Nutrien Ltd. recently announced its 2019 second-quarter results, with net earnings from continuing operations of $858 million ($1.47 diluted earnings per share. All amounts are in US dollars, same below). Second-quarter adjusted net earnings was $1.58 per share and adjusted EBITDA was $1.9 billion. Adjusted net earnings (total and per share amounts), adjusted EBITDA and related annual guidance and free cash flow are non-IFRS financial measures.
“Nutrien delivered earnings growth in the first half of 2019 despite unprecedented wet conditions in the US, demonstrating the strength of our business model and asset mix. Nutrien remains focused on factors under its control and creating long-term value for stakeholders. We expect to achieve over $650 million in annual run rate synergies by the end of 2019, have made strategic investments to grow our Retail business and returned $5.2 billion to shareholders through share repurchases and dividends over the past 18 months,” commented Chuck Magro, Nutrien’s President and CEO.
“US weather in the first half was so severe it nearly eliminated global demand growth for crop inputs. However, demand for grains and oilseeds is still growing, and with lower crop inventories and higher prices, we expect a strong rebound in 2020,” added Mr. Magro.
- Potash EBITDA was up 42 percent in the first half of 2019, compared to the same period last year, as a result of higher realized selling prices and strong sales volumes.
- Retail EBITDA in the first half of 2019 was 8 percent lower compared to the same period in 2018 as adverse weather and flooding in the US led to delayed planting and record high unplanted acres.
- