Agrium (AGU) Weighed Down By Weak Nutrient Prices

On Jun 9, we issued an updated research report on the fertilizer maker Agrium Inc. (NYSE:AGU) .

Agrium saw its profits tumble year over year in the first quarter of 2016, hurt by weak prices. Adjusted earnings for the quarter, however, managed to beat the Zacks Consensus Estimate. Revenues fell year over year and missed expectations. The company saw pricing pressure across all nutrients in the quarter.

Agrium cut its earnings guidance for 2016 factoring in sustained pricing pressure. It now sees earnings in the range of $5.25–$6.25 per share for the year, down from its prior view of $5.50–$7.00 per share.

While Agrium should gain from acquisitions and its capacity expansion initiatives, it continues to face pricing pressure. It is seeing weak pricing for nitrogen, phosphate and potash.

Depressed global energy prices, higher supply and weak agricultural fundamentals have contributed to a softer nitrogen pricing environment. Urea prices are expected to be under pressure in the near term, partly due to high levels of Chinese export supplies. The company’s downward revision of earnings guidance for 2016 reflects sustained headwinds from lower nutrients prices.

Agrium is also facing challenges stemming from weak crop pricing environment, which may continue to unfavorably impact the crop input market in the short term. Weak demand and ample supplies are affecting crop prices.

China (the world’s biggest potash importer) is also yet to sign potash supply agreements for 2016, leading to uncertainty in the global potash market and downward pressure on potash prices. Agricultural market conditions also remain weak in Brazil, impacted by cautious buying by farmers and the uncertain political and economic situation in that country.

Moreover, weakening of major global currencies vis-à-vis the U.S. dollar is impacting demand in several regions. Agrium is also faced with issues such as logistical constraints and plant outages.

Agrium is a Zacks Rank #5 (Strong Sell).

Other Stocks to Consider

Some better-ranked stocks in the basic materials space include Koninklijke DSM N.V. (OTC:RDSMY) , Asahi Kasei Corp. (OTC:AHKSY) and Innospec Inc. (NASDAQ:IOSP) , all holding a Zacks Rank #1 (Strong Buy).