Agrium Inc. (AGU)

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Agrium (AGU)

Q3 2012 Earnings Call

November 07, 2012 11:30 am ET

Executives

Richard Downey - Vice President of Investor & Corporate Relations and Market Research

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

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

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

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

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

Analysts

Jacob Bout - CIBC World Markets Inc., Research Division

Ben Isaacson - Scotiabank Global Banking and Markets, Research Division

Joel Jackson - BMO Capital Markets Canada

Edlain S. Rodriguez - Lazard Capital Markets LLC, Research Division

P.J. Juvekar - Citigroup Inc, Research Division

Paul D'Amico - TD Securities Equity Research

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Darren R. Wiebe - Macquarie Research

Christopher Perrella

Matthew Korn - Barclays Capital, Research Division

John Chu - AltaCorp Capital Inc., Research Division

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

Charles N. Neivert - Dahlman Rose & Company, LLC, Research Division

John Hughes - Desjardins Securities Inc., Research Division

Ian Horowitz - Topeka Capital Markets Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to Agrium's Third 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, Investor Corporate Relations. Please go ahead, sir.

Richard Downey

Thank you, operator. Good morning, everyone, and welcome to Agrium's 2012 Third 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. 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 the 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 third quarter results. This quarter, we reported net earnings of $0.80 per diluted share, which reflected the impact of a large share-based payment expense, resulting from the strong performance in our stock price during the third quarter, as well as nonrecurring charges, primarily related to environmental remediation.

After backing out these items, net earnings would have been $1.34 per diluted share this quarter. This figure is lower than the net earnings reported last year, largely as a result of the cost and volume impact from the major turnaround at our Vanscoy potash mine and a longer-than-expected restart of this facility, as well as lower potash and phosphate prices. Although the necessary turnaround had a short-term impact on our earnings this quarter, it represents an important step in ensuring that Agrium is strategically positioned for the long term, with both expanded production capacity and a lower cost profile.

Our results this quarter once again reflected our strong competitive advantages in nitrogen, as well as the ability of our Retail business to deliver solid earnings even during one of the worst droughts in U.S. history.

Gross profit from nitrogen business was the highest on record for third quarter. Additionally, Retail EBITDA nearly matched the outstanding results reported in the same quarter last year despite the drought and early end of the spring season this year, particularly relative to the late spring last year.

We have also continued to provide further returns of capital of our shareholders. Our recently completed $900 million substantial issuer bid allowed us to successfully return the proceeds of the sale to our shareholders in a prompt and attractive manner. We also announced that our board intends to double Agrium's dividend to $2 per share on an annualized basis and move to a quarterly dividend payment. This represents the third significant increase since last December and is yet another indication of our confidence in Agrium's integrated business model and our commitment to providing strong returns of capital to shareholders, while continuing to invest in value-added growth.

Agrium is providing guidance for the fourth quarter of 2012 of $1.50 to $1.90 diluted earnings per share, excluding hedging and share-based payments, gains or losses. This implies slightly lower results than achieved in the fourth quarter of 2011, due to the expectation of significantly lower international potash demand in the fourth quarter and lower fall ammonia sales volumes in Western Canada, as a result of the early snowfall across this important region.

I'll return to discuss the outlook in more detail shortly, but we'll first take a few minutes to review our results. The Retail earnings this quarter are a testament to our ability to generate solid earnings even in the challenging conditions presented during the severe U.S. drought, which adversely impacted late-season demand for some crop inputs and services. Retail reported EBITDA of $121 million for the third quarter of 2012, with year-to-date EBITDA reaching a record $827 million. The strength in these results highlights the value of our geographic diversity, as our Australian operations provided $12 million more in EBITDA this quarter than last year, helping us offset the impact of dry conditions in the U.S.

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