Agrium Management Discusses Q2 2012 Results - Earnings Call Transcript

Agrium (AGU)

Q2 2012 Earnings Call

August 03, 2012 8:30 am ET

Executives

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

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

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

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

Analysts

Jacob Bout - CIBC World Markets Inc., Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

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

Kurt Schoen - Credit Agricole Securities (USA) Inc., Research Division

Joel Jackson - BMO Capital Markets Canada

Michael E. Cox - Piper Jaffray Companies, Research Division

Adam Schatzker - RBC Capital Markets, LLC, Research Division

Ted Drangula - Morgan Stanley, Research Division

Mark R. Gulley - Gulley & Associates LLC

P.J. Juvekar - Citigroup Inc, Research Division

John Chu - AltaCorp Capital Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

John Hughes - Desjardins Securities Inc., Research Division

Robert B. Winslow - National Bank Financial, Inc., Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Ian Horowitz - Topeka Capital Markets Inc., Research Division

Brian MacArthur - UBS Investment Bank, Research Division

Presentation

Operator

Good day, everyone, and welcome to today's Agrium Second 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 Second 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 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 of forecast. 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 in 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. It's a pleasure to have the opportunity to review Agrium's second quarter results with you and provide an overview of our outlook for the crop input market as we look ahead the to rest of the year. Agrium's ability to capitalize on the strength and the agricultural fundamentals was on full display this quarter as we delivered net earnings of $5.44 per diluted share, which made the second quarter and first half of 2012 the strongest in company history.

Our outstanding performances quarter was a result of strong earnings for all 3 of our business units, including record EBITDA for both Retail and Wholesale as we benefited from our significant competitive advantages and strong earnings leverage across the crop input sector. Our geographic and product diversity also enabled us to capture additional value this quarter, stemming from results in our crop production business and robust demand for crop inputs in late spring from Western Canada and the northern U.S. plains.

In addition to delivering excellent operational results, we also took the opportunity to demonstrate our commitment to returning capital to shareholders this quarter by more than doubling our semiannual dividend to $0.50 per share, our second substantial increase since December. We firmly believe that the proven strategy and strength across all of our businesses, combined with our solid and stable cash flow generation, will afford us the opportunity to continue to deliver achieving our growth objectives, while also enabling us to continue to provide further increases in return of excess capital to shareholders.

With this in mind, we announced the share repurchase program of $900 million in association with the sale of the Medicine Hat facility that was announced last night. The sale of the equity position in the Medicine Hat nitrogen facility represented a compelling return for this asset. In essence, Agrium will obtain the retail business from Viterra for about $175 million plus working capital of approximately $400 million.

While our earnings are a testament to the strong demand for crop inputs that existed throughout the first half of the year, the outlook for our business for the remainder of 2012 and into 2013 is also very promising. Record grain and oilseed prices will provide growers around the world with the economic incentive to expand acreage and to optimize their use of Agrium's complete line of Agrium products and services.

I'll return to discuss the outlook in more detail shortly, but we'll first take a few minutes to review our quarterly results.

Our Retail results speak for themselves this quarter and illustrate our ability to continue successfully growing our earnings base by capturing the significant opportunity in the global crop input space.

Retail achieved its highest second quarter and first half earnings in our history, with EBITDA topping $700 million for the first half. Retail EBITDA for the last 12 months surpassed $900 million, significantly demonstrating the rapid progress that we've made towards achieving earnings growth goal for retail. This is even before accounting for the future earnings from Viterra's retail assets.

This strong performance was due to the continuation of robust demand for crop input products and services across all products and most regions. Retail's total EBITDA to sales margin rose to 9% in the first half of 2012 and over 10% in the North American market. Contributions from numerous small retail acquisitions made over the past 12 months added just over 2% to our sales in the first half of 2012, with a similar percentage contribution towards expenses and earnings during the period.

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