We are reaffirming our Neutral recommendation on Agrium. Its profit
dropped year over year in the second quarter due to environmental
remediation charges, but both sales and adjusted earnings topped
expectations. Revenues rose as record results in the core retail
business more than offset a double-digit decline in the wholesale
franchise. The pricing environment is expected to remain soft in
the wholesale business. Moreover, demand for potash and phosphate
is expected to be somewhat weak in India, a key market. The company
is also faced with issues such as logistical constraints and plant
outages. Nevertheless, Agrium stands to benefit from overall strong
fundamentals for the agriculture and crop input market. The company
is expected to see strong demand for crop protection products
through the balance of 2014. We are also encouraged by Agrium's
commitments to boost shareholder returns.
Agrium Inc., based in Alberta, Canada, is a major retailer of
agricultural products and services in North and South America.
Agrium is the third largest potash producer in North America. The
company is also a leading global wholesale producer and marketer of
all three major agricultural macronutrients - nitrogen, potash, and
phosphate - besides being a premier supplier of micronutrients and
specialty fertilizers in the U.S. and Canada. Agrium operates
through two segments Retail and Wholesale.
The Retail segment offers Crop Nutrients, Crop Protection
Products, Seed, Merchandise and Application & Other Services
directly to farmers. Crop Nutrients include a complete range of
products such as nitrogen, phosphate, potash, sulfur and
micronutrients in either liquid or dry form. Crop Protection
Products consist of herbicides, insecticides and fungicides. Seeds
contain a complete range of crop seeds as well as liquid and dry
The Retail segment operates 444 farm centers and 49
distribution/warehouse facilities across 30 states in the U.S.,
Argentina and Chile. It has three business trademarks:
Crop Production Services (CPS) serves the Corn Belt and Eastern
agricultural regions of the U.S. growing key crops such as corn,
soybeans, wheat and cotton.
Western Farm Services (WFS) serves the Western U.S. including
California, Arizona, Washington, Oregon and Idaho, growing crops
including fruit, vegetables and wheat.
Agroservicios Pampeanos S.A. (ASP) in South America a wholly
owned subsidiary serves the wheat, soybeans and corn growing region
of Argentina and the fruit growing region of Chile.
The Wholesale segment provides nitrogen phosphate and potash
based fertilizers and products purchased from domestic and
international suppliers for resale in the U.S. and Canadian
markets. About 85% of the Wholesale business is targeted at the
agricultural market using crop nutrients to help enhance yields,
while the remaining 15% is used for a broad range of industrial
purposes, which include ammonia in dry and liquid form, urea and
urea ammonium nitrate (UAN). Urea is the largest of Agrium's
Wholesale products. The company has 6 nitrogen facilities, 4 in
Alberta and 1 each in Argentina and Texas 1 potash mine at Vanscoy,
Saskatchewan and 2 phosphate products facilities in Conda, Idaho
and Redwater, Alberta.
Agrium conducted a strategic review of the Advanced Technologies
(AAT) segment in 2013 to transition the Agriculture business (which
includes environmentally smart nitrogen/ESN and Micronutrient
products) of AAT to its Wholesale unit. The integration of the ESN
business into wholesale is expected to offer cost savings of $10
million to $15 million in 2014.
Other Business Unit is Agrium's non-operating reporting line
where the elimination of inter-segment transactions and corporate
expenses are recorded. Inter-segment transactions are primarily
related to sales of crop nutrients to the Retail unit from
Acquisitions and Divestitures
On December 3, 2010, Agrium acquired 100% of AWB, an
agribusiness operating in Australia, for $1.2 billion in cash and
$37 million of acquisition costs. On May 11, 2011, the company
completed the sale of the majority of the Commodity Management
businesses acquired from AWB, in accordance with an agreement dated
December 15, 2010. Cash received from the sale was $694
Agrium retained its Landmark retail operations, including over
200 company-owned retail locations and over 140 retail franchise
and wholesale customer locations in Australia. The primary purpose
of the acquisition was to expand the retail division and provide
access to the growing Southeast Asia market. The acquired business
is included in the Retail operating segment.
Agrium, in March 2012, entered into an agreement with Viterra
Inc. to acquire the majority of its Agri-products business. The
acquisition was completed in October 2013. Agrium acquired more
than 200 retail stores across Canada and Australia. The acquisition
of Viterra's assets is an excellent fit to Agrium s portfolio as it
will be able to provide highly competitive products, services and
technologies by combining its experience with Viterra's profound
knowledge of western Canadian agriculture.
On August 2, 2012, Agrium and Glencore announced that CF
Industries Holdings Inc. (CF), which owns a 66% interest in the
Medicine Hat nitrogen facility, will buy Viterra's (now acquired by
Glencore) 34% interest in the facility for C$915 million. CF
Industries completed the acquisition during second-quarter 2013.
Pursuant to the transaction closure, Agrium received $932 million
which is subject to adjustment according to its agreement with
Agrium, in March 2014, agreed to sell selected Canadian retail
assets (16 retail agronomy locations in the provinces of Alberta
and Saskatchewan) to the U.S. farmer-owned cooperative and a global
energy, grains and foods company CHS Inc. for an undisclosed price.
The 16 retail agronomy assets are part of Agrium's acquisition of
Viterra's retail stores across Western Canada.
Agrium, on May 9, 2014, inked a deal with Koch Agronomic
Services, LLC, an affiliate of Koch Fertilizer, LLC, to divest its
turf and ornamental business. The roughly $94 million transaction
was completed in July 2014. The turf and ornamental business is a
part of Agrium's former AAT group. The divestment is part of a
strategic review of the business completed last year with regards
to the discontinued operations of the AAT unit.
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