A Fertile Future for Agrium

One industry that seems to be beating the economic gloom with hot numbers is fertilizers. With rising crop prices fuelling demand for fertilizers, agricultural-nutrients maker Agrium's (NYSE: AGU  ) second-quarter bottom line jumped 39% from the year-ago quarter. With Agrium's tagline in mind, let's try to see "where the future is growing" for this company.

The numbers
Total revenues for the quarter surged 40% from the year-ago period to $6.2 billion. Sales in the retail segment, which accounted for nearly 75% of the total sales, rose 39%, driven by high nutrient prices and volumes. This rise came in spite of the wet weather that hampered crop plantations in some areas.

Agrium's wholesale-segment sales grew a robust 54% to $1.7 billion. Strong demand for all three of its major nutrients -- nitrogen, potash and phosphate -- also helped peer Mosiac's (NYSE: MOS  ) quarterly revenues jump by 54% over last year. Likewise, Q2 sales at Terra Nitrogen (NYSE: TNH  ) were boosted by 19%.

Agrium's expenses in the second quarter went up by $294 million, primarily because of costs associated with acquisitions. In spite of the higher expenses, though, Agrium's operating income surged 41% to $1 billion, driven largely by top-line growth. Net income, as a result, grew to $718 million from $518 million in the year-ago quarter.

Financials and acquisitions
The Canadian company's debt-to-equity ratio has gone up from 36% to 43.4%, as its long-term debt has risen from $1.57 billion to $2.1 billion year on year. But the heartening point is the exceptionally high interest-coverage ratio of 29.5, implying that the company can cover its debt obligations through cash flows 29 times over.

Agrium has been using cash for acquisitions and expansions. The acquisition of an agribusiness company at the end of 2010 contributed positively to the retail-sales segment in the just-concluded quarter, and in May, it acquired a fertilizer-distribution company. More recently, it announced the acquisition of a horticultural company and has agreed to purchase another nutrient-products maker.

Clearly, the company has been aggressively expanding its business.

Optimistic outlook
The overall agricultural sector is showing healthy growth. Crop, meat, and dairy prices have all shot up in recent times. Corn, which requires a lot of nutrients, touched its highest price levels this year. Higher prices encourage growers to plant more crops, thereby boosting demand as well as prices of nutrients and fertilizers. As farmers in some parts could not cultivate all of their acreage because of severe weather, look for attempts to make up for the shortfall, thereby further increasing demand for Agrium's products.

An important recent development has been India's agreement to import potash at the currently prevailing high prices, with the three big potash players -- Agrium, PotashCorp (NYSE: POT  ) , and Mosaic -- a part of the agreement. This is bound to put more pressure on the already tight potash market, thereby pushing up the mineral's prices further -- which, again, is good news for Agrium.

Foolish bottom line
Agrium's strong performance and promising industrial outlook make it a stock worth watching. Add it to your Foolish Watchlist.

Fool contributor Neha Chamaria owns no shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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