture and Crop Input Fundamentals

  • Mild temperatures and timely precipitation in key areas of the U.S. Corn Belt stabilized and improved U.S. corn and soybean crops, leading to increased yield forecasts and a seasonal decline in prices. The United States Department of Agriculture ("USDA") projects that national average U.S. corn yields will be just under 172 bushels per acre, which would be down from the record yields in 2016, but the second highest in history. Grower economics are similar to last year.
  • We expect a normal fall application season in North America, even though corn harvest is behind average levels for this time of year. There has been relatively widespread rain across dry areas of the U.S. Corn Belt over the past month, which is expected to support an average to above-average fall application season.
  • A key region to monitor in the months to come is the dryness in parts of Brazil which is delaying soybean planting. Drought has also been a problem in Australia, where the USDA projects wheat production will decline by 36 percent in 2017/18.

Nitrogen Outlook

  • Nitrogen prices have rallied in recent months, with benchmark urea prices increasing by more than 50 percent since July. This has been due largely to weak Chinese urea exports, which in combination with robust Indian import demand has significantly tightened the global supply and demand balance. Chinese urea exports were down 53 percent or close to four million tonnes year-over-year through the end of September. Chinese production rates remain at low levels, despite higher global urea prices, partly due to the substantial increase in coal prices.
  • Indian urea imports have been strong and the prospects for the remainder of 2017 are positive as there has been a significant drawdown in Indian urea inventories in 2017. Looking ahead to 2018, there are some risks to Indian demand, including the Direct Benefit Transfer program, which will provide the urea subsidy to the grower at the point of sale as opposed to being provided to the upstream distributor. In addition, the Indian government has indicated that the allowable urea bag size will be reduced from 50 kilograms to 45 kilograms, which may negatively impact urea application rates.
  • The U.S. urea trade balance turned positive from June to August 2017, as offshore urea exports exceeded offshore imports by 5 percent during the slower seasonal demand period. However, a seasonal urea deficit in the U.S. is expected in late 2017 and/or early 2018 which should lend support to prices. Taking into account all these factors we expect the nitrogen market to remain relatively tight through into the spring of 2018.

Potash Outlook

  • Global potash shipments have shown continued strength, which has led most global benchmarks to increase. Trade into key markets has remained at high levels as imports on a year-to-date basis are up 12 percent in Brazil, 36 percent in India and 28 percent in China over the same period last year.
  • Producers have increased production but have remained comfortably sold forward, which we expect to lead to relatively low producer potash inventories at the end of 2017. We expect there to be limited supplies available from new capacity for the remainder of 2017 and into the first half of 2018 and anticipate an annual average growth in potash demand of approximately 3 percent in 2018.
  • U.S. offshore imports of potash are also on a record pace, which is indicative of the strong demand in the market. While fall applications are always dependent on weather conditions and harvest pace, current prices are still affordable and are expected to support strong demand.

Phosphate Outlook

  • Phosphate export prices have strengthened due to tightened export availability from China and the impacts of Hurricane Irma on Florida production and inventories.
  • Finished phosphate import demand has been mixed as demand continues to be strong in Pakistan and is up year-over-year in Brazil, but Indian imports have continued to be lower than expected, which is expected to tighten domestic inventories and support imports in 2018 assuming import economics improve.
  • Key raw material costs have increased significantly in recent months as ammonia prices have increased between 40 and more than 70 percent, while sulfur prices have increased between 40 and more than 120 percent.

2017 ANNUAL GUIDANCE

Based on our assumptions set out under the heading "Market Outlook", Agrium expects to achieve annual diluted earnings per share from continuing operations of $4.65 to $4.80 in 2017 compared to our previous estimate of $4.75 to $5.25 per share. We have reduced our annual guidance range to reflect the lost production volumes in the third quarter and the impact of challenging weather conditions on our Retail operations, particularly those areas impacted by hurricanes. We have also narrowed the range width encompassing approximately $30-million of EBITDA variability.

