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Nutrien Ltd. (NTR) Q1 2019 Earnings Call Transcript

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Nutrien Ltd. (NYSE: NTR)
Q1 2019 Earnings Call
May 10, 2019, 10:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Nutrien First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation, and as a reminder, today's conference is being recorded.

I would now like to turn the conference over to Richard Downey, VP of Investor and Corporate Relations.

Richard Downey -- Vice President of Investor and Corporate Relations

Thank you, operator. Good morning, everyone, and welcome to Nutrien's conference call to discuss our first quarter results and outlook. On the phone with us today is Mr. Chuck Magro, President and CEO of Nutrien; Mr. Pedro Farah, our CFO; and the heads of our three business units.

As we conduct this conference call, various statements that we make about future expectations, plans, and prospects contain forward-looking information. Certain material assumptions were applied in making these forecasts and conclusions. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders, as well as our most recent annual report, MD&A, and Annual Information Form filed with Canadian and U.S. Securities Commissions to which we direct you.

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I will now turn the call over to Mr. Chuck Magro.

Charles Magro -- President and Chief Executive Officer

Thanks, Richard. Good morning, everyone, and welcome to Nutrien's First Quarter 2019 Earnings Call.

This quarter is seasonally our lowest earnings period and this year was impacted by harsh winter weather conditions across North America. In fact, the U.S. experienced the second wettest six-month period in 125 years. The spring season is now well under way across much of North America and although we are still getting more moisture than we want in some regions, farmers are actively applying fertilizer and seeding, and at the end of April, all of our businesses were ahead of last year.

As always, we remain focused on delivering what we can control. First is the successful completion of our merger synergy program. At the end of the first quarter, we achieved run rate synergies of $621 million, exceeding our revised two-year target well ahead of schedule. The realization of synergies has meaningfully lowered our operating costs and our sustaining capital. Our cash G&A expense excluding retail was down 8% in the first quarter.

Now that we have exceeded our revised target, we will no longer be providing quarterly synergy updates. However, we still expect to achieve additional phosphate synergies once the conversion of our Redwater facility is completed later this summer, which will increase total synergies delivered from the merger to over $650 million. Furthermore, we have plans to capture additional operating improvements across our businesses and we'll provide new targets our Investor Day in Toronto on May 28th.

We utilized our strong cash flow and balance sheet to strengthen our retail business, allocating almost $1 billion to highly accretive acquisitions in the U.S. and Australia since January. We acquired approximately 40 U.S. retail locations during the quarter with revenue around $400 million and expect the strong pace of retail consolidation to continue. We closed on the purchase of Actagro, which will provide Nutrien a strong pipeline of high-value, high-margin crop nutritional products.

We also entered into an agreement to purchase Ruralco Holding, the third largest ag retailer in Australia. This acquisition will strengthen the service and innovation that we deliver to Australian growers and is an excellent strategic fit in a market where we have a proven track record. We are making good progress on all necessary approvals and expect the transaction to close in the third quarter.

We also continue to enhance our digital platform, including the launch of our e-commerce capability on a select group of products in the first quarter. We now have customers representing almost 60% of our U.S. retail revenue on our platform. In a market where less than 5% of crop nutrients are currently purchased online today, we have an opportunity to be the digital leader in transform the ag retail space along the way. We will outline our strategy in more detail and provide a demo of our digital platform at the Investor Day later this month.

Beyond growing our businesses, we continue to return significant capital to shareholders through a growing dividend and share repurchases. In February, we announced another 5% share buyback and have repurchased 21 million shares under this program. Since February 2018, we have purchased 63 million shares at an average price of approximately $51.50 per share, which represents 10% of our initial outstanding shares.

Now to our results. Nutrien's adjusted net earnings for the quarter was $0.20 per share. Adjusted EBITDA totaled $697 million, up more than 20% from comparable period in 2018, driven by higher potash prices and the realization of merger synergies.

Retail EBITDA in the first quarter was $16 million below last year because of weather. We experienced significant delays in fertilizer and crop protection applications across the entire U.S. It is important to note that we have grown U.S. retail significantly over the past two years and typically our U.S. business loses money in the first quarter. Growing our retail business in Australia and South America will help offset the seasonality over time.

