Nutrien's 2nd Quarter and 1st Half Results Demonstrate Strength in a Compressed Season
TSX - Toronto Stock Exchange
Canada NewsWire
SASKATOON, August 1, 2018
NYSE, TSX: NTR
SASKATOON, August 1, 2018/CNW/ - Nutrien Ltd. (Nutrien) announced today its 2018 second-quarter results, with net earnings from continuing operations of $741 million1 ($1.172earnings per share) and EBITDA3of $1.5 billion.
HIGHLIGHTS
Nutrien's second-quarter adjusted net earnings was $1.48per share4, adjusted for purchase price allocation ($0.02per share), merger-related costs ($0.02per share), share-based compensation ($0.10per share) and dividend income from discontinued operations ($0.17per share). Second-quarter adjusted EBITDA5was $1.6 billion, adjusted for merger-related costs and share-based compensation.
Retail first-half EBITDA was up 10 percent over last year4 as a result of strong seed and crop protection product margins and excellent demand for crop inputs in the second quarter, demonstrating the value of our distribution network in a compressed season.
Potash segment EBITDA was 34 percent higher in the first half of 2018 compared to the same period last year4 due to higher realized prices, strong offshore sales volumes and lower production costs.
Nitrogen EBITDA improved by 17 percent in the first half of 2018 compared to the same period last year4as a result of lower production costs, higher urea prices and increased sales volumes.
Nutrien full-year 2018 adjusted annual earnings per share and adjusted consolidated EBITDA guidance were raised to $2.40to $2.70earnings per share and $3.7to $4.0 billion, respectively (up from $2.20to $2.60earnings per share and $3.3to $3.7 billion). The adjusted annual earnings per share guidance includes approximately $100 millionin additional annual depreciation and amortization in phosphate and sulfate, related to the conversion of our Redwaterphosphate facility to produce ammonia sulfate.
Nutrien repurchased 29.3 million shares under its normal course issuer bid program year-to-date.
Nutrien enhanced its digital ag and omni-channel offering with the recently announced acquisitions of Waypoint Analytical, Inc. and Agrible, Inc.
Nutrien decided to close its small phosphate facility at Geismar, Louisiana, by the end of 2018 and will no longer require offshore phosphate rock imports starting in 2019.
Nutrien agreed to sell its Sociedad Química y Minera de Chile S.A. (SQM) series A shares and its stake in Arab Potash Company (APC), and closed the auction of its SQM series B shares. Total net proceeds of required equity divestments are expected to be approximately $5 billionby the end of 2018.
Nutrien has achieved $246 millionin run-rate synergies as at June 30, 2018and now expects to achieve $350 millionin run-rate synergies by the end of 2018, up from the initial estimate of $250 million.
"Nutrien delivered strong second quarter and first half results, demonstrating the value of our integrated business model and extensive supply chain capabilities, in what was a very compressed spring application season. We also advanced our strategic plan, making significant progress on selling the remaining equity investments, repurchasing our shares and growing our Retail business," commented Chuck Magro, Nutrien's President and CEO. "We have raised our annual guidance due to firm market fundamentals; this, combined with our rapid pace of synergy realization and a strong balance sheet, will provide us with numerous options to enhance shareholder value," added Mr. Magro.
MARKET OUTLOOK
Agriculture and Crop Input Fundamentals
Most U.S. crop prices have declined over the past quarter, driven by a combination of favorable U.S. crop prospects and uncertainty over escalating trade restrictions.
The U.S. Department of Agriculture (USDA) is projecting an 11 percent decline in global grain ending stocks relative to last year. Key supportive fundamentals include an estimated 23 percent decline in projected U.S. corn ending stocks year-over-year, an 18 million tonne reduction in Russian wheat production and a significant decline in Argentine corn and soybean production in 2017/18.
U.S. corn and soybean condition ratings continue to be above average. As a result, growers have invested in plant health and nutritional products to preserve yield potential.