We have updated our Retail EBITDA range between $1.160-billion to $1.190-billion compared to our previous guidance of $1.150-billion to $1.20-billion, while our estimate for Retail crop nutrient sales volumes has been reduced to between 9.9 million and 10.2 million tonnes in 2017.

Based on our expected utilization rate for our nitrogen assets, we are updating our nitrogen production range to between 3.3 and 3.4 million tonnes. Our earnings per share guidance assumes NYMEX gas prices will average between $2.95 and $3.15 per MMBtu for 2017.

We have also revised our expected potash production range for 2017 to between 2.4 and 2.5 million tonnes.

Total capital expenditures in 2017 are expected to be in the range of $650-million to $700-million, of which approximately $425-million to $475-million is expected to be sustaining capital expenditures.

Agrium's annual effective tax rate for 2017 on continuing operations is expected to range between 27 and 29 percent.

This guidance and updated additional measures and related assumptions are summarized in the table below. Guidance excludes the impact of share-based payments expense (recovery), gains (losses) on foreign exchange and non-qualifying derivative hedges, and merger related costs. Except as described under the heading "Market Outlook", volumetric and earnings estimates assume normal seasonal growing and harvest patterns in the geographies where Agrium operates.

 
2017 ANNUAL GUIDANCE RANGE AND ASSUMPTIONS
                     Annual
  Low   High
Diluted EPS from continuing operations (in U.S. dollars) $4.65   $4.80
Guidance assumptions:      
Wholesale:      
  Production tonnes:      
    Nitrogen (millions) 3.3   3.4
    Potash (millions) 2.4   2.5
Retail:      
    EBITDA (millions of U.S. dollars) $1,160   $1,190
    Crop nutrient sales tonnes (millions) 9.9   10.2
Other:      
    Tax rate 29%   27%
    Sustaining capital expenditures (millions of U.S. dollars) $425   $475
    Total capital expenditures (millions of U.S. dollars) $650   $700
         

November 7, 2017

Unless otherwise noted, all financial information in this Management's Discussion and Analysis (MD&A) is prepared using accounting policies in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and is presented in accordance with International Accounting Standard 34 - Interim Financial Reporting. All comparisons of results for the third quarter of 2017 (three months ended September 30, 2017) and for the nine months ended September 30, 2017 are against results for the third quarter of 2016 (three months ended September 30, 2016) and nine months ended September 30, 2016. All dollar amounts refer to United States (U.S.) dollars except where otherwise stated. The financial measure net earnings (loss) before finance costs, income taxes, depreciation and amortization and net earnings (loss) from discontinued operations (EBITDA) used in this MD&A is not prescribed by IFRS. Our method of calculation may not be directly comparable to that of other companies. We consider this non-IFRS financial measure to provide useful information to both management and investors in measuring our financial performance. This non-IFRS financial measure should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS. Please refer to the section entitled "Non-IFRS Financial Measures" of this MD&A for further details, including a reconciliation of each such measure to its most directly comparable measure calculated in accordance with IFRS.

The following interim MD&A is as of November 7, 2017 and should be read in conjunction with the Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2017 (the "Condensed Consolidated Financial Statements"), and the annual MD&A and consolidated financial statements for the year ended December 31, 2016 included in our 2016 Annual Report to Shareholders. The Board of Directors carries out its responsibility for review of this disclosure principally through its Audit Committee, comprised exclusively of independent directors. The Audit Committee reviews and, prior to publication, approves this disclosure, pursuant to the authority delegated to it by the Board of Directors. No update is provided to the disclosure in our annual MD&A except for material information since the date of our annual MD&A. In respect of Forward-Looking Statements, please refer to the section titled "Forward-Looking Statements" in this MD&A.

2017 Third Quarter Operating Results

 
CONSOLIDATED NET EARNINGS
 
Financial Overview
                                 
(millions of U.S. dollars, except per share amounts   Three months ended September 30,   Nine months ended September 30,
and where noted)   2017   2016 (a)   Change   % Change   2017   2016 (a)   Change   % Change
Sales   2,382   2,192   190   9   11,316   11,219   97   1
Gross profit   557   568   (11)   (2)   2,642   2,630   12   -
Expenses   578   553   25   5   1,748   1,704   44   3
Net (loss) earnings before finance costs, income taxes and net earnings (loss) from discontinued operations   (21)   15   (36)   (240)   894   926   (32)   (3)
Net (loss) earnings from continuing operations   (69)   (38)   (31)   82   475   515   (40)   (8)
Net (loss) earnings from discontinued operations   (182)   (1)   (181)   18,100   (178)   14   (192)   (1,371)
Net (loss) earnings   (251)   (39)   (212)   544   297   529   (232)   (44)
Diluted (loss) earnings per share from continuing operations   (0.52)   (0.28)   (0.24)   86   3.40   3.70   (0.30)   (8)
Diluted (loss) earnings per share from discontinued operations   (1.32)   (0.01)   (1.31)   13,100   (1.29)   0.10   (1.39)   (1,390)
Diluted (loss) earnings per share   (1.84)   (0.29)   (1.55)   534   2.11   3.80   (1.69)   (44)
Effective tax rate (%)   30.3   27.4   3   N/A   28.9   28.4   1   N/A
(a)  Certain amounts have been restated as a result of discontinued operations.
         
Sales and Gross Profit        
                         
    Three months ended September 30,   Nine months ended September 30,
(millions of U.S. dollars)   2017   2016 (a)   Change   2017   2016 (a)   Change
Sales                        
  Retail   2,067   1,857   210   10,014   9,938   76
  Wholesale   443   445   (2)   1,825   1,834   (9)
  Other   (128)   (110)   (18)   (523)   (553)   30
    2,382   2,192   190   11,316   11,219   97
                         
Gross profit                        
  Retail   518   482   36   2,251   2,163   88
  Wholesale   46   84   (38)   384   421   (37)
  Other   (7)   2   (9)   7   46   (39)
    557   568   (11)   2,642   2,630   12
(a)  Certain amounts have been restated as a result of discontinued operations.
 
  • Retail's sales and gross profit primarily increased in the third quarter and first nine months of 2017 compared to the same periods last year as a result of higher crop protection product sales and related application services and recent acquisitions.
  • Wholesale's sales for the third quarter and first nine months of 2017 were flat compared to same periods last year, while gross profits were lower. Realized selling prices for nitrogen decreased while potash selling prices increased consistent with benchmark prices. Cost of product sold was higher due to several scheduled maintenance turnarounds in our production facilities and higher natural gas input costs.

Expenses

  • Selling expense as a percentage of sales was consistent for the third quarter and first nine months of 2017 compared to the same periods last year, while general and administrative expenses were flat.
  • Share-based payments expense was higher by $35-million in the third quarter and $18-million for the first nine months of 2017 due to increases in our share price.
  • Our earnings from associates and joint ventures were consistent for the third quarter and the first nine months of 2017. For the first nine months of 2017, we recognized a foreign exchange gain in Misr Fertilizers Production Company S.A.E. ("MOPCO") from the devaluation of the Egyptian pound in the first quarter of this year which was partially offset by a reversal of gas provision in Profertil S.A. ("Profertil") recorded in the prior year.
  • Other expenses decreased by $29-million for the third quarter and $35-million for the first nine months of 2017. This decrease is primarily due to lower legal settlements in 2017 and losses incurred in 2016 related to a termination of a distribution agreement and cancellation of a Canpotex terminal. This was partially offset by costs incurred related to our merger with Potash Corporation of Saskatchewan ("PotashCorp").