Margins on crop protection products were impacted by compressed seasons last fall and this spring, which added to competitive pressure and some product mix shifts. However, we expect margins on crop protection products for the year to be normal by the end of the year.

Our seed sales were up compared to the previous year as U.S. growers looked to increase corn acreage in 2019. Potash EBITDA was 41% higher in the first quarter, driven by higher net selling prices, a further reduction in our costs, and strong offshore demand.

Domestic sales were down 22% compared to last year due to a limited application window over the past six months. Potash cash cost of product manufactured was down 5% to $58.00 per ton in the quarter as we continue to benefit from merger synergies and the optimization of our world-class network.

Nitrogen EBITDA was up slightly in the first quarter with higher realized prices offsetting lower fertilizer sales volumes. Industrial sales accounted for 55% of our nitrogen volumes in the first quarter, which contributed to stability in our nitrogen earnings. Phosphate EBITDA increased 6% compared to the first quarter in 2018 as higher realized prices more than offset the impact of lower sales volumes. Our phosphate prices increased by 10%, reflecting favorable forward selling activity and the settlement of new industrial contracts.

Now turning to the outlook for our businesses in the second quarter and the remainder of 2019. China-U.S. trade discussions remain a source of uncertainty, and while we cannot predict the timing of an agreement, we do believe that U.S. agricultural will benefit from a resolution. The benefits would include higher crop prices and increased U.S. ag exports to China, including soybeans, corn, and ethanol. China is expected to adopt an E10 policy in 2020 to help address its environmental priorities and may require significantly higher corn and ethanol imports to meet demand. This creates a potential win-win situation for both countries through increased trade volumes.

The U.S. EPA also proposed regulatory changes to allow year-round sales of gasoline blended with 15% ethanol, which when approved will support domestic corn consumption. We expect corn planting will be up 3-4 million acres this spring, assuming weather improves over the next few weeks, which is favorable for crop input demand. This includes at 2-4% increase in North American crop protection expenditures and higher seed sales. We also expect strong demand for custom application services resulting from the push to get the crop planted within a narrow window.

Crop planting continues to progress, although we are still behind the five-year average, but as we have seen in recent years, a significant amount of planting can occur in a very short window, and our leading distribution network is best positioned to meet elevated crop input demand in such a condensed spring season.

Global potash market fundamentals have remained strong and we now expect this to continue throughout 2019. Canpotex is fully committed until June and we anticipate healthy domestic volumes in the second quarter and for the rest of 2019. We maintain our forecast that global demand will be between 67 and 69 million tons, and Nutrien sales volumes between 13 and 13.4 million tons.

We expect global nitrogen demand to strengthen in the second quarter, including very robust U.S. demand. We anticipate a shift in product mix toward urea and UAN, and an extended top dress and side dress application season into the third quarter. In recent weeks, this has led to higher urea prices with NOLA increasing by approximately $50.00 a ton from February lows.

In phosphate, we expect some pricing support in the second quarter from an improvement in global demand and announced production curtailments. Lower input costs and the completion of our phosphate synergy plan in the second half of 2019 will also be supportive to earnings.

With Q1 behind us and based on what we are now seeing, we have provided adjusted earnings guidance for the first half in the range of $1.75-1.95 per share. The midpoint of this range is up 11% from the first half of 2018. We maintained our annual earnings guidance at $2.80-3.20 per share, and our adjusted EBITDA guidance of $4.4-4.9 billion, demonstrating the resiliency of our business model.

As we look ahead to the remainder of 2019 and beyond, we have set clear priorities. We will grow our retail footprint and create the industry's leading integrated digital platform, offering tools and services that will help our growers achieve their best outcomes for their farms. We will leverage our unmatched potash position to supply new demand with low-cost, incremental tons.

With a strong balance sheet and free cash flow, we will be able to deliver on high quality growth opportunities and continue to return capital to shareholders. I encourage you to join us for our first Investor Day on May 28th as we provide more details around our long-term plans, and a pathway to create superior shareholder value.

We would now be happy to take your questions.

Questions and Answers:

Operator

At this time, if you would like to ask a question, please press * then the number 1 on your telephone keypad. Our first question comes from Jacob Bout with CIBC. Your line is now open.

Jacob Bout -- CIBC Capital Markets -- Analyst

Good Morning.

Charles Magro -- President and Chief Executive Officer

Jacob.

