Nutrien Provides 2018 Guidance and Announces Agrium and PotashCorp Fourth-Quarter Earnings
TSX - Toronto Stock Exchange
Canada NewsWire
SASKATOON, Feb. 5, 2018
NYSE, TSX: NTR
SASKATOON, Feb. 5, 2018/CNW/ - Nutrien Ltd. (Nutrien) announced today fourth-quarter 2017 results for Agrium Inc. (Agrium) and Potash Corporation of Saskatchewan Inc. (PotashCorp) and provided financial guidance for 2018.
HIGHLIGHTS
Agrium fourth-quarter earnings from continuing operations, adjusted for items not included in guidance, of $0.781per share2 (see page 5 for a reconciliation to net earnings from continuing operations of $0.19per share)
PotashCorp fourth-quarter adjusted earnings of $0.06per share (see page 11 for a reconciliation to net loss of $0.09per share)
2017 earnings for Agrium were supported by record Retail EBITDA3of $1.2 billionand margins of 10 percent while stronger potash prices, sales volumes and lower cash costs per tonne benefited both companies
Nutrien full-year 2018 guidance of $2.10to $2.60earnings per share from continuing operations, excluding incremental depreciation and amortization related to purchase price allocation of $150 millionto $300 million
Nutrien 2018 EBITDA of $3.2 billionto $3.7 billion
Nutrien sold its equity stake in IsraelChemicals Ltd. (ICL) in January 2018for net proceeds of $685 million
Nutrien announced an agreement to purchase Agrichem, a leading Brazilian specialty plant nutrition company with total annual historical net sales of over $55 million
Nutrien achieved over $40 millionin run-rate synergies year-to-date 2018
CEO COMMENTARY
"Nutrien is a global integrated crop inputs provider focused on delivering yield-enhancing products and services to our customers in a sustainable manner, while maximizing shareholder value," said Nutrien President and CEO Chuck Magro. "Our significant positions in retail, potash and nitrogen provide multiple avenues to generate significant value and we remain focused on capturing half a billion dollars in annual merger synergies by the end of 2019.
"We further expect to realize significant proceeds from the ongoing sale of equity positions and will continue to reinvest in growing our retail business and return cash to shareholders," added Mr. Magro.
MARKET OUTLOOK
Agriculture Fundamentals
| | | | | | | | | | | | | | | | U.S. Planted Acres(millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Crop | | | | | | 2016 | | | 2017 | | | 2018F | | | | Corn | | | | | | 94.0 | | | 90.2 | | | 89.0-91.0 | | | Soybean | | | | | | 83.4 | | | 90.1 | | | 89.0-91.0 | | | Wheat | | | | | | 50.2 | | | 46.0 | | | 45.0-47.0 | | | Cotton | | | | | | 10.1 | | | 12.6 | | | 12.5-13.0 | | Source: USDA | | | | | | | | | | | | | |
Despite historically high crop production in many key growing regions in 2017, the United States Department of Agriculture ("USDA") projects that global grain consumption will exceed production during the 2017/18 crop year. Global grain and oilseed demand has grown by 2.7 percent per year over the past five years, the highest five-year growth period since the early 1980s.
Major U.S. crop prices are currently similar to year-ago levels, leading us to expect minimal shifts in crop area in 2018. The development of the South American corn and soybean crops, particularly the second corn crop in Brazil, will be a driver of crop prices in the coming months and may influence U.S. planting decisions.
Nutrient prices remain affordable, which we expect will lead to robust applications in the North American spring season.
We anticipate that growers will continue to optimize crop input expenditures, similar to recent years. Record U.S. corn yields in the past two years provides evidence that growers continue to focus on increasing productivity by utilizing crop inputs and solutions.