For further breakdown on Other expenses, see table below:

                     
Other expenses breakdown                    
    Three months ended   Nine months ended
    September 30,   September 30,
(millions of U.S. dollars)   2017   2016 (a)   Change   2017   2016 (a)   Change
Loss on foreign exchange and related derivatives  
7
 
2
 
5
 
11
 
10
 
1
Interest income   (17)   (20)   3   (43)   (49)   6
Environmental remediation andasset retirement obligations  
2
 
4
 
(2)
 
1
 
9
 
(8)
Bad debt expense   8   3   5   37   32   5
Potash profit and capital tax   3   2   1   9   10   (1)
Merger and related costs   11   17   (6)   42   17   25
Other   2   37   (35)   12   75   (63)
    16   45   (29)   69   104   (35)
(a) Certain amounts have been restated as a result of discontinued operations.
 
Depreciation and Amortiation
 
Depreciation and amortization breakdown
    Three months ended September 30,
    2017           2016 (a)    
    Cost of
product
sold
 

Selling
  General
and
administrative
 

Total
  Cost of
product
sold
 

Selling
  General
and
administrative
 

Total
   
(millions of U.S. dollars)  
Retail   3   69   1   73   2   67   2   71
Wholesale                                
  Nitrogen   16   -   1   17   16   -   -   16
  Potash   21   -   -   21   22   -   -   22
  Phosphate   3   -   -   3   4   -   -   4
  Wholesale Other (b)   3   -   -   3   2   -   -   2
    43   -   1   44   44   -   -   44
Other   -   -   4   4   -   -   4   4
Total   46   69   6   121   46   67   6   119
                                 
                                 
    Nine months ended September 30,
    2017           2016 (a)    
    Cost of
product
sold
 

Selling
  General
and
administrative
 

Total
  Cost of
product
sold
 

Selling
  General
and
administrative
 

Total
   
(millions of U.S. dollars)  
Retail   6   205   4   215   5   197   4   206
Wholesale                                
  Nitrogen   58   -   1   59   52   -   -   52
  Potash   82   -   -   82   73   -   -   73
  Phosphate   12   -   -   12   11   -   -   11
  Wholesale Other (b)   10   -   1   11   9   -   1   10
    162   -   2   164   145   -   1   146
Other   -   -   13   13   -   -   10   10
Total   168   205   19   392   150   197   15   362
(a)  Certain amounts have been restated as a result of discontinued operations.
(b)  This includes ammonium sulfate, Environmentally Smart Nitrogen® (ESN) and other products.
 
  • Depreciation and amortization expense increased in the third quarter and first nine months of 2017 primarily due to the completion of our Borger nitrogen facility expansion. This was partially offset by lower sales and production volumes in the third quarter due to planned and unplanned outages at our facilities for which we calculate such expense on a units-of-production basis.

Effective Tax Rate

  • The effective tax rates for the third quarter and first nine months of 2017 are higher than the tax rates compared to the similar periods in 2016. The increase in the effective tax rate for the quarter is primarily due to the recognition of a previously unrecognized tax benefit and the increase in the effective tax rate for the first nine months of 2017 is due to a decrease in certain U.S. manufacturing tax deductions.

BUSINESS SEGMENT PERFORMANCE

             
Retail            
             
             
    Three months ended September 30,
(millions of U.S. dollars, except where noted)   2017   2016   Change
Sales   2,067   1,857   210
Cost of product sold   1,549   1,375   174
Gross profit   518   482   36
EBIT   37   30   7
EBITDA   110   101   9
Selling and general and administrative expenses   489   469   20
Selling and general and administrative expenses as a % of sales (%)   23.7   25.3   (1.6)
             