Jacob Bout -- CIBC Capital Markets -- Analyst

I'm hoping you can talk about the assumptions behind your first half guidance, specifically how application is actually going. Did you actually say that application was higher than 2018 levels? Then, if the delays continue, at what point should we think about revising estimates lower?

Charles Magro -- President and Chief Executive Officer

Yes, good morning, Jacob. Let me try to set the stage from a guidance perspective for you. We are maintaining full year guidance, and we set the first half guidance based on what we've seen through the month of April and then early in May. From an April perspective, all of our businesses were ahead of last year, and the application rates in the areas where we were moving and had cooperating weather, they were above last year. That's exactly what we've seen. Now, there are pockets where we're behind because of the weather, and our view, though, is that we still have plenty of time to get the applications down.

In fact, every day now counts, but through the end of May, there is a good-sized window to deliver on all the applications and get the fertilizer on the ground. When you look at our guidance then, the way we think about it is if you just compare it to last year, at this time last year, we raised the bottom end, the lower end of our guidance range because generally, by that point, volumes are not a question. It's really a matter of price. This year, we've left the range the same because of the weather uncertainty. What we would expect is that if weather normalizes in the remainder of May and pricing for fertilizer stays the same, we will expect to be somewhere between the midpoint and the upper end of our guidance range.

Now, if weather continues to be a challenge in pockets, because now it is really down to pockets in the U.S, then we would drift below the midpoint toward the lower end, but right now, as I mentioned, we still think we have plenty of time in the month of May to get the fertilizer down and get the seeding in.

Operator

Our next question comes from Andrew Wong with RBC Capital Markets. Your line is now open.

Andrew Wong -- RBC Capital Markets -- Analyst

Hi, good morning. Not to steal the thunder away from your analyst day later this month, but could you provide a little bit of a preview on some of the cost savings that you'll be targeting?

Charles Magro -- President and Chief Executive Officer

Sure, good morning. Maybe I'll give a broader preview of the Investor Day. The themes around the Investor Day will be we will set operational targets for all three of our businesses, and embedded in them will be cost savings, but also our plans to drive up margin enhancement beyond just costs. What I think we're trying to clarify is different things for some of our businesses and then looking at the overall Nutrien picture, so we will lay out five-year plans for each of those businesses. They will have key performance metrics and I think that when you see those, they will be quite impressive. The other thing we're going to do is we're going to lay out the five-year plan when it comes to the allocation of capital from a Nutrien perspective.

I think that this is really important and just to give you a bit of a preview, if you take our midpoint of our guidance from an EBITDA perspective and you back calculate cash from operations, you're going to get a number for this year of somewhere between $3.5-4 billion. If you then take out the dividends and the sustaining capital, you're going to be left with about $2 billion of free cash flow, and that's just for this year with no price appreciation at all. You can see that where we are in the cycle, there's more upside than downside. That's our strong belief. The company is going to generate significant free cash flow in that five-year period, and in the Investor Day, what we plan to do is lay out a plan for that capital that will balance investments in our businesses to drive long-term shareholder value and a significant return of capital to shareholders. That's the preview and we're really hoping that you'll join us.

Operator

Our next question comes from Chris Parkinson with Credit Suisse. Your line is now open.

Graham Wells -- Credit Suisse -- Analyst

Hi, good morning, everyone. This is Graham Wells on for Chris. I'm curious about your expectations for pricing coming into 2Q season with everything being so condensed. We're seating very healthy Midwest premiums, particularly in the nitrogen space, but at the same time, we've also seen pretty choppy conditions of pricing in the Gulf and the Caribbean, so I'm curious, with the nitrogen assets that you have both in the interior and in the Caribbean, how you're thinking about balancing that and what your thoughts are around nitrogen price realizations going into 2Q.

Charles Magro -- President and Chief Executive Officer

Good morning, Graham. We'll have Raef Sully our head of our nitrogen business answer your question.

Raef Sully -- President of Nitrogen and Phosphate

Look, you've got to separate our business into a couple of different areas. The Trinidad volume going offshore is industrial and it's priced to Tampa. The stuff inland, we're in a good position to take advantage of. We've got a great supply chain. We've got a great product there ready to go. We're about 65% committed for quarter two on the nitrogen products. Those commitments are at prices that are in line with our forecast, so we've got 35% ready to go in the spot markets in those areas away from the Gulf that we should see some good price realization in this quarter.