Potash
| | | | | | | Global Demand(millions of tonnes KCl) | | | | | | | | | | | | Market | 2016 | 2017E | 2018F | | | | China | 14.1 | 15.1 | 15.5-16.0 | | | India | 3.8 | 4.5 | 4.5-5.0 | | | Other Asia | 9.0 | 9.6 | 9.5-10.0 | | | Latin America | 11.7 | 12.2 | 12.0-12.5 | | | North America | 9.7 | 10.2 | 9.5-10.0 | | | Other | 12.0 | 12.4 | 12.5-13.0 | | World total shipments | 60.3 | 64.0 | 64.0-66.0* | | | *Forecast world total shipments range is narrower than the sum of individual market ranges | | | | |
Global potash shipments set a new record of approximately 64 million tonnes in 2017 with significant growth achieved in all major markets. Downstream inventories ended 2017 at levels flat to lower than a year ago, meaning global shipments increased in response to rising consumption. We expect that demand will continue to be robust in 2018 and that annual global potash shipments will be between 64 and 66 million tonnes.
North American spring application rates are expected to remain normal supported by good affordability, and we anticipate shipments similar to the historical average but slightly below 2017.
Brazilian potash imports set a new record of 9.2 million tonnes in 2017 and inland inventories ended the year at historically low levels, indicating robust consumption and supportive of strong import demand in 2018.
Chinese and Indian potash demand was strong in 2017 and inventories ended the year flat to lower than 2016 levels. We expect continued demand growth in Chinaand Indiain 2018 but at a slower pace than 2017 levels. Potash demand remains reasonably strong in other Asian countries amid stable and profitable prices for a wide range of key crops.
Most global potash producers have heavily committed sales volumes for the first quarter of 2018, leaving available supplies relatively tight. Greenfield potash capacity is anticipated to continue to ramp up in 2018, but we expect a portion of the new capacity will be offset by the closure of mines reaching end of life and product mix changes by some producers.
Nitrogen
Nitrogen prices have started 2018 firmer, with current benchmark nitrogen prices up between 15 to 40 percent from fourth quarter 2017 lows, depending on the product.
Global energy prices are expected to increase marginal production costs in 2018, as crude oil prices have increased approximately 20 percent year-over-year, supporting both formula-based gas contracts in Europeand LNG prices. Chinese production rates have been cut back by ongoing regulatory pressure, natural gas availability, significantly higher natural gas prices and continued strength in coal prices.
Indian urea inventories are very low, which should support import demand in the coming months, however import demand is expected to remain volatile as the country balances subsidy policy with changing market dynamics.
Net North American offshore imports of urea were down by 50 percent or 1.0 million tonnes from July through December 2017. The decrease in imports exceeded the increase in domestic production for the same period. As a result, North American offshore import requirements for first-half 2018 may approach similar levels as the first half of the prior year.
Phosphate
Higher input costs have lent support to phosphate prices but continue to weigh on margins. Sulfur prices have recently risen and remain approximately 50 percent above 2017 lows, while traded ammonia prices are up 50 to 70 percent from 2017 lows.
Production curtailments have reduced export availability from both the U.S. and China, which has provided some support to phosphate fertilizer prices.
FINANCIAL OUTLOOK AND GUIDANCE
| | | | | 2018 Annual Guidance Ranges | Annual | | | Low | High | | | Earnings per share | $2.10 | $2.60 | | Consolidated EBITDA (billions) | $3.2 | $3.7 | | Retail EBITDA (billions) | $1.2 | $1.3 | | Potash EBITDA (billions) | $1.1 | $1.3 | | Nitrogen EBITDA (billions) | $0.9 | $1.1 | | Potash sales tonnes (millions) | 11.8 | 12.4 | | Nitrogen sales tonnes (millions) (a) | 10.0 | 10.4 | | Effective tax rate on continuing operations | 24% | 25% | | Sustaining capital expenditures (billions) | $1.0 | $1.1 | | | | | | 2018 Annual Assumptions & Sensitivities | | | | | | | | FX rate CAD to USD | | $1.26 | | NYMEX natural gas ($US/MMBtu) | | $3.00 | | $20/tonne change in realized Potash selling prices ($/share)(b) | | $0.24 | | $20/tonne change in realized Ammonia selling prices ($/share)(b) | | $0.07 | | $20/tonne change in realized Urea selling prices ($/share)(b) | | $0.09 | | (a) Excludes ESN®, Rainbow and Europe sales. | | | | (b) Sensitivities are calculated pre-synergies. | | |
Purchase Price Allocation (PPA) impact – Our 2018 earnings per share guidance excludes the impact of incremental depreciation and amortization of approximately $150 millionto $300 millionresulting from the fair valuing of Agrium's assets and liabilities as of January 1, 2018in accordance with purchase accounting.
