After flying high on strong fertilizer prices over the last few
) recently warned on the third quarter as fertilizer prices went
soft. This Zacks Rank #5 (Strong Sell) is trading near its 52-week
Agrium produces all three major fertilizers, including nitrogen,
phosphates and potash. It is also a retail supplier of agricultural
products such as crop protection and seeds in North America, South
America and Australia.
Tough Third Quarter Coming
On Sep 23, Agrium provided a third quarter outlook which was pretty
grim. Soft fertilizer prices, combined with lower sales volumes,
are expected to negatively impact the Wholesale segment's third
Agrium said customer demand had been delayed across all the
fertilizers in the quarter. Wholesale nitrogen sales plunged 20%
and phosphates sales sank 30% from the year ago quarter. Potash was
no better, coming in about 30% lower than a typical third quarter.
To add on even more bad news, fertilizer prices were also about
20%-30% lower than the same period in 2012.
To placate shareholders, Agrium raised its dividend by $1.00 a
share. It is now yielding a healthy 3.4%.
This dividend increase was larger than the analysts had
Given the gloomy outlook from Agrium, it's not surprising that the
analysts moved to cut estimates for both the third quarter and the
The third quarter Zacks Consensus Estimate fell to just $0.82 from
$1.53 just 90 days ago. The most accurate estimate was even lower,
at $0.69. That's a cut of more than half in just the last 3 months.
For the full year, 10 estimates have been cut over the last 2
months. Earnings are now expected to drop by 13.5% to $8.44. The
company made $9.75 in 2012.
Analysts are more tentative on 2014 as they expect earnings to
decline only another 0.2%. But that could change after third
quarter earnings which are expected in early November.
With the fertilizer markets in turmoil over the past few months,
it's not surprising that Agrium's shares have been weak.
Agrium's valuation has become more attractive as the shares have
slid. It trades with a forward P/E of 10 and a price-to-book ratio
But, the earnings are likely to continue to contract for the next
quarter or two. The Zacks Rank is a short term recommendation of 1
to 3 months.
For investors interested in the fertilizer companies, there are no
fertilizer peers trading with a Zacks Rank #1 (Strong Buy) or #2
(Buy). All of the companies have the same problems of falling
prices and volumes and their earnings estimates are being cut.
But for those interested in the agriculture sector, in general,
AGCO Corporation (
), the large agriculture machinery maker, is a Zacks Rank #1
Want More of Our Best Recommendations?
Zacks' Executive VP, Steve Reitmeister, knows when key trades are
about to be triggered and which of our experts has the hottest
hand. Then each week he hand-selects the most compelling trades and
serves them up to you in a new program called
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She
is also the Editor of the
services. You can follow her on twitter at
AGCO CORP (AGCO): Free Stock Analysis Report
AGRIUM INC (AGU): Free Stock Analysis Report
To read this article on Zacks.com click here.