Charles Magro -- President and Chief Executive Officer

Just a couple other comments, maybe, Graham. Look, it has been a volatile market, but it's been weather driven. The underlying fundamental demand we think is quite strong, and certainly what we're seeing right now is in areas where the weather has been moderated or normalized, growers are doing everything they possibly can to get nitrogen down, and we expect that that will continue through the spring season. We're optimistic that there will be the window to get the nitrogen down and growers are certainly motivated because of the impact that they did not get as much down in the fall of last year. Certainly, we think that the underlying fundamentals are strong.

Graham Wells -- Credit Suisse -- Analyst

Thanks very much.

Operator

Our next question comes from Ben Isaacson was Scotiabank. Your line is now open.

Ben Isaacson -- Scotiabank -- Analyst

Thank you very much and good morning. I'm trying to figure out what the incremental value is to Nutrien of a million acres of corn over soybeans. In other words, if we see switching from corn to soy, what does that mean to Nutrien when it comes to seed, crop protection, service, and then of course NP&K?

Charles Magro -- President and Chief Executive Officer

Good morning, Ben. Mike Frank, our head of retail can answer that question for you.

Michael Frank -- Executive Vice President and President of Retail

Yeah, good morning, Ben. Every million acres of switch between soy and corn for us translates to about $3 million at the EBITDA line. As Chuck mentioned, we're expected corn acres up 3-4 million this year. Our seed sales would be consistent with that, so I do believe that it the growers' intentions, so we're see a lift of about $9-12 million if we see those acres shift that way.

Operator

Our next question comes from Vincent Andrews with Morgan Stanley. Your line is now open. Vincent Andrews, your line is open.

Vincent Andrews -- Morgan Stanley -- Analyst

Sorry, I was on mute. Just a question looking at Slide 21, the natural gas prices and the nitrogen cost curve. I'm just curious if you guys have a view on European hub gas, not just with -- I'm think we all know what caused the collapse of it, but what the forward-looking outlook for that is and what impact do you think that's going to have, if any, on nitrogen prices going forward?

Charles Magro -- President and Chief Executive Officer

Good morning, Vincent. Jason Newton, our head of market research can answer your question for you.

Jason Newton -- Head of Global Research

Hey, good morning, Vincent. Yeah, we certainly has seen the European hub gas prices decline the first part of this year and they're down under $5.00 today. I think as we look forward, the forward curve is above current values, and if you look at where the oil index values are, it's more in the $8.00 range today. Historically, you see those converge, so we expect that to converge as we get later in the year from current levels. Definitely, as you look this year compared to where we were a year ago, that is a factor that has put some pressure on nitrogen prices as those nitrogen producers, particularly in Western Europe that are using the index-based gas, are benefiting from lower gas prices today.

Operator

Our next question comes from Jeff Zekauskas with JP Morgan. Your line is now open.

Jeff Zekauskas -- JP Morgan -- Analyst

Thanks very much. Do you expect your potash shipments to North America to grow this year?

Charles Magro -- President and Chief Executive Officer

Good morning, Jeff. Susan Jones, our head of our potash business can give you our perspective on that.

Susan Jones -- Executive Vice President and Chief Executive Officer of Potash

Good morning, Jeff. I think you should be looking at our North American shipments to be pretty steady year-over-year. Offshore, on the other hand, we're seeing very good growth, and I would say that if you look at our offshore shipments for the first quarter, we're up about 75,000 tons. We actually could've -- we saw demand for about another 100,000 tons of that, despite the railroads not being able to move it. We are really seeing good demand growth. We expect global demand to be between 67-69 million tons, and you can expect that we're going to maintain our market share and continue with those robust shipments into the U.S.

Operator

Our next question comes from Don Carson with Susquehanna Financial. Your line is now open.

Don Carson -- Susquehanna Financial -- Analyst

Good morning, Chuck. Two Canadian questions, one on canola. With the trade issue going on with China, what kind of acreage shifts do you expect on canola and what's the impact on your retail and wholesale business. Secondly, on carbon taxation in Canada, you've had some positive regime change in Alberta, but you still have a very unfriendly federal government. Do you see them trying to lift the level of carbon taxes on industrial natural gas, and if so, what impact would that have on your cost-competitiveness?