  • Retail EBITDA increased by 9 percent compared to the same period last year, driven by higher sales volumes for crop protection products, nutrients and related application services; associated with organic growth and acquisitions. Total proprietary product sales as a percentage of total sales increased 1 percentage point compared to the same period last year.
  • Retail selling, general and administrative expenses were up slightly over last year due to acquisitions made in 2017 and in the prior year. Selling, general and administrative expenses as a percent of revenue were down year-over-year to 23.7 percent in the third quarter of 2017 compared to 25.3 percent for the same period last year.
  • Retail North American EBITDA increased 19 percent in the third quarter despite the impact from challenging weather conditions in the southern U.S. Year-to-date, the U.S. has seen a 5 percent increase in EBITDA and Canada a 3 percent increase. EBITDA for our International Retail operations decreased slightly this quarter compared to the same period last year, as Australia faced drought conditions which impacted crop protection sales in particular. South American results were also down slightly, primarily due to excessive moisture impacting nutrient applications.
         
Retail sales and gross profit by product line        
    Three months ended September 30,
    Sales   Gross profit   Gross profit (%)
(millions of U.S. dollars, except where noted)   2017   2016   Change   2017   2016   Change   2017   2016
Crop nutrients   528   502   26   120   118   2   23   24
Crop protection products   1,117   983   134   243   226   17   22   23
Seed   59   59   -   21   22   (1)   36   37
Merchandise   187   175   12   29   29   -   16   17
Services and other   176   138   38   105   87   18   60   63
                                 

Crop nutrients

  • Total crop nutrient sales increased by 5 percent compared to the prior year, due to higher sales volumes related largely to acquisitions. This was partially offset by marginally lower realized average sales prices for nutrients. Sales volumes were up 11 percent in North America this quarter due to the late application season in the U.S. and the acquisitions made over the past year.
  • Total nutrient gross profit increased by 2 percent due to higher sales volumes which were partially offset by lower global benchmark prices during the quarter.

Crop protection products

  • Total crop protection product sales increased by 14 percent compared to the same period last year due to higher volumes sold as the later summer application season saw solid demand for herbicide and fungicide products. Total proprietary crop protection sales as a percentage of total crop protection sales increased 1 percentage point compared to the same period in 2016.
  • Gross profit was 8 percent higher than the prior period due to higher sales volumes of both brand name and proprietary products. Gross margin as a percentage of sales decreased by 1 percent due to a product shift related to decreased field activity as a result of the two major hurricanes, dry weather in parts of the Corn Belt which decreased demand for some higher margin products and a slightly more competitive market environment.

Seed

  • Total seed sales were similar to the third quarter in 2016, while total gross profit was marginally lower. Seed gross profit as a percentage of sales declined to 36 percent this quarter from 37 percent same quarter last year. The marginal decline was attributed to increased replanting discounts and crop loss credits related to regional weather challenges.

Merchandise

  • Merchandise sales increased 7 percent this period with strong demand in Australia. Gross profit as a percentage of sales declined 1 percent compared to the third quarter of 2016 due to differences in product mix.

Services and other

  • Sales for services and other increased by 28 percent this quarter compared to last year due to higher livestock shipments in Australia and the later application season in the U.S. for both nutrients and crop protection products.
     
Wholesale    
         
    Three months ended September 30,
(millions of U.S. dollars, except where noted)   2017   2016 (a)   Change
Sales   443   445   (2)
Sales volumes (tonnes 000's)   1,614   1,657   (43)
Cost of product sold   397   361   36
Gross profit   46   84   (38)
EBIT   33   63   (30)
EBITDA   77   107   (30)
Expenses   13   21   (8)
(a)  Certain amounts have been restated as a result of discontinued operations.
 
  • Wholesale gross profit and EBITDA this quarter was lower than the same period last year due mainly to several major planned maintenance turnarounds and lower realized nitrogen prices. The scheduled outages along with a couple of minor unplanned production losses caused by both internal and external factors, resulted in lower production volumes and increased cost of product sold this quarter. Lower realized nitrogen prices reflected sales weakness in nitrogen fertilizer benchmarks during the second quarter and corresponding forward sales activity in the third quarter. This was partly offset by higher realized potash prices.
 