U.S. crops are developing at a significantly faster than average rate. This is expected to be positive for the fall fertilizer application window, but is still dependent on weather conditions through the fall season.
Crop protection demand in the third quarter has been supported by missed pre-seed burn-off and resulting increased weed pressure in the U.S.
Western Canadaand Australiahave recently received timely precipitation, which has provided support to crop input demand, however, there continues to be dry areas in both regions.
Potash
Strong global potash demand in major spot markets has maintained tight supply and provided support for potash prices. Many global exporters are reportedly sold out until the fourth quarter of 2018. We increased our projection of 2018 global potash shipments between 65 and 67 million tonnes.
Global potash projects continue to ramp-up, but in most cases at a slower pace than anticipated and the impact of this incremental production has been more than offset by strong demand and reduced production from some regions.
Demand for summer fill in North Americahas been strong and indicates the potential for a robust fall application season.
Brazilian agricultural fundamentals are strong, driven by supportive local soybean prices; however, there is uncertainty about the cost of inland freight as a result of truckers' disputes. While there have been some shipping bottlenecks, there have been improvements in recent weeks and we expect a strong application season driven by increased soybean area.
Nitrogen
Tight urea supply in China, closures of ammonia and urea capacity in Ukraine, uncertainty regarding Iranian nitrogen availability and seasonal maintenance shut-downs have more than offset capacity additions, providing support for nitrogen prices.
In addition to tighter supply from existing producers, there are fewer projects under construction in 2018 and they are experiencing delays, which has been particularly supportive of ammonia prices of late.
North American nitrogen supplies were lower than estimated demand in the 2017/18 fertilizer year, driven by a more than 25 percent decline in offshore imports year-over-year.
Higher production costs for marginal producers are also supporting nitrogen prices as natural gas prices in Europeare up between 35 and 50 percent year-over-year, while anthracite coal prices in Chinaare up approximately 25 percent.
Phosphate and Sulfate
Slower than expected ramp-up of new capacity, combined with plant closures and higher raw material costs year-over-year, continue to support phosphate prices.
FINANCIAL OUTLOOK AND GUIDANCE
Taking the above factors into consideration, we have revised our annual guidance ranges as follows:
We raised our guidance range for Potash sales volumes and EBITDA to 12.3 to 12.8 million tonnes and $1.4to $1.6 billion, respectively. Nitrogen sales volumes are now expected to be 10.3 to 10.7 million tonnes and we raised the bottom end of our EBITDA guidance range from $1.0 billionto $1.1 billion. Phosphate EBITDA guidance has increased to $0.2to $0.3 billion(up from $0.2to $0.25 billion).
Our effective tax rate on continuing operations range has been increased to 23 to 25 percent due to changes in forecasted earnings mix.
Dividend income from investments in APC and SQM is recorded net of tax in discontinued operations and is now expected to approximate $130 million. This is included in our adjusted annual earnings per share guidance, but is not included in adjusted consolidated EBITDA guidance.
Based on these factors, we are increasing our full-year 2018 adjusted earnings guidance to $2.40to $2.70per share (previously $2.20to $2.60per share) and adjusted consolidated EBITDA guidance to $3.7to $4.0 billion(previously $3.3to $3.7 billion).
Excluded from guidance are expected costs to achieve these ongoing synergies of $50to $75 million, share-based compensation as well as the impact of incremental depreciation and amortization of $150to $225 millionresulting from the fair valuing of Agrium's assets and liabilities as of January 1, 2018in accordance with purchase accounting.
