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Agrium looks to curtail production
Dec. 11, 2008
Nutrien Ltd
CanadaFollow
CanadaGlobal nutrient and crop prices have weakened since early November when our second half guidance was issued and deferral of wholesale nutrient purchases has been significant. This has resulted in further sales volume reductions and production curtailments that will affect earnings contributions from our Wholesale business unit.
Retail nutrient sales volumes have also been impacted by purchase deferrals by farmers in the fourth quarter, but have been offset by higher per tonne margins. An inventory valuation adjustment for Retail is not anticipated at current nutrient prices. Our seed and crop protection businesses have not been impacted by the current situation, as the fourth quarter is a seasonally slower period for seed and crop protection sales.
"The late North American harvest, coupled with credit restrictions from international buyers and continued market uncertainties arising from reductions in global crop and nutrient prices, has impacted fall nutrient applications" said Mike Wilson, Agrium President and CEO.
"We believe grain fundamentals are stronger than current prices would indicate and that global food demand is unlikely to be significantly affected by a slower global economic environment. Unprecedented reductions in fertilizer use this fall in both North America and globally has resulted in significant production curtailments and shutdowns and is expected to place extreme pressure on an already strained distribution system next spring. It is unclear whether distribution systems, particularly in North America, will be sufficient to meet spring demand; however, we anticipate that this will highlight the benefits of Agriums extensive distribution network. Additionally, any reductions in crop inputs or seeded acreage will only put more upward pressure on crop prices and crop input demand in the future."
Agrium reaffirms that it expects earnings for the second half of 2008 to be within our guidance range of $3.30 to $4.00 per share. Reduced wholesale volumes and pricing and expected inventory valuation adjustments in our wholesale purchase for resale business could reduce our results from operations by as much as 15 percent below the low end of our guidance range. This reduction is anticipated to be offset by non-cash gains relating to our foreign currency denominated working capital position.
The major assumptions made in preparing our second half guidance are outlined below and include, but are not limited to:
- Wholesale fertilizer prices for the remainder of fourth quarter consistent with current market prices;
- Retail and Wholesale sales volumes significantly below the relatively strong fourth quarter of 2007, due to weak demand in all markets;
- Inventory valuation based on current market pricing;
- An outage of 40 days for planned maintenance at our Profertil Nitrogen facility and lower production at North American Wholesale facilities compared to the fourth quarter of 2007;
- Average NYMEX gas price for the fourth quarter not deviating significantly from $6.75/MMBtu;
- The exchange rate for the Canadian dollar in the fourth quarter similar to the current market rate;
- Stock-based compensation expense reflecting Agriums stock price at the close of business on December 8, 2008 ($26.65 US) and a $1 change in stock price equates to approximately $0.01 change in earnings per share;
- The exclusion from the guidance range of mark-to-market gains or losses on non-qualifying commodity and foreign currency hedge positions settling in future periods;
- An effective tax rate for the fourth quarter of 32 percent; and
- Earnings per share based on fully diluted shares outstanding at September 30, 2008 exclusive of the impact of any share repurchase activity in the fourth quarter.
Forward-Looking Statements
Certain statements in this press release constitute forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties, including those referred to in the MD&A section of the Corporations most recent annual report to shareholders, which may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. A number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, weather conditions, crop prices, the future supply, demand and price level for our major products, future gas prices and gas availability in key markets, future operating rates and production costs at Agriums facilities, the exchange and tax rates for U.S., Canada, Argentina, and Egypt, seasonal fertilizer consumption given the recent decline in crop prices and delayed harvest in the U.S. and any changes in government policy in key agriculture markets, including the application of price controls and tariffs on fertilizers and the availability of subsidies or changes in their amounts, current global financial crisis and changes in credit markets; the potential inability to integrate and obtain anticipated synergies for recent or new business acquisitions as planned or within the time predicted, failure to satisfy conditions precedent to the proposed Egyptian transaction, a potential failure of the Egyptian government to issue all necessary approvals and consents required to complete the MOPCO expansion as planned, the potential inability of MOPCO to raise the required $1.1-billion in debt for the planned expansion, changes in development plans, capital construction costs, construction progress, and potential delays in completing the proposed MOPCO expansion and related infrastructure, availability of equipment and labor, performance of other parties, political risks, including civil unrest, actions by armed groups or conflict, general economic, market and business condition, Egyptian governmental and regulatory requirements and actions by governmental authorities, including changes in government policy, changes in environmental, tax and other laws or regulations and the interpretation thereof. Agrium disclaims any intention or obligation to update or revise any forward-looking information as a result of new information or future events.
Source: Agrium Inc.
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