Why Agrium’s Capital Expenditure Could Trend Lower



Capital expenditures

In an earlier part of this series, we briefly discussed how the fertilizer industry has come under pressure due to overcapacity. Some fertilizer companies (XLB) have stalled or even abandoned their expansion projects. In this article, we’ll look at capital expenditure estimates for Agrium (AGU) in 2017 amid this scenario.

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Analyst estimates

For a manufacturing company, capital expenditures usually include a portion that is kept for maintenance of the existing facilities and a portion that is invested in growth projects.

For fiscal 2017, Wall Street analysts are estimating Agrium’s capital expenditures to stand at $682 million. This is about 5.7% lower compared to $724 million in 2016. Comparing capital expenditure with sales, a better measure, we see that the ratio is expected to fall from 5.3% as a percentage of sales in 2016 to 4.8% in 2017. The 2016 and 2017 forecasted capital expenditures are even lower compared to 2015 when capital expenditure as a percentage of sales was about 8%.

Lower capex

Lower capital expenditure is expected when sales growth for industry (MXI) players like CF Industries (CF), Intrepid Potash (IPI), and PotashCorp (POT) is slow. Analysts estimate PotashCorp’s capital expenditure in fiscal 2017 to stand at $633 million compared to $893 million in fiscal 2017.

In the next part, we’ll discuss free cash flows for Agrium.


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