Nutrien Uses Global Fertilizer Strength To Offset Weak US Seedling In Q2


In 2019, American farmers faced trade wars, historical floods, and, somewhat ironically, water shortages. This caused a significant delay in the corn and soybean planting season and prevented the planting of a record 10 million acres of crops. He weighed on titan fertilizer operations Nutrien (NYSE: NTR), also, although activity was surprisingly resilient in the second quarter and first half of 2019.

The company saw growth in revenues, revenues and free cash flow compared to the same period last year. While Nutrien relied on its huge retail segment to drive growth in previous periods, this was not possible in the first six months of the year due to the collapse of the US market. Fortunately, strong sales of potash in international markets kept the engine of growth running during this time. Here’s what investors need to know about the latest operating results.

Image source: Getty Images.

By the numbers

Nutrien has remained afloat despite historic flooding and rainfall in the US Cornbelt. This is quite impressive considering the company has a 20% share of the US $ 40 billion agricultural retail market and the company’s retail segment generated 70% of total revenue. in the first half of 2019. Here’s how the first six months of the year compared to the first half of 2018:

Metric

First semester 2019

First semester 2018

Change

Income

$ 12.3 billion

$ 11.8 billion

5%

Gross profit

$ 3.3 billion

$ 2.9 billion

ten%

Gross margin

26.6%

25.3%

130 basis points

Profit from continuing operations

$ 899 million

$ 740 million

21%

EBITDA

$ 2.37 billion

$ 1.99 billion

19%

Free movement of capital

$ 1.69 billion

$ 1.15 billion

47%

Data source: Nutrien results press release.

Revenues were up and expenses were down – the ideal scenario for shareholders. This was in part due to the continued achievement of cost synergies from its 2018 merger, which should continue. Nutrien estimates that he will realize $ 650 million in annual operating cost savings by the end of 2019, although it is not clear whether this is cumulative for the entire year or only covers the second. semester.

The main driver of the strong first half performance was a strong year-over-year increase in fertilizer segment performance and a significant reduction in downtime for the Company’s potash production facilities, 24 weeks a year ago to only 16 weeks this year. Consider how each segment is doing when it comes to earnings before interest and taxes (EBIT):

Metric

First semester 2019

First semester 2018

Change

Retail EBIT

$ 529 million

$ 631 million

(16%)

BAII of potash

$ 800 million

$ 530 million

51%

EBIT Nitrogen

$ 466 million

$ 405 million

15%

EBIT of phosphates

($ 16 million)

$ 39 million

N / A

Data source: Nutrien results press release.

If operating results are strong, investors cannot forget that agricultural markets are seasonal. This means the company will face the effects of historic flooding in the US Cornbelt for the remainder of the year.

A man looks through a spotting scope while standing on a column.

Image source: Getty Images.

Look ahead

Management expects delayed and prevented plantings in the United States to have a significant effect in the retail market this year, but also predicts that farmers lucky enough to continue will be keen to maximize yields. This should help compensate for the decrease in nutrients, crop protection and digital agriculture sales of the 10 million acres that will be shelved this year. Farmers in other global breadbasins, including South America, are also expected to step in to fill the void left by the Americans this year.

However, management has decided to slightly reduce its forecast for the full year 2019 as follows:

Metric

New orientation

Previous guide

Adjusted earnings per share (EPS)

$ 2.70 to $ 3.00

$ 2.80 to $ 3.20

Adjusted EBITDA

$ 4.35 billion to $ 4.70 billion

$ 4.4 billion to $ 4.9 billion

Retail EBITDA

$ 1.2 billion to $ 1.3 billion

$ 1.3 billion to $ 1.4 billion

Data source: Nutrien results press release.

It looks like all other guidance numbers – there are 12 (!) In total – have remained unchanged from previous expectations. All things considered, slight reductions in the parameters in the above table won’t scare away long-term investors, although the numbers could be reduced further if management underestimated the headwinds it will face in the future. during the second half of 2019.

A good performance in a difficult market

Nutrien achieved an impressive operational performance in the first half of 2019 given the circumstances. The strength of the Company’s potash segment more than offset weakness in retail trade driven by a historic reduction in planted acreage in the United States. Both trends are expected to continue for the remainder of the year, although the company’s global footprint should allow it to help farmers elsewhere offset weakness in the United States. Simply put, investors need to be happy with the trajectory of the business and keep their previous view of its potential.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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