Charles Magro -- President and Chief Executive Officer

Good morning, Don. Great questions, by the way. Look, on canola, the situation is about 30% of the total Western Canadian acres, we have canola grown, and 40% of that crop goes to China. Right now, the situation is quite dynamic and fluid, but what we understand by looking through our retail business is that we do expect what I would consider to be a modest acreage shift from canola through to the cereals, either wheat or barley, and that will have an impact on farmer economics and it'll have a modest impact on us. Just a rough guideline, for every million acres that shift, its a couple million dollars of EBITDA for us, so if it's a 1-2 million acre shift, the impact will be $2-4 million for us. It's modest. That's not the issue for us. The issue is making sure that our farmers have access to markets that they need and that they're getting the support from the government to resolve this issue because China is a core market for Canola.

As for carbon tax, yes, you're right. The Alberta government now has changed and they have made it one of their mandates to resist the federal carbon tax. It's too early to comment on exactly what that could mean for Nutrien, but I'll just remind you that we already have a carbon tax for large emitters in Alberta. It's been in place for some time. We already pay that, so if that's where we land, then there would be absolutely no impact, and I think that there's a lot more to come on this story. Certainly, we believe that what's in place today works in the province and we already pay that today, so we're hoping that this will come to the right conclusion and we won't see a material impact at all when it comes to our carbon production or taxes.

Operator

Our next question comes from Joel Jackson with BMO Capital Markets. Your line is now open.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, thanks. I'll ask a two-parter. The first one will be a follow up. My memory is that part of, I guess we'll call it the phosphate synergy bucket, as you were going to repurpose Redwater into ammonium sulfate, part of that was to target higher canola acres, so if you can talk a little about the impact on that, and my second question would be on seeds. I think we've seen some pretty competitive seed pricing on germ plasm from some of the big players. Can talk about how that's filtering in your business and on seed margins going forward? Thanks.

Charles Magro -- President and Chief Executive Officer

All right, Joel, we'll have Mike Frank talk about seed and then I'll answer your phosphate question.

Michael Frank -- Executive Vice President and President of Retail

Good morning, Joel. As you can see in our first quarter numbers, our seed margins are strong. They're up a little bit. Part of that is because corn acres are up and our margins are strong in corn. Also, our proprietary mix is up in seed, as well, and so, what we're expecting for our own business from a margin standpoint is that our seed margins are going to be strong this year. I think at the grower level, it's an extremely competitive market. We're seeing as much or more discounting coming from our suppliers that flows through to farmer customers, and so it's a very competitive market, both in soy and in corn in. That's how it's playing out so far.

Charles Magro -- President and Chief Executive Officer

Joel, on your question on phosphate related to canola acres, you're right. If you recall that the phosphate plan was to go from three phosphate operations down to two, we've just made great progress. The expansions in White Springs are up and running and they came in actually under budget. The team there did fantastic work. We did shut down our phosphate operation in Redwater just this week after 50 years of phenomenal production and that team should be celebrated, as well. The ammonium sulfate plant, we'll start it up. The expansion will start up in the second half of this year, so we still have a few months. That project is also well on schedule and on budget, and the marketing plan was a combination. It was to sell some tons in Western Canada on more canola acres, but really, the existing production really satisfied that. The marketing plan for this was to move more into the U.S, and we still think that over time, because there's going to be a ramp up, not only for production, but sales over the next, we'll call it, 18 months or so, we're hopeful to see some resolution to the Canada trade situation.

Operator

Our next question comes from Adam Samuelson with Goldman Sachs. Your line is now open.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes, thanks. Good morning, everyone. I was hoping to dig a little bit ore into the potash outlook, both domestically and internationally, and domestically, just from what you see in your retail business and the orders that you see on the wholesale side, just the confidence level that you have that the inventories that are built in the system from a sluggish fall and a wet 1Q get cleared in the second quarter. Then, on a global basis, just talk about the demand environment, Southeast Asia, Brazil, China, how we think about different market dynamics impacting the pricing outlook for the balance of the year. Thanks.

Charles Magro -- President and Chief Executive Officer

Good morning, Adam. Susan will answer some of those questions and then I'll provide some color commentary, as well.