All annual guidance numbers, including those noted above, are outlined in the table below:
| | | | | 2018 Guidance Ranges | | | | | | | | (Annual Guidance, except where noted) | Low | High | | Adjusted annual earnings per share | $2.40 | $2.70 | | Adjusted Consolidated EBITDA (billions) | $3.7 | $4.0 | | Retail EBITDA (billions) | $1.2 | $1.3 | | Potash EBITDA (billions) | $1.4 | $1.6 | | Nitrogen EBITDA (billions) | $1.1 | $1.2 | | Phosphate and Sulfate EBITDA (billions) | $0.2 | $0.3 | | Potash sales tonnes(millions)(a) | 12.3 | 12.8 | | Nitrogen salestonnes (millions)(a) | 10.3 | 10.7 | | Depreciation and amortization including purchase price allocation impact (billions) | $1.5 | $1.7 | | Integration and synergy costs (millions) | $50 | $75 | | Effective tax rate on continuing operations | 23% | 25% | | Sustaining capital expenditures (billions) | $1.0 | $1.1 | | | | | | | | | | 2018 Annual Assumptions & Sensitivities | | | | | | | | FX rate CAD to USD | | $1.28 | | NYMEX natural gas ($US/MMBtu) | | $2.90 | | $1/MMBtu increase in NYMEX ($/share)(b) | | $(0.20) | | $20/tonne change in realized Potash selling prices ($/share)(b) | | $0.26 | | $20/tonne change in realized Ammonia selling prices ($/share)(b) | | $0.06 | | $20/tonne change in realized Urea selling prices ($/share)(b) | | $0.09 |
| | | | (a) | Potash and nitrogen sales tonnes include manufactured product only. Nitrogen sales tonnes exclude ESN® and Rainbow products. | | (b) | Sensitivities are calculated pre-synergies resulting from the merger. |
SECOND-QUARTER RESULTS
The comparative figures throughout this release are the historical combined results of legacy Potash Corporation of Saskatchewan Inc. (PotashCorp) and Agrium Inc. (Agrium) for the three and six months ended June 30, 2017and are considered to be non-IFRS measures. For International Financial Reporting Standards (IFRS) purposes, the comparative amounts are the results of legacy PotashCorp, which is the accounting acquirer. Compared to the IFRS figures, the change is the result of the merger involving Agrium and PotashCorp. Refer to the Selected Non-IFRS Financial Measures and Reconciliations and Supplemental Information section.
Consolidated
| | | | | | | Three months ended June 30 | | | | | 2018 Actual | 2017 Combined | Change | | (millions of U.S. dollars) | | | | | Sales | 8,145 | 7,348 | 797 | | Freight, transportation and distribution | (214) | (234) | 20 | | Cost of goods sold | (5,800) | (5,323) | (477) | | Gross margin | 2,131 | 1,791 | 340 | | Expenses | (980) | (796) | (184) | | Net earnings from continuing operations | 741 | 705 | 36 |
Nutrien second-quarter net earnings from continuing operations totaled $741 million, up from the $705 millionearned in the second quarter of 2017. Results for the quarter were supported by record EBITDA in Retail and higher prices and strong volumes across our crop nutrient business segments. Depreciation and amortization increased by $45 millionthis quarter, in part due to the purchase price allocation (PPA) impact. The comparative amount of PotashCorp for IFRS purposes is detailed in the financial report of Nutrien for the second quarter of 2018 and its management's discussion and analysis for the same period, both of which will be made available under Nutrien's profile, provided on SEDAR at www.sedar.comand on EDGAR at www.sec.govin August 2018.
Retail
| | | | | | | Three months ended June 30 | | | | | 2018 Actual | 2017 Combined | Change | | (millions of U.S. dollars) | | | | | Sales | 6,342 | 5,707 | 635 | | Cost of goods sold | (4,910) | (4,408) | (502) | | Gross margin | 1,432 | 1,299 | 133 | | EBIT6 | 764 | 689 | 75 | | EBITDA | 886 | 760 | 126 | | Selling and general and administrative expenses | (682) | (602) | (80) |
EBITDA – Second-quarter Retail EBITDA reached a record of $886 million, a 17 percent increase from the same period last year.
North American Retail EBITDA increased by $89 millionthis quarter compared to the same period last year, as crop input demand surged following a delayed spring season in the U.S. and Canada. International Retail EBITDA was up 42 percent year-over-year (excluding foreign exchange gains) due to higher nutrient and livestock sales. Year-to-date, normalized comparable store sales4is up 1 percent.