Harmonization of Accounting Policies– Harmonization of Agrium accounting policies to the accounting policies of PotashCorp is expected to reduce Retail EBITDA by approximately $35 milliondue to the reclassification of items previously considered as other finance costs and is included in our annual Retail EBITDA guidance.
Synergies - In 2018, we expect to realize cash synergies of $175 millionto $225 millionand run rate synergies of $250 millionby the end of 2018. We expect costs to achieve these ongoing synergies of $50to $70 millionin 2018, which are excluded from our earnings per share and EBITDA guidance.
EPS - Based on the factors set out under the heading "Market Outlook" and the assumptions above, our full-year 2018 earnings per share guidance is $2.10to $2.60. In addition to the PPA impact and costs of achieving synergies noted above, our guidance excludes share-based compensation expense (recovery). Equity earnings relating to investments now classified in discontinued operations are included in our earnings per share guidance.
AGRIUM RESULTS
Agrium fourth-quarter earnings from continuing operations totaled $27 million, down from the $69 millionearned in the fourth quarter of 2016. Full-year earnings from continuing operations were $502 millioncompared to $584 millionearned in 2016. Results for the quarter and full year were supported by record Retail business unit performance and higher potash sales volumes and margins, but were more than offset by lower nitrogen sales volumes and margins related to plant outages in the second half of 2017.
| AGRIUM ADJUSTED NET EARNINGS AND GUIDANCE RELEVANT EARNINGS RECONCILIATION | | | | | | | | | | | Three months ended | Twelve months ended | | | | | | | | | December 31, 2017 | December 31, 2017 | | | | | | | | | | Net earnings | | | Net earnings | | | | | | | from continuing | | | from continuing | | | | | | | operations | | | operations | | | | | | | impact | | Expense | impact | | | | | (millions of U.S. dollars, except per share amounts) | Expense | (post-tax) | Per share (a) | (Income) | (post-tax) | Per share(a) | | | | | | 27 | 0.19 | | 502 | 3.60 | | | | Adjustments: | | | | | | | | | | | Share-based payments | 29 | 22 | 0.16 | 69 | 49 | 0.36 | | | | Foreign exchange loss net of | | | | | | | | | | | non-qualifying derivatives | 3 | 2 | 0.02 | 14 | 10 | 0.08 | | | Merger and related costs | 52 | 39 | 0.28 | 94 | 67 | 0.50 | | | | Impact of Egyptian pound devaluation | | | | | | | | | | | on investee earnings | - | - | - | (16) | (11) | (0.08) | | | U.S. Tax Reform adjustment | 9 | 9 | 0.07 | 9 | 9 | 0.07 | | | Adjusted net earnings (b) | | 99 | 0.72 | | 626 | 4.53 | | | | | Environmental remediation liability | | | | | | | | | | | expense | 11 | 8 | 0.06 | 11 | 8 | 0.06 | | | Gain on sale of assets | - | - | - | (7) | (5) | (0.04) | | | Guidance relevant earnings (b) | | 107 | 0.78 | | 629 | 4.55 | | | | (a) | Per share information attributable to equity holders of Agrium. | | | | | | | | | (b) | Effective tax rates of 25 percent for the quarter and 29 percent for the year were used for the adjusted net | | | | | | | | | | earnings, guidance relevant earnings, and per share calculations. These adjusted and guidance relevant earnings and | | | | | | | | | | per share information are non-IFRS measures. Refer to Selected Non-IFRS Financial Measures and Reconciliations | | | | | | | | | | and Supplemental Information. | | | | | | | |
Agrium Retail
| | | | | | | | | | | | | | | | | Three months ended December 31 | | | | (millions of U.S. dollars) | | | | | | 2017 | 2016 | Change | | Sales | | | | | | 2,089 | 1,828 | 261 | | Cost of product sold | | | | | | (1,394) | (1,205) | (189) | | Gross profit | | | | | | 695 | 623 | 72 | | EBIT4 | | | | | | 174 | 134 | 40 | | EBITDA | | | | | | 248 | 202 | 46 | | Selling expenses | | | | | | (517) | (476) | (41) |
EBITDA -Retail reported record EBITDA in the fourth quarter of 2017, a 23 percent increase over the previous record achieved in the same period last year. Higher sales for all our crop input products and services were driven by organic growth, recent acquisitions and a 22 percent increase in proprietary product sales.