Susan Jones -- Executive Vice President and Chief Executive Officer of Potash

Good morning, Adam. Let me start the North American market. As we've discussed in our prepared comments, we have had impacts from the spring season. You saw that through Q1. However, what I want to just clarify is the windows have opened up. There's been very strong pull that we've seen by growers, and our ability to get potash to the ground obviously is going to depend on the next few weeks, but as Chuck Magro was mentioning, this is really coming in pockets now versus all over the U.S. In areas where the weather has been closer to normal, we've seen very high application rates and excellent disappearance, including restocking. This is really positive and what we expect to see for good demand. If the window closes out and we don't get it all down in the first half, we do expect the fall to be robust because the soil needs to be replenished, and so we're very optimistic for the second half domestically.

In terms of the offshore markets, as I've already mentioned, we did have volumes up on a year-over-year basis into the offshore markets. We continue to see robust demand. Canpotex is sold out until June and what I would say by markets is we've got Brazil sitting at around 340 to 355 right now. They're pretty constant. We do expect to see volumes as good if not a little bit better in that market this year. China, we do expect to see volumes come up and I would just stay, for China and India, our expectation is, moving into the second half of the year when they settle out of their contracts, they are going to have to come up from the 290 where they are at today, and then we continue to see good growth in Africa and Latin America, and so our view on the outlook, both offshore and domestically, is fairly robust for the second half the year.

Charles Magro -- President and Chief Executive Officer

Yeah, Adam, just a few more comments. Susan covered that very well. Just at the macro level, the way we were coming into this year was we expected global demand to grow if you just take the midpoint of our guidance range of about 1.5 million tons, and that's a global number. Then, if you look at the new supply, what's been communicated by the new supply coming into the market, that number would be closer to a million tons. That's why we raised our guidance level up to make up the difference. Now, the weather is the weather and we can't control that. That may impact some movements from the spring into the fall. We don't know, but the underlying fundamentals and the supply demand is getting tighter for potash, and whether that spills over into the fall or even next year, we're not so bothered about that because we strongly believe that what we're seeing here and what we saw over the last two years is really good demand growth globally for potash and limited supply coming online. We expect those trends to continue, so when you look at the end of the day, Nutrien is one of the only companies that has excess capacity and that's what we plan to put in the market over time.

Operator

Our next question comes from Michael Piken with Cleveland Research. Your line is now open.

Michael Piken -- Cleveland Research -- Analyst

Yeah, hi. I just wanted to follow up a little bit on your commentary here that you just mentioned on potash. Is the implication then in your full-year EBITDA guidance for potash that prices are going to be up for China and India, and then what type of expectations should we expect for you guys in terms of fill pricing in the U.S. for the back half of the year to hit the potash EBITDA range that you provided? Thanks.

Charles Magro -- President and Chief Executive Officer

Yeah, good morning, Michael. We don't really want to get into giving pricing guidance. I think that that's not our job. When you look at our guidance range, what I would say is that between the lower end and the upper end of the range, there's a whole host of views that we are continually and constantly monitoring and refining. What I said earlier that will still hold is that if prices hold as of today's prices, we would be at the midpoint to the upper end of our guidance range, so we don't need a lot of price appreciation to get there, but some is built in. I don't really want to say much more than that, but if you look at the supply demand fundamentals, and Susan mentioned it and I'll just reiterate it, you could even just look at China inventory. I know that there's been some concern about inventories at the port, but inland inventories in China, we think, are quite tight, and they still need a lot more potash for their year this year. We do think that the supply demand is tight, inventories in China are reduced, even though there's been some recent volume going in, and that will all manifest itself when Canpotex talks to them about price, but we certainly don't want to get ahead of those discussions.

Operator

Your next question comes from John Roberts with UBS. Your line is now open.

Joshua Spector -- UBS -- Analyst

Hey, guys. This is Josh Spector on for John this morning. Just a question around the retail side of the business and kind of the phasing through the rest of the year. 2Q last year hit a pretty high watermark given the weaker 1Q season, kind of similar to this year. I'm just thinking this 2Q EBITDA, are you thinking that's similar to last year, do you have the opportunity for it to be higher than last year, or are you thinking that the rest of this year is a little bit higher given potentially longer application seasons and the acquisitions rolling through?

Charles Magro -- President and Chief Executive Officer

Good morning, Josh. Mike Frank will answer your question.

