Strong but slowing growth
With 2013 EBITDA of $986 million, the Retail business unit of Agrium is the company’s largest component. None of Agrium’s main peers, such as PotashCorp (POT), CF Industries (CF), and Mosaic (MOS), have a retail business. This makes Agrium (AGU) the only fertilizer wholesaler of the Market Vectors Agribusiness ETF with a retail business.
The recent acquisition of Viterra and its 200 new stores in western Canada left Agrium with approximately 1,386 stores worldwide. Most of the retail gross profit is generated in the U.S. (77%) and Australia (15%). You can further divide the Retail segment by its product offerings. These include crop protection (38%), crop nutrients (32%), and seed, services, and other (30%).
Since 2006, Retail gross profit has been growing at a CAGR (compound annual growth rate) of 26.8%. But, over 2012 and 2013, the year-over-year growth rate has decreased to 8.4% and 5.5%, respectively. This decline in the growth rate was mainly due to significant slows in the Crop Nutrients segment and the Seed, Services, and Other segment.
Crop nutrients: Slow growth due to declining nutrient prices
Crop nutrients include nitrogen, phosphate, and potash plus sulfur and micronutrients. Of all the segments within Retail, the Crop Nutrients segment tends to fluctuate the most due to macro events that affect prices and volumes. While a slower increase in volumes did contribute to the slowdown in the segment’s growth, the main reason was much lower fertilizer prices. To learn more about fertilizer prices, check out this article.
Seed, Services, and Other
On top of its seeds and seed services, Agrium also provides agricultural merchandise like irrigation equipment and services like product application and soil testing. While the Seed and Merchandise segments have gross margins of 21.8% and 15.4%, respectively, Services has a gross margin of 49.8% due to lower costs. The reason for the slower growth in this segment was mainly the services and merchandises businesses.
Analysts expect the Seed segment, along with the Crop Protection segment, to provide organic growth to Agrium through the higher-margin products expected to enter the market.