Selling and general and administrative expenses – Retail selling and general and administrative expenses increased by 13 percent this quarter compared to the same period in 2017, primarily due to higher depreciation and amortization expense as a result of the PPA. Selling expenses as a percentage of sales was 11 percent this quarter, similar to the same quarter last year as higher depreciation and amortization expense is offset by higher sales.
| | | | | | | | | | | | | | Three months ended June 30 | | | | | | | | | | | | Sales | | Gross margin | | Gross margin (%) | | | | | | | (millions of U.S. dollars, except where noted) | 2018 | 2017 | Change | | 2018 | 2017 | Change | | 2018 | 2017 | | Crop nutrients | 2,326 | 1,989 | 337 | | 474 | 419 | 55 | | 20 | 21 | | Crop protection products | 2,358 | 2,236 | 122 | | 521 | 485 | 36 | | 22 | 22 | | Seed | 1,183 | 1,080 | 103 | | 219 | 199 | 20 | | 19 | 18 | | Merchandise | 201 | 175 | 26 | | 26 | 27 | (1) | | 13 | 15 | | Services and other | 274 | 227 | 47 | | 192 | 169 | 23 | | 70 | 74 |
Crop nutrients– Second-quarter sales increased 17 percent compared to the same period last year as deliveries to all key regions were higher year-over-year. First-half sales volumes were up 7 percent versus the same period last year. Gross margin increased 13 percent this quarter while gross margin per tonne was flat due to higher costs associated with delivering higher volumes in a condensed period.
Crop protection products– Sales in the quarter were 5 percent higher than in the same period last year despite wet weather challenges in the U.S. and dry weather in Australia. Gross margin was up 7 percent this quarter over the same period last year and percentage gross margins were up slightly for both the quarter and the half compared to 2017 levels.
Seed– Sales in the second quarter increased 10 percent from the same period in 2017, due to strong demand in the U.S. and Canadafollowing the delayed planting season. Gross margin also increased 10 percent due to the increased volume while gross margin rates increased 1 percentage point due to a larger proportion of proprietary sales.
Merchandise– Sales increased 15 percent in the second quarter due to higher fuel sales in Canadaand higher animal health and fencing sales volumes in Australia. Gross margin rates decreased by 2 percentage points during the quarter due to lower margins on Canadian fuel sales.
Services and other– Sales increased by 21 percent and gross margin by 14 percent this quarter compared to the same period last year, due to higher livestock export shipments and wool commissions in Australia. Gross margin rates decreased due to the mix of services and products sold.
Potash
| | | | | | | Three months ended June 30 | | | | | 2018 Actual | 2017 Combined | Change | | (millions of U.S. dollars) | | | | | Net sales4 | 638 | 535 | 103 | | Cost of goods sold | (274) | (273) | (1) | | Gross margin | 364 | 262 | 102 | | EBIT | 293 | 204 | 89 | | EBITDA | 386 | 292 | 94 | | Provincial mining taxes | (62) | (46) | (16) |
EBITDA– Potash EBITDA was 32 percent higher in the quarter compared to the same period last year due to a combination of strong offshore sales volumes, increased realized selling prices and a lower cost of goods sold per tonne.
| | | | | | | Three months ended June 30 | | | | | 2018 Actual | 2017 Combined | Change | | Manufactured products | | | | | Sales volumes (tonnes 000's) | | | | | North America | 1,030 | 1,029 | 1 | | Offshore | 2,149 | 2,046 | 103 | | Total | 3,179 | 3,075 | 104 | | Net selling price ($/tonne) | | | - | | North America | 216 | 198 | 18 | | Offshore | 194 | 161 | 33 | | Average | 201 | 174 | 27 | | Cost of goods sold ($/tonne) | (86) | (89) | 3 | | Gross margin ($/tonne) | 115 | 85 | 30 | | Depreciation and amortization ($/tonne) | 29 | 29 | - | | Gross margin excluding depreciation and amortization ($/tonne)4 | 144 | 114 | 30 |
Volumes– Sales volumes were up due to strong offshore demand and a higher Canpotex Limited (Canpotex) allocation compared to the second quarter of 2017. The largest portion of Canpotex's volumes for the quarter were sold to Latin America(32 percent), Chinaand India(21 percent and 9 percent, respectively) and other Asian markets (29 percent).
