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Agrium Inc. Q2 2010 Earnings Call Transcript

Agrium Inc. Q2 2010 Earnings Call Transcript

Agrium Inc. (AGU)

Q2 2010 Earnings Call Transcript

August 4, 2010 11:30 am ET


Richard Downey – Senior Director, IR

Mike Wilson – President and CEO

Bruce Waterman – SVP, Finance and CFO

Tom Warner – VP, Retail East Region

Richard Gearheard – SVP, Agrium; President, Retail Business Unit

Dave Tretter – VP, Procurement

Kevin Helash – VP, Marketing & Distribution


Anthony Pezzo [ph] – Citi

Jacob Bout – CIBC

Fai Lee – RBC Capital Markets

David Begleiter – Deutsche Bank

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Elaine Yip – Credit Suisse

Paul D'Amico – TD Newcrest

Hari Sambasivam – National Bank Financial

Edlain Rodriguez – Gleacher & Company

Mark Connelly -- CLSA

David Silver – Bank of America/Merrill Lynch

Lindsay Drucker Mann – Goldman Sachs

Jeff Zekauskas – J.P. Morgan

Don Carson – Susquehanna



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Good day, everyone. And welcome to today's second quarter results conference call. Following today's remarks, we will conduct an electronic question-and-answer session. Instructions on how to pose your question will be given at that time. 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, Senior Director, Investor Relations. Please go ahead, sir.

Richard Downey

Thank you, operator. Good morning, everyone. And welcome to Agrium's 2010 second quarter conference call. On the phone with us today is Mr. Mike Wilson, President and CEO of Agrium. He is joined by our CFO, Mr. Bruce Waterman, as well as other Agrium officers to review and discuss our results.

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 in the forward-looking information. Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as on our most recent annual record MD&A and annual information form filed with Canadian and U.S. security commissions to which we direct you.

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

Mike Wilson

Thank you, Richard, and good morning. And thank you for joining us today for our 2010 second quarter conference call. I'm pleased to announce today Agrium delivered the second highest quarter results in our history with $0.5 billion in net earnings and an EPS of $3.20. This was supported by record or near record results in each of our business units. These results are impressive, considering the spring season was less than ideal from a weather perspective with excess moisture in the U.S. Corn Belt and Western Canada for a majority of the spring.

U.S. growers started the quarter with open weather for nutrient applications and planting and made excellent progress in April. However, excessive wet conditions impeded both application and seeding progress beginning in May for many regions in North America and particularly in Western Canada, where we estimate a record 17% or 10 million acres of crop land did not get planted.

Agrium was able to largely offset these challenges and delivered an exceptional quarter due to our geographic diversity, greater product offerings and strong relationships with our customers and supplier.

The outlook for the second quarter of 2010 is also very promising. Most crop prices, particularly the wheat, corn and soybeans has strengthen as a result of downward revisions in ending inventories, due to a combination of lower production and increased demand. This is expected to support increased corn and wheat acreage in 2011, which is positive for crop input markets. An anticipated early harvest is also expected to allow growers additional time to apply crop nutrients this fall.

Finally, domestic nitrogen and phosphate prices have firmed considerably over the past month. I’ll cover more on the outlook for our businesses later and will first take a few minutes to outline the key results for our business units and products for the quarter.

Our results were the second highest on record with second quarter gross profit up 20% versus the second quarter of '09, and a 27% improvement in EBIT. Although, results returned closer to normal this year, they could have been even better if it were not for the wet weather in the late spring experienced across much of North America and some challenges in the crop protection market.

The crop nutrient business accounted for the majority of the improvement in retail earnings in 2010 with a gross profit more than double last year's level. Crop nutrient demand returned close to normal in both North and South America this quarter, resulting in a 31% increase in sales volume over last year. Gross margins also showed a dramatic improvement averaging 18% for the quarter.

While crop nutrient demand returned to normal in 2010. Crop protection business face challenges in the first half of the year. Net sales for crop protection productions were largely unchanged from last year, however, gross profit declined by about 10%. This was primarily due to significant pressure on glyphosate fungicide market. The highly competitive situation among suppliers impacted returns and resulted in higher than normal pre-season sales of fungicides at reduce prices.

Margins on a percent basis were 22% this quarter, up significantly from the 15% reported in the first quarter of 2010, but 3% lower than the same period last year.

Net sales of seed increased by 11% this quarter, while gross profit increased slightly to $126 million this quarter. The increase in net sales was the result of increased planted acreage for cotton, soybeans and corn.

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