North American EBITDA increased by 17 percent this quarter compared to the same period last year, with higher nutrient and crop protection product demand in both the U.S. and Canada. International Retail operations achieved a record fourth quarter, with EBITDA up 40 percent year over year, supported by another record quarter for our Australian operations.
Selling expenses – Total Retail selling expenses increased by 9 percent this quarter compared to the same period in 2016 as a result of acquisitions made in 2017. Selling expenses as a percentage of sales decreased to 25 percent this quarter compared to 26 percent in the same period of 2016.
Retail sales and gross profit by product line
| | | | | | | | | | | | | (millions of U.S. dollars, except | Three months ended December 31 | | | | | | | | | | | where noted) | Sales | | Gross profit | | Gross profit (%) | | | | | | | | 2017 | 2016 | Change | | 2017 | 2016 | Change | | 2017 | 2016 | | Crop nutrients | 890 | 779 | 111 | | 168 | 147 | 21 | | 19 | 19 | | Crop protection products | 712 | 620 | 92 | | 327 | 296 | 31 | | 46 | 48 | | Seed | 107 | 101 | 6 | | 51 | 43 | 8 | | 48 | 43 | | Merchandise | 187 | 167 | 20 | | 28 | 27 | 1 | | 15 | 16 | | Services and other | 193 | 161 | 32 | | 121 | 110 | 11 | | 63 | 68 |
Crop nutrients- Sales were 14 percent higher this quarter compared to the same period last year, due primarily to higher volumes, particularly with record ammonia applications in Canadaand higher sales volumes in all other regions. Gross profit was 14 percent higher this quarter due to increased sales volumes, while gross profit margin per tonne remained relatively flat.
Crop protection– Fourth-quarter sales increased by 15 percent compared to the same period last year, due to increased sales in both North Americaand International operations. The U.S. experienced strong demand for herbicides and fall weed burn-down products this quarter. Proprietary product sales in the quarter increased by 25 percent compared to 2016's fourth quarter, with the largest increase in market penetration occurring in Australia. Gross profit for the quarter was up 10 percent over the same period last year, due to higher sales volumes across all regions and proprietary products. However, gross profit as a percentage of sales decreased 2 percentage points this quarter due to product mix considerations and a higher percentage of sales to wholesale customers.
Seed– Gross profit in the fourth quarter increased 19 percent compared to the same period last year, due to purchases in the U.S. that were delayed from the third quarter of 2017. Gross profit as a percentage of sales increased to 48 percent from 43 percent in the fourth quarter of last year, due to a return to a higher sales mix to retail customers relative to wholesalers.
Merchandise– Sales increased 12 percent and gross profit was up 4 percent in the fourth quarter of this year relative to the same period last year. The increase in sales was due to higher sales in Australiarelated to animal health management and higher fuel prices in our Canadian operations.
Services and other– Sales increased by 20 percent and gross profit by 10 percent this quarter compared to the same period last year, due to higher livestock export shipments and wool commissions in Australia. It was also supported by higher sales in North Americarelated to strong demand for fall nutrient and crop protection application services. Gross profit as a percentage of sales declined this quarter due to lower Australian cattle prices.