Wholesale NPK product information
    Three months ended September 30,
    Nitrogen   Potash   Phosphate
    2017   2016   Change   2017   2016   Change   2017   2016 (a)   Change
Gross profit (U.S. dollar millions)   28   59   (31)   10   1   9   (4)   11   (15)
Sales volumes (tonnes 000's)   668   739   (71)   462   496   (34)   140   143   (3)
Selling price ($/tonne)   270   291   (21)   216   178   38   436   418   18
Cost of product sold ($/tonne)   228   212   16   193   175   18   465   343   122
Gross margin ($/tonne)   42   79   (37)   23   3   20   (29)   75   (104)
(a) Certain amounts have been restated as a result of discontinued operations.
 

Nitrogen

  • Nitrogen gross profit was down 53 percent compared to the same period last year due to lower production volumes and higher cost of product sold per tonne. This was driven primarily by planned outages across several major production facilities and a number of unplanned outages caused by both internal and external factors.
  • Total sales volumes were down 10 percent due to lower product availability during the quarter. Ammonia sales volumes were 35 percent lower during the quarter due to reduced saleable product availability because of the Borger urea plant ramp-up, a shift in industrial sales timing, production turnaround activity and a later start to fall applications. Urea and other nitrogen product sales were in line with the prior year.
  • Realized selling prices per tonne were 7 percent lower compared to the same period last year due to lower global benchmark nitrogen prices through the late spring and early summer and the timing of forward sales activity.
  • Cost of product sold per tonne increased 8 percent due to turnarounds and lower production volumes, which spread fixed costs across fewer tonnes. Realized natural gas costs were also slightly higher than the same period in 2016.
   
Natural gas prices: North American indices and North American Agrium prices
  Three months ended September 30,
(U.S. dollars per MMBtu) 2017 2016
Overall gas cost excluding realized derivative impact 1.74 2.05
Realized derivative impact 0.72 0.28
Overall gas cost 2.46 2.33
Average NYMEX 2.97 2.78
Average AECO 1.61 1.69
     

Potash

  • Potash gross profit was higher than the prior year, due to higher selling prices, partially offset by a higher cost of product sold and lower sales volumes.
  • Sales volumes were 7 percent lower in the current period. International volumes were 29 percent lower than the third quarter of 2016 due to the timing of sales to Canpotex, while North American volumes increased 27 percent.
  • Average realized selling prices increased by 21 percent over the past year, with realized North American prices up 13 percent and International selling prices increasing 16 percent.
  • Our cost of product sold per tonne was 10 percent higher than the same period last year due to a stronger Canadian dollar and a higher percentage of domestic sales volumes, which include freight and distribution in the cost of product sold. In addition to the scheduled turnaround during the quarter, some temporary mechanical issues with the hoist resulted in lower production than planned.

Phosphate

  • Phosphate gross profit was lower than the same period last year, due to the planned turnaround at the Redwater plant in the quarter and a stronger Canadian dollar, which caused higher cost of product sold. The 2016 costs also benefited from a favorable freight expense adjustment.
  • Realized selling prices were 4 percent higher than the prior period, however, this was more than offset by higher cost of product sold and 2 percent lower sales volumes this quarter.
  • Overall gross margin per tonne this quarter was negative, as the higher cost of product sold per tonne was only partially offset by higher realized selling prices.

Wholesale Other

    
Wholesale Other: gross profit breakdown
    Three months ended September 30,
(millions of U.S. dollars)   2017   2016   Change
Ammonium sulfate   9   9   -
ESN   2   6   (4)
Other   1   (2)   3
    12   13   (1)
             
  • Gross profit from Wholesale Other was lower than the same period last year driven by reduced production and sales of ESN at Carseland.