Price– Offshore and domestic selling prices were markedly higher in the second quarter due to strong global demand. Our weighted average realized potash selling price was up 16 percent from the second quarter in 2017.
Costs – Cost per tonne of product sold was 3 percent lower compared to the prior year's second quarter, due to a larger proportion of supply produced at our lowest cost facilities and realized synergies.
Nitrogen
| | | | | | | Three months ended June 30 | | | | | 2018 Actual | 2017 Combined | Change | | (millions of U.S. dollars) | | | | | Net sales | 856 | 820 | 36 | | Cost of goods sold | (595) | (624) | 29 | | Gross margin | 261 | 196 | 65 | | EBIT | 250 | 184 | 66 | | EBITDA | 335 | 260 | 75 |
EBITDA– Total nitrogen EBITDA in the quarter was up 29 percent as lower production costs, higher urea prices and increased sales volumes more than offset lower realized prices for ammonia.
| | | | | | | Three months ended June 30 | | | | | 2018 Actual | 2017 Combined | Change | | Manufactured products | | | | | Sales volumes (tonnes 000's) | | | | | Ammonia | 1,028 | 1,064 | (36) | | Urea | 901 | 751 | 150 | | Solutions and nitrates | 1,133 | 1,008 | 125 | | Total | 3,062 | 2,823 | 239 | | Net selling price ($/tonne) | | | - | | Ammonia | 263 | 303 | (40) | | Urea | 281 | 239 | 42 | | Solutions and nitrates | 167 | 163 | 4 | | Average | 233 | 236 | (3) | | Cost of goods sold ($/tonne) | (155) | (172) | 17 | | Gross margin ($/tonne) | 78 | 64 | 14 | | Depreciation and amortization ($/tonne) | 28 | 27 | 1 | | Gross margin excluding depreciation and amortization ($/tonne) | 106 | 91 | 15 |
Volumes– Total nitrogen sales volumes were up 8 percent in the second quarter as higher urea, solutions and nitrates sales more than offset lower ammonia sales. Ammonia sales volumes decreased due to the continued ramp-up of our urea expansion project at Borger, Texas, as well as higher urea production at our Trinidadfacility, which reduced net ammonia available for sale. Urea, solutions and nitrates sales volumes were up 16 percent year-over-year on a combined basis as a result of the increased upgrade to urea and strong operating rates across the business.
Price – Higher realized prices for urea, solutions and nitrates mostly offset lower realized prices for ammonia caused by lower Tampaammonia benchmark prices and lower natural gas costs. Our weighted average realized selling price for nitrogen was down 1 percent from the second quarter of 2017.
Costs – Cost of goods sold per tonne of nitrogen was 10 percent lower than the second quarter of 2017 due to significantly lower natural gas costs and higher production volumes which were used to allocate fixed costs. Depreciation and amortization per tonne was flat year-over-year resulting from year-to-date adjustments to the PPA, which remains provisional until December 31, 2018when valuation adjustments must be finalized. Second-quarter AECO gas prices continue to be favorable to our cost position, with prices $1.25/MMBtu lower than the same period in 2017.
| | | | | | | Three months ended June 30 | | | | | 2018 Actual | 2017 Combined | Change | | (U.S. dollars per MMBtu) | | | | | Overall gas cost excluding realized derivative impact | 2.20 | 2.88 | (0.68) | | Realized derivative impact | 0.38 | 0.29 | 0.09 | | Overall gas cost | 2.58 | 3.17 | (0.59) | | Average NYMEX | 2.80 | 3.18 | (0.38) | | Average AECO | 0.80 | 2.05 | (1.25) |