Agrium shares slumped seven per cent after it reported a 56 per cent drop in third-quarter profit on lower potash sales and offered a weaker-than-expected outlook for the fourth quarter.
Downtime at Agrium’s Saskatchewan potash mine and drawn-out contract talks with China and India hurt third-quarter performance, CEO Mike Wilson said.
The company’s stock had soared by more than half this year, helped by spiking grain prices due to the U.S. drought.
“We believe negative initial market reaction could prove pessimistic,” analyst Edlain Rodriguez of Lazard Capital Markets said in a note to clients.
Fertilizer fundamentals remain strong, especially with U.S. farmers likely to plant a near-record-large acreage of corn this spring, he said.
Rival PotashCorp of Saskatchewan also reported sharply lower third-quarter earnings due to a standoff on new contracts with China and India. New contracts with the world’s top two potash consumers were anticipated by late summer but are now expected by late this year for China and possibly early 2013 for India.
Both are believed to be seeking discounts, with China currently amply supplied and potash too expensive for some Indian farmers after a cut in government subsidies.
Agrium, which sells nearly half its potash in North America, shut down its Vanscoy, Sask. mine for expansion-related work for at least eight weeks in the quarter, which dropped potash sales by more than half to 160,000 tonnes.
Nitrogen profits were strong, thanks to lower prices for natural gas. But retail sales of seed, chemicals, and fertilizer dropped 10 per cent as the U.S. faced its worst drought in over half a century.
“The negative impact of the U.S. drought on the company’s retail segment was much stronger than we expected, and appears to have caught most sell-side analysts by surprise,” said Robert Winslow, analyst at National Bank Financial.
Agrium is attempting to fend off a push by its largest shareholder, Jana Partners, to spin off its retail division, which Jana says would provide a bigger return to investors than Agrium’s integrated strategy.
The company has not been approached by potential buyers, Wilson said.
“We get people sniffing around all the time, just like we do looking at other companies, but we haven’t really been approached to buy our retail business,” he said.