Expenses

  • Wholesale expenses were 38 percent lower in the third quarter compared to the prior year, primarily due to lower selling, general and administrative costs associated with cost saving initiatives, lower other expenses and an increase in earnings from equity investments.

Other

EBITDA for our Other non-operating business unit for the third quarter of 2017 was a net expense of $87-million, compared to a net expense of $74-million for the third quarter of 2016. The variance was primarily due to:

  • An increase of $9-million gross profit elimination as a result of a higher intersegment inventories held by Retail at the end of the third quarter.
  • An increase of $35-million in share-based payments expense primarily due to an increase in Agrium's share price.

This was partially offset by:

  • A decrease of $18-million in litigation and related fees.
  • A decrease of $6-million in merger and related costs.

FINANCIAL CONDITION

The following are changes to working capital on our Consolidated Balance Sheets for the nine months ended September 30, 2017 compared to December 31, 2016.

                     
    September 30, 
2017
  December 31,
2016
  $ Change   % Change   Explanation of the change in the balance
(millions of U.S. dollars, except where noted)  
Current assets                    
  Cash and cash equivalents   246   412   (166)   (40%)   See discussion under the section "Liquidity and Capital Resources".
  Accounts receivable   3,375   2,208   1,167   53%   Seasonal sales activity for Retail resulted in higher Retail trade and vendor rebates receivable.
  Income taxes receivable   30   33   (3)   (9%)   -
  Inventories   2,657   3,230   (573)   (18%)   Inventory drawdown due to increased seasonal sales activity.
  Prepaid expenses and deposits   150   855   (705)   (82%)   Drawdown of prepaid inventory where Retail typically prepays for product at year end and takes possession of inventory throughout the year.
  Other current assets   122   123   (1)   (1%)   -
  Assets held for sale   126   -   126   100%   In September 2017, we reclassified certain assets of Conda phosphate operations as held for sale. See "Discontinued Operations" section for further details.
Current liabilities                    
  Short-term debt   1,882   604   1,278   212%   Increased financing for working capital requirements.
  Accounts payable   3,257   4,662   (1,405)   (30%)   Drawdown in customer prepayments during the spring application season and reductions in trade payables as the third quarter is typically a low point for product purchasing.
  Income taxes payable   14   17   (3)   (18%)   -
  Current portion of long-term debt   11   110   (99)   (90%)   Decrease relates to $100-million 7.7 percent senior notes repaid in 2017.
  Current portion of other provisions   54   59   (5)   (8%)   -
Working capital   1,488   1,409   79   6%    
                     

LIQUIDITY AND CAPITAL RESOURCES

Agrium generally expects that it will be able to meet its working capital requirements, capital resource needs and shareholder returns through a variety of sources, including available cash on hand, cash provided by operations, short-term borrowings from the issuance of commercial paper, and borrowings from our credit facilities, as well as long-term debt and equity capacity from the capital markets.

As of September 30, 2017, we had sufficient current assets to meet our current liabilities.

Summary of Consolidated Statements of Cash Flows

Below is a summary of our cash provided by or used in operating, investing and financing activities as reflected in the Consolidated Statements of Cash Flows:

     
    Nine months ended September 30,
(millions of U.S. dollars)   2017   2016 (a)   Change
Cash (used in) provided by operating activities   (265)   212   (477)
Cash used in investing activities   (683)   (857)   174
Cash provided by financing activities   799   526   273
Effect of exchange rate changes on cash and cash equivalents   (7)   (58)   51
Decrease in cash and cash equivalents from continuing operations   (156)   (177)   21
Cash and cash equivalents used in discontinued operations   (10)   (27)   17
(a) Certain amounts have been restated as a result of discontinued operations.
         