Agrium Wholesale
| | | | | | | | | | | | | | | | | Three months ended December 31 | | | | (millions of U.S. dollars) | | | | | | 2017 | 20165 | Change | | Sales | | | | | | 534 | 594 | (60) | | Sales tonnes (000's) | | | | | | 1,879 | 2,161 | (282) | | Cost of product sold | | | | | | (447) | (459) | 12 | | Gross profit | | | | | | 87 | 135 | (48) | | EBIT | | | | | | 76 | 151 | (75) | | EBITDA | | | | | | 134 | 208 | (74) | | Expenses | | | | | | (11) | 16 | (27) |
EBITDA– Wholesale gross profit and EBITDA this quarter were lower than the same period last year, as stronger results from our potash segment were more than offset by lower results for our nitrogen and phosphate segments. Downtime in our nitrogen and phosphate facilities impacted sales volumes and resulted in higher cost of product sold per tonne. Higher phosphate rock and sulfur input costs and unfavorable changes in the Canadian dollar exchange rate also increased the cost of product sold.
Agrium Potash
| | | | | | | | | | | | | | | | | Three months ended December 31 | | | | (millions of U.S. dollars) | | | | | | 2017 | 2016 | Change | | Sales | | | | | | 137 | 105 | 32 | | Cost of product sold | | | | | | (97) | (84) | (13) | | Gross profit | | | | | | 40 | 21 | 19 | | EBIT | | | | | | 33 | 13 | 20 | | EBITDA | | | | | | 64 | 39 | 25 |
Gross Profit– Potash gross profit was 90 percent higher than the fourth quarter of 2016, due to a combination of higher prices and sales volumes, which more than offset an increase in the cost of product sold per tonne.
| | | | | | | | | | | | | | Three months ended December 31 | | | | | | | | | 2017 | 2016 | Change | | | Sales tonnes (000's) | | | | | | | | | | North America | | | | 329 | 286 | 43 | | | International | | | | 291 | 304 | (13) | | Selling price ($/tonne) | | | | | | | | | | North America | | | | 269 | 211 | 58 | | | International | | | | 168 | 148 | 20 | | | Total | | | | 221 | 179 | 42 | | Cost of product sold ($/tonne) | | | | (157) | (143) | (14) | | | Margin ($/tonne) | | | | 64 | 36 | 28 | |
Volumes– Agrium sold 5 percent higher volumes of potash in the fourth quarter of 2017 compared to the same period in 2016. Increased volumes sold domestically more than offset lower international sales, which were impacted by a reduction in Agrium's Canpotex6allocation relative to the same period last year.
Price– Global benchmark potash prices were higher in the fourth quarter of 2017 compared to 2016, and this was reflected in Agrium's realized selling prices, which were 27 percent higher domestically and 14 percent higher on international sales.
Costs – Cost of product sold per tonne was 10 percent higher in this year's quarter versus the prior year's fourth quarter, due to unfavorable changes in the Canadian dollar exchange rate impacting production costs; higher freight costs; and a higher proportion of domestic sales than the comparable period (that include freight and distribution in the cost of product sold). Agrium's cash cost of product manufactured7this quarter was $72per tonne, a $10per tonne increase over the same period last year.
Agrium Nitrogen
| | | | | | | | | | | | | | | | | Three months ended December 31 | | | | (millions of U.S. dollars) | | | | | | 2017 | 2016 | Change | | Sales | | | | | | 220 | 285 | (65) | | Cost of product sold | | | | | | (186) | (200) | 14 | | Gross profit | | | | | | 34 | 85 | (51) | | EBIT | | | | | | 26 | 76 | (50) | | EBITDA | | | | | | 46 | 99 | (53) |
Gross Profit- Total nitrogen gross profit was significantly reduced this quarter compared to the same period last year, due to planned and unplanned maintenance outages in the second half of 2017 that reduced product availability in the fourth quarter and resulted in higher cost per tonne. Gross profit was also impacted by slightly lower realized pricing relative to the fourth quarter of 2016.