Michael Frank -- Executive Vice President and President of Retail

Yeah, good morning, Josh. You're right. Last year Q2, we hit a high watermark in terms of our business, and the way we started Q2 this year with a very strong April, we expect to see the same trend. We do believe that Q2 this year will be likely quite a bit stronger than last year's Q2, and so far we're starting out that way. Obviously, we need to get the corn and beans planted in the eastern Corn Belt, which is where they've been really wet. The outlook for the next 10 days looks pretty good there, and so we expect fertilizer to start going down and corn and beans to start getting planted. Look, I think at the end of the day there is likely going to be a little bit more side dress that goes on with planting this year, and that also means there's going to be more top dress, and so some of that could get pushed into July, but nonetheless, we were expecting a very strong Q2, which should be stronger than last year.

Charles Magro -- President and Chief Executive Officer

Then, Josh, if you just go out just a little longer, in the first quarter this year, we've allocated, nominally, about $1 billion toward M&A in retail. Some of that is closed and being integrated as we speak, and of course Ruralco is still pending and we expect that to close in the third quarter. If you look forward to 2020, you can see that there's going to be significant EBITDA growth in the retail business, not just from M&A, but from some of the investments we've made in our supply chain and our marketing organization to drive up overall margins, as well, so organically. Looking over the next couple of years, and we'll lay this out for you at our Investor Day, we do expect significant bottom line growth in the retail business through a combination of organic growth and M&A.

Operator

Our next question comes from Steve Byrne with Bank of America. Your line is now open.

Steve Byrne -- Bank of America -- Analyst

Yes, thank you. Can you talk a little bit about the dynamics that you're seeing in these competitive pressures in crop protection chemicals? Is this coming from your suppliers that are getting more aggressive because of inflated inventories or is this more your competitors at the retail level, or is this an e-commerce driven impact on pricing?

Charles Magro -- President and Chief Executive Officer

Thank you for your question, Steve. I'll have Mike Frank answer that for you.

Michael Frank -- Executive Vice President and President of Retail

Yeah, good morning, Steve. As you can see in our Q1 results, Q1 was a slow quarter for crop protection sales. We carried significant inventory into the start of this year. We know that was true for our competitors, as well, and so when you have a market where sales are slow and inventories are high, you get a very competitive marketplace, which we saw in Q1, and that reflected in our margins that were down slightly, but the real story is as Q2 starts to unfold and we really move into the crop protection season, we're expecting normal margins similar to last year, and we're already starting to see that. Based on mix, based on our proprietary products, and as inventories start to get drawn down from our sheds and from our competitors, we are seeing a return to, say, normal margins on our side.

To your point on e-commerce, that really hasn't been an impact. Of course, we launched our own e-commerce capability here at the start of the year, and so we're engaging with our customers and we are pleased with how that's going, but in terms of online business from nontraditional competitors, I would say that's a non-issue. It doesn't come up when I talk to growers and it's not coming up through our field.

Operator

Our next question comes from Steve Hansen with Raymond James. Your line is now open.

Steven Hansen -- Raymond Jones -- Analyst

Yeah, good morning, guys. Just a quick question on the M&A outlook. You've clearly been very active over the past five months. Should we expect you to moderate your pace a little bit in the coming quarters here or maybe just give us a fair bit of description around how the pipeline looks and how you feel about your integration efforts relative to further business development on that front? Thanks.

Charles Magro -- President and Chief Executive Officer

Yeah, good morning, Steve. Good question. Look, we can't do $1 billion a quarter, even though some of us may want to. Look, I think this was an atypical quarter. We were able to acquire assets and companies that were top quality, fit well within our overall strategic plan, and highly, highly accretive. Going forward, what we would expect is that we would be more toward the normal end of our M&A, historical M&A ranges to the upper end. The pipeline that we have today is quite strong in the U.S. and we are building a pipeline in Brazil, and of course with Australia now, we're really focused on closing the transaction and then getting onto the integration work because the synergies for that transaction are very accretive and that will be the focus area. I would say, going forward, a solid M&A pipeline, but not to the levels that you saw in the first quarter.

Operator

Our next question comes from Jonas Oxgaard with Bernstein. Your line is now open.

Jonas Oxgaard -- Bernstein -- Analyst

Thank you, guys. Chinese crop protection prices were already elevated before the explosion dealing and so it looks like it might get even higher. Now we have the awesome specter of even more tariffs. Can you talk a bit how you see that evolving and how that impacts you?