Cash (used in) provided by operating activities  
  Lower cash provided by operating activities from net changes in non-cash working capital, primarily due to the timing of collections from customers as well as payments to our suppliers. This was partially offset by lower final tax payments and current tax payments made in comparison to the prior year.
Cash used in investing activities  
  Lower cash used in investing activities due primarily to completion of our Borger expansion project and reduced business acquisition activity in our Retail business unit.
Cash provided by financing activities  
  Higher cash provided by financing activities from increased commercial paper drawings to meet working capital needs partially offset by repayment of our senior notes in February 2017.
         
       
Capital Spending and Expenditures (b)      
  Three months ended   Nine months ended
  September 30,   September 30,
(millions of U.S. dollars) 2017 2016 (a)   2017 2016 (a)
Retail          
  Sustaining 23 13   107 88
  Investing 19 10   61 29
  42 23   168 117
  Acquisitions (b) 110 141   184 316
  152 164   352 433
Wholesale          
  Sustaining 96 51   167 186
  Investing 15 67   107 222
  111 118   274 408
Other          
  Sustaining 1 1   3 3
  Investing 7 1   13 3
  8 2   16 6
Total          
  Sustaining 120 65   277 277
  Investing 41 78   181 254
  161 143   458 531
  Acquisitions (b) 110 141   184 316
  271 284   642 847
(a) Certain amounts have been restated as a result of discontinued operations.
(b) This excludes capitalized borrowing costs and capital expenditures related to our discontinued operations.
(c) This represents business acquisitions and includes acquired working capital; property, plant and equipment; intangibles; goodwill; and investments in associates and joint ventures.
 
  • Our total capital expenditures increased in the third quarter due to turnarounds and decreased in the first nine months of 2017 compared to the same period last year as we completed the construction of our Borger expansion project at the end of 2016. In 2017, pre-commissioning and commissioning costs were incurred related to this project.
  • We expect Agrium's capital expenditures for the remainder of 2017 to approximate $175-million to $225-million. We anticipate that we will be able to finance the announced projects through a combination of cash provided from operating activities and existing credit facilities.

Short-term Debt

  • Our short-term debt of $1.9-billion at September 30, 2017 is outlined in note 5 of our Summarized Notes to the Condensed Consolidated Financial Statements.
  • Our short-term debt increased by $1.3-billion during the first nine months of 2017, which in turn contributed to a decrease in our unutilized short-term financing capacity to $1.6-billion at September 30, 2017.

Capital Management

  • Our revolving credit facilities require that we maintain specific interest coverage and debt-to-capital ratios, as well as other non-financial covenants as defined in our credit agreements. We were in compliance with all covenants at September 30, 2017. Our ability to comply with these covenants has not changed since December 31, 2016.

OUTSTANDING SHARE DATA

Agrium had 138,164,264 outstanding shares at November 3, 2017. At November 3, 2017, the number of shares issuable pursuant to stock options outstanding (issuable assuming full conversion, where each option granted can be exercised for one common share) was approximately 1,380,868.

...
 
SELECTED QUARTERLY INFORMATION
                                 
(millions of U.S. dollars,   2017   2017 (a)   2017 (a)   2016 (a)   2016 (a)   2016 (a)   2016 (a)   2015
except per share amounts)   Q3   Q2   Q1   Q4   Q3   Q2   Q1   Q4
Sales   2,382   6,271   2,663   2,238   2,192   6,361   2,666   2,407
Gross profit   557   1,527   558   749   568   1,523   539   900
Net earnings (loss) from
continuing operations
                               
  (69)   553   (9)   69   (38)   558   (5)   200
Net earnings (loss) from                                
discontinued operations   (182)   5   (1)   (2)   (1)   7   8   -
Net earnings (loss)   (251)   558   (10)   67   (39)   565   3   200
Earnings (loss) per share from continuing
operations attributable to equity
holders of Agrium:
                               
                               
                               
  Basic   (0.52)   4.00   (0.07)   0.50   (0.28)   4.03   (0.04)   1.45
  Diluted   (0.52)   4.00   (0.07)   0.50   (0.28)   4.03   (0.04)   1.45