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Agrium Inc. (TSX:AGU) said bad weather in the United States is the latest issue facing the fertilizer industry after an already devastating year that led to a 92 per cent in drop in third-quarter profit.
Agrium president and chief executive Mike Wilson said fertilizer sales are poised to pick up in the fourth quarter and into 2010 after being hit hard by the recession over the past several months.
However, Wilson said a near-term recovery depends on a much-needed dry spell after wet weather delayed harvesting of several crops across the U.S. Midwest.
"It has been a challenging year for the agriculture industry and this may extend into the fall if weather in the U.S. does not co-operate to allow farmers sufficient time for harvest and to apply crop nutrients," Wilson told investors during a conference call Wednesday.
"The majority of our customers recognize that they have been depleting their soil of nutrients and we believe they are anxious to apply close to normal application rates this fertilizer year."
As of mid-October, Wilson said the harvest for corn and soybean crops was 50 per cent behind normal levels - one of the slowest harvests on record.
He said that could significantly limit the crop nutrient application window and possibly push up demand next spring.
"We do not believe farmers will put crop yields at risk two years in a row, given the cumulative impact this will have," Wilson said.
Wilson said the company is poised to benefit from what it sees as a "significant" recovery in the fertilizer business in the coming months.
"We are coming out of a tough year in 2009, but we are strong financially," Wilson said. "Hang on and stick with it."
Wilson's comments come after Agrium reported a 92 per cent drop in third-quarter profit earlier Wednesday, which was in line with a warning it issued last month.
It said the reduction is due to a drop in sales of the nutrients it makes: nitrogen, phosphate and potash. Retail results felt the brunt of a slower-than-expected recovery in retail crop nutrient margins.
Official results released Wednesday showed a profit of US$26 million or 16 cents per share compared with a profit of US$367 million or $2.31 per share for the same quarter last year.
Agrium, which reports earnings in U.S. dollars, said revenue in the July-September period slipped to $1.8 billion compared with $1.9 billion for the same period last year.
Excluding one-time items, Agrium reported earnings of $46 million or 29 cents per share.
The company said it now expects second-half earnings between 30 cents and 60 cents per share, or fourth-quarter earnings of 14 cents to 44 cents, excluding estimated hedging gains or losses and stock-based compensation expense.
Richard Gearheard, president of retail at Agrium, said the company will be cautious with its sales expectations in the medium-term.
"The whole retail industry, after last year, is being very cautious," Gearheard said.
Troubles in the fertilizer sector are believed to be short-term as companies deal with the inventory buildup in the last year or so and lower crop prices caused in part by the recession. However, the current markets are squeezing all producers.
Saskatchewan-based PotashCorp. (TSX:POT), the world's biggest fertilizer company, saw its profits drop by 80 per cent this quarter to US$248.8 million.
Meanwhile, Minnesota-based The Mosaic Co. (NYSE:MOS) recently said net earnings for its fiscal 2010 first quarter ended Aug. 31 plunged to US$100.6 million from US$1.2 billion a year earlier. Quarterly sales fell 66 per cent to $1.5 billion from $4.4 billion.
Agrium refused to comment Wednesday on its attempts to acquire Illinois-based CF Industries (NYSE:C), something CF has been resisting since the offer was first made last February.
Wilson said the company would be announcing an update in the near future.
CF management contends the $4-billion cash and stock offer is inadequate. Agrium has set a new, Nov. 13 deadline for the CF takeover, the latest in a string of extensions as it tries to get CF management to the bargaining table.
Adding to the takeover drama is Agrium's proposal to sell half of a nitrogen facility in Alberta for US$250 million to U.S.-based Terra Industries Inc. (NYSE:TRA) as part of an agreement with the Competition Bureau.
The sale is contingent on Agrium's successful takeover of CF.
The deal with the Competition Bureau also includes a requirement to supply additional product that will make a total of 466,000 tonnes of nitrogen-based fertilizers available to Terra Industries per year.
Meantime, Terra is fending off a hostile bid from CF. On Wednesday, Terra rejected the latest offer of US$4.1-billion, saying it was still too low.
CF, which has pursued Terra since January, raised its offer earlier this week by adding cash to the bid. It said the new bid was worth $40.61 per share, a five per cent premium on CF's previous all-stock offer.
