Agrium reports third-quarter earnings of $25 million

Posted: Thursday, November 06, 2003

Agrium Inc. announced last week that its worldwide net earnings for the third quarter of 2003 were $25 million, the highest third quarter earnings in more than five years.

That translated into earnings of 18 cents per share, well above an earlier market consensus estimate of 9 cents per share, the company said in an Oct. 29 press release.

To date in 2003, the international company based in Calgary, Alberta, Canada, reported earnings of $88 million (64 cents per share), the highest in four years. According to New York Stock Exchange figures, Agrium stock was trading at $9.40 per share in late February, but ended the day Wednesday at $15.80 a share.

"These strong quarterly results are a reflection of the improvement in the global nitrogen cycle and continued growth in earnings for the retail division," said Mike Wilson, Agrium's president and CEO.

"We have seen continued tight international nitrogen supply and demand fundamentals. The tight supply situation has continued despite an increase in the North American nitrogen operating rates over the past four months."

While the company's North American retail and wholesale divisions, as well as its South American wholesale division, were reporting earnings increases, the company also noted that Agrium's Nikiski facility was operating at 66 percent capacity during the third quarter and warned that the plant's supply of natural gas could be reduced during the coming winter, possibly reducing operations further.

"While the facility is currently running at 65-70 percent rates, it is possible that natural gas supply will be reduced in the November to March period," company officials said in the press release.

Unocal, which sold the Nikiski facility to Agrium in September 2000, announced in June it could reduce gas supply to the plant to a level that would result in Agrium running only one of its two ammonia and one of its two urea plants, the company said.

"We continue to advance our legal and arbitration process and expect arbitration with Unocal to commence in May 2004," the company said. "While Unocal has supplied the Kenai facility with more natural gas than it originally indicated, it is possible that Unocal will reduce the gas supply in the future.

"If Agrium is economically unable to offset such a reduction from other sources, the carrying value of the Kenai facility may be adjusted. The financial effect of this is not yet determinable," the company said.

Inquiries to Agrium plant officials regarding the Nikiski plant's influence on the overall bottom line were referred to Richard Downey, spokesperson for Agrium investor and media relations, in Calgary. Efforts to reach Downey for comment Wednesday were unsuccessful.

Agrium Inc. is a leading global producer, marketer and supplier of agricultural nutrients and industrial products in North America and Argentina. Its primary products are nitrogen, phosphate and potash, as well as certain micronutrients.

Looking to the fourth quarter, Agrium said several factors indicated positive results to come.

The balance of global nitrogen supply and demand remains tight. Chinese exports a competitor are expected to decline due to increasing Chinese domestic demand, lower government export incentives and higher transportation costs, the company said.

Also, strong grain prices coupled with higher yields are expected to lead to improved U.S. farm income and increase cash available to buy crop nutrients in the coming growing season, Agrium said.

Grain prices are also expected to get a boost because of low grain stocks going into the end of 2003 due to reduced production in Europe and the former Soviet Union, Agrium said.

Offsetting those positive indicators are poor U.S. soybean yields, which may lead farmers to switch from crops that use high amounts of nitrogen fertilizer, like corn and wheat, to soybeans, which use far less.

Also expected to offset the positive indicators are the strong Canadian dollar and increasing Canadian labor costs, the continuing U.S. ban on the shipment of live Canadian cattle over fears about the Mad Cow Disease outbreak, which may impact fertilizer sales, and a weak global phosphate market, the company said.

Agrium's Alaska operations in Nikiski, (Agrium USA Inc.) has been undergoing a major restructuring since the spring. In April, the company unveiled its reorganization plan, and by the end of June, had laid off 65 employees, in an effort, the company said, "to improve the facility's efficiency and operating costs for global and export competitiveness and in light of the current gas supply issues with Unocal."

Agrium, which employs some 4,800 people worldwide, has been reorganizing operations in Canada and the United States for several years. The Nikiski plant was the last facility to be reorganized, Lisa Parker, Agrium public relations, said last spring.

At that time, Parker said the lack of a full gas supply was a major factor in the decision to reorganize. She also warned that more layoffs might occur if the level of operations declined further come winter.

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