Why AGU’s wholesale results were driven by phosphate earnings

Higher phosphate earnings

Agrium’s Wholesale segment generated 58.6% of Agrium’s 2013 earnings before interest, tax, depreciation, and amortization (or EBITDA). Agrium and PotashCorp (POT) are the only two companies in the VanEck Vectors Agribusiness ETF (MOO) that offer nitrogen, potash, and phosphate.

Intrepid Potash (or IPI) only produces potash. Mosaic (MOS) produces potash and phosphate. CF Industries (CF) only produces nitrogen. CF sold its phosphate business to Mosaic.

Why AGU’s wholesale results were driven by phosphate earnings

Wholesale results driven by growth in phosphate sales

Wholesale’s 3Q14 sales were $803 million—slightly up from $786 million in the same quarter last year. Adjusted EBITDA came in at $171 million—up from $144 million in 3Q13. The increase in earnings was driven by phosphate results.

According to Agrium’s management, the highlight of the quarter was Agrium generating the “highest phosphate margins” among its peers.

Phosphate gross profit was $31 million—up from $7 million in the same quarter last year. Phosphate sales volumes were 261,000 tonnes. This was a 36% increase from 192,000 tonnes in the same quarter last year. Capacity utilization improved at Agrium’s Redwater facility in Alberta.

Management said on the earnings call that it “reduced fixed costs at both of its plants in Alberta and Idaho, benefited from sulphur and ammonia cost advantages, and realized significantly higher phosphate prices.”

The largest North American phosphate producers are MOS, POT, CF. These companies, including Agrium (AGU), are all top-ten holdings in the VanEck Vectors Agribusiness ETF (MOO).

Potash sales impacted by shutdown of Vanscoy mine

Agrium said the higher earnings from phosphate offset the impact from a shutdown at the company’s Vanscoy, Saskatchewan, potash mine. In July, Agrium said the Vanscoy mine experienced a mechanical failure on its main hoist system. As a result, the production was shut down.

Due to the outage, the company said it will bring forward the planned turnaround to tie-in the current capacity expansion project. The facility will be shut down until the tie-in is complete. Therefore, Potash gross profit for 3Q14 fell to $2 million—from $27 million in 3Q13. Sales volumes were down to 251,000 tonnes.

Nitrogen sales driven by urea volumes

Nitrogen is the largest segment in wholesale. It saw gross profit of $77 million for 3Q14—compared to $76 million in 3Q13. Agrium’s nitrogen product category mainly consists of urea, ammonia, UAN, and industrial grade ammonium nitrate. Urea is the highest volume nitrogen product sold globally. It accounted for over 40% of Agrium’s nitrogen capacity and 2013 production.

Nitrogen sales volumes for 3Q14 were up to 735,000 tonnes—from 636,000 tonnes in 3Q13. Urea sales volumes increased, despite a planned outage at the company’s Redwater facility.

EBITDA expected to be flat for second half of 2014

Agrium expects EBITDA for the wholesale segment for the second half of 2014 to be flat year-over-year (or YoY). It said stronger nitrogen results are expected to offset the impact of downtime associated with major turnarounds at the Vanscoy potash facility and Redwater nitrogen facility.

In the next part of the series, we’ll discuss Agrium’s nitrogen expansion plans.