Charles Magro -- President and Chief Executive Officer

Yeah, great question. I'll have Mike Frank talk about the here and now and what he's seeing, and then I'll give a strategic overlay.

Michael Frank -- Executive Vice President and President of Retail

Good morning, Jonas. You're right. If you look back over the last 12 months, crop protection products that have been imported from China, we've seen inflation on those, both because of the environmental controls that are being put in place and that reflecting in higher costs, and then of course, what were 10% tariffs that have now been turned up to 25%. I think if you look across the U.S. market, there is just over $600 million worth of active ingredients that are imported from China, and so you can calculate yourself the impact of that going from 10% to 25% tariffs. I think as you think about 2019, at least from our perspective, we've already secured our inventory for 2019, and so we won't see an impact from our own cost with the increase in tariffs. I can't speak for the rest of the industry, but we feel like we're secured for this year, and of course, if the 25% tariffs continue into 2020, then that will be a marketwide impact, for sure.

Charles Magro -- President and Chief Executive Officer

Yeah and just a little bit more on that. I think we're well positioned as a company from an inventory perspective. The concern lies beyond that. If this situation persists for the foreseeable future, we just have underlying concerns that this is more headwind for U.S. farmer economics. Of course, it's not just higher cost from crop protection products, but we do believe that there is an influence on crop pricing itself because of the uncertainty. This isn't good for the U.S. farmer and the long-term health of the U.S. farmer, and like Mike covered very well, this year, we think that the crop will get planted, and we're well positioned from a crop protection product. Our concern is if this becomes the new normal and this continues into 2020. Then we would have a different view of the situation.

Operator

Our last question comes from Alex Falcao with HSBC. Your line is now open.

Alexandre Falcao -- HSBC -- Analyst

Hi, thanks for the question. Good morning. I just wanted to see your take on the effects of the African swine fever. Is that something that concerns you? Do you have any thought that you can share on that in terms of specifically for China, but the impact to the global value chain? Thank you.

Charles Magro -- President and Chief Executive Officer

Good morning, Alex. Jason Newton will answer your question for you.

Jason Newton -- Head of Global Research

Yeah, good morning, Alex. Yeah, it's definitely -- I mean, it's a significant issue for the Chinese swine population. There's been a dramatic -- and the numbers are sort of all over the map as far as how much the size of the herd has declined, but it could be as much as 25-35%, so it's a significant reduction, which obviously will have a negative impact on domestic feed demand. I think it's too early at this point to really know what the full impact will be and I think as we look longer term, what we see in the past when these situations develop is that the herd will be rebuilt, and in the meantime, it's likely positive for domestic poultry and beef consumption trends. Elsewhere in the world, it's good for hog producers and major hog producing countries like Brazil and the U.S, and should be positive for feed consumption in those markets.

Richard Downey -- Vice President of Investor and Corporate Relations

Operator, that looks like all the questions we have in the queue for this morning. I want to remind everyone, we have Investor Day in Toronto May 28, so hopefully we'll see you all there, and thank you for attending this morning.

Operator

This concludes today's conference call. You may now disconnect.

 Duration: 46 minutes

Call participants:

Richard Downey -- Vice President of Investor and Corporate Relations

Charles Magro -- President and Chief Executive Officer

Raef Sully -- President of Nitrogen and Phosphate

Michael Frank -- Executive Vice President and President of Retail

Jason Newton -- Head of Global Research

Susan Jones -- Executive Vice President and Chief Executive Officer of Potash

Jacob Bout -- CIBC Capital Markets -- Analyst

Andrew Wong -- RBC Capital Markets -- Analyst

Graham Wells -- Credit Suisse -- Analyst

Ben Isaacson -- Scotiabank -- Analyst

Vincent Andrews -- Morgan Stanley -- Analyst

Jeff Zekauskas -- JP Morgan -- Analyst

Don Carson -- Susquehanna Financial -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Michael Piken -- Cleveland Research -- Analyst

Joshua Spector -- UBS -- Analyst

Steve Byrne -- Bank of America -- Analyst

Steven Hansen -- Raymond Jones -- Analyst

Jonas Oxgaard -- Bernstein -- Analyst

Alexandre Falcao -- HSBC -- Analyst

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