Agrium Inc. (AGU)

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Agrium (AGU)

Q1 2013 Earnings Call

May 09, 2013 11:30 am ET

Executives

Richard Downey - Vice President of Investor/Corporate Relations

Michael M. Wilson - Chief Executive Officer, President and Director

Charles Victor Magro - Chief Operating Officer and Executive Vice President

Richard L. Gearheard - Senior Vice President and President of Retail Business Unit

Ronald A. Wilkinson - Senior Vice President and President of Wholesale Business Unit

Thomas E. Warner - Vice President of Retail Distribution and President of Crop Production Services Inc

David J. Tretter - Executive Vice President of Procurement and Executive Vice President of wholesale sales of UAP Holding corp

Analysts

Joel Jackson - BMO Capital Markets Canada

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Ben Isaacson - Scotiabank Global Banking and Markets, Research Division

Jacob Bout - CIBC World Markets Inc., Research Division

Michael Picken - Cleveland Research Company

Adam Samuelson - Goldman Sachs Group Inc., Research Division

P. J. Juvekar - Citigroup Inc, Research Division

John Chu - AltaCorp Capital Inc., Research Division

Paul D'Amico - TD Securities Equity Research

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division

Brett Wong - Piper Jaffray Companies, Research Division

Christopher S. Parkinson - Crédit Suisse AG, Research Division

Presentation

Operator

Good day, everyone, and welcome to today's Agrium First Quarter Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

Now for opening remarks and introductions, I would like to turn the conference over to Mr. Richard Downey, Vice President of Investor and Corporate Relations. Please go ahead, sir.

Richard Downey

Thank you, operator, good morning, everyone, and welcome to Agrium's 2013 First Quarter Conference Call. On the phone today to review and discuss our results is Agrium's leadership team, including Mr. Mike Wilson, President and CEO of Agrium; and Mr. Chuck Magro, our Chief Operating Officer.

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 conclusions and forecasts, 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.

I will now turn the call over to Mr. Mike Wilson.

Michael M. Wilson

Thank you, Richard, and welcome to everyone joining us today to review Agrium's first quarter results and our outlook for our business. We're going to change things up a little today. I'll cover the general introduction and closing. And Chuck Magro, our Chief Operating Officer, will cover operations.

As the leading provider of crop inputs to growers in 3 continents, we, like our farmer customers, are keenly aware of the extent to which variable weather patterns can impact our businesses. And also, just how important it is for us to work with them to get crop inputs in a timely, efficient manner in order to maximize yields and returns. The past few months are a good example, as conditions have been challenged due to the wet, cold spring across North America, which is resulting in one of the latest starts to the spring season in history, while at the same time, drought conditions have impacted the Australian market.

Under these conditions, Agrium still achieved a record adjusted EBITDA of $351 million in the first quarter of 2013. We delivered net earnings of $1.03 per share after accounting for nonoperational items and also generated a solid $355 million in cash flow from operations in the first quarter. This strong performance is another clear demonstration of the value associated with the successful execution of an integrated strategy, with Wholesale and Retail both achieving their second-highest first quarter EBITDA on record. Additionally, our business is well positioned to capitalize on the pent-up demand from growers across North America and as we look forward to the busy months ahead.

We also announced this morning our intention to execute a share repurchase program for up to 5% of total shares outstanding. This is another example of Agrium's continuing commitment to providing strong total shareholder returns, as well as our confidence in the outlook for the Agrium's business. We believe that we can continue to deliver value-added growth across the crop input value chain, while at the same time, delivering significant returns of capital to shareholders in the form of both dividends and share repurchases. We continue to close on smaller value-enhancing Retail acquisitions this quarter, adding 17 facilities with annual sales of approximately $100 million. You will recall that we were also very active in completing these smaller scale acquisitions in 2012 as we acquired a total of 59 Retail locations, with sales of approximately $477 million last year.

The operating cost and depreciation expense associated with these facilities acquired in 2012 were the primary driver of our increase in Retail selling expense this quarter. And given the fact that the majority of the acquisitions were made in North America, we expect these assets to make a strong contribution to the earnings profile in the second quarter and beyond.

As you saw last week, the Canadian Competition Bureau approved the sale of the minority interest in the Medicine Hat nitrogen facility. We estimate the sales value of that asset on a gross basis at approximately $1 billion, and received approximately $939 million in cash last week pertaining to this transaction.

With regard to Agrium's purchase of the rest of Viterra's Agri-products assets, we have received approval from the Australian Competition and Consumer Commission and anticipate that we will close that portion of the deal soon. We continue to work with the Canadian Competition Bureau and expect to close this larger part of the transaction in due course as we work through the regulatory process. We look forward to fully integrating this significant Retail business into CPS after the busy spring season is complete. As a reminder, an amount equal to the after-tax operating cash flow from the Viterra Retail operations from March of last year to the time of closing will be applied against the purchase price.

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