Agrium’s Diversified Business Model Offers Protection

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Based in Calgary, Canada, Agrium Inc. (NYSE:AGU) is a global leader in farm retailing. The company produces and markets agriculture products both at the retail and wholesale level. Agrium’s risk/reward is improving as the company’s diversified model protects it from the broader agriculture headwinds in 2014. Agrium represents a very attractive long-term buy opportunity, as the company should benefit from increased volumes from the Vanscoyexpansion in 2015 (on track for late 2014 start-up) and better operating results in retail including Viterra.

Agrium’s stock is up 10 percent in the last 30 days and up 5 percent year-to-date. Agrium is up along with corn prices as both geopolitical and weather related events have increased perceived production and distribution risk in the grain market. Moreover, higher nitrogen prices reflecting good seasonal demand combined with moderation of North American natural gas have also helped sentiment on Agrium and other fertilizer producers.

The company reported adjusted 4Q13 EPS of $0.87, in-line with the consensus estimates of $0.86. The headline EPS was adjusted for the share based payment expenses, the Landmark goodwill impairment, the impact of the Viterra purchase gain, the legal costs related to the acquisition, and the impact of the loss generated by the Viterra assets during 4Q on the basis that $8M of Viterra’s operating loss was due to acquisition costs and none of the Viterra operations were incorporated into the original $0.80-$1.25 per share 4Q13 guidance range.

Agrium’s retail business continues to post strong performance, driven by healthy services results in Australia and higher-than-expected seed rebates. Going forward, crop nutrients margins could improve further in a modestly inflationary nutrients environment in 1H14. With the addition of Viterra in its retail business, the company is looking for stronger SG&A leverage in 2014 and is on track with its $1.3 billion EBITDA target in 2015. The legacy Viterra stores are expected to contribute about a third of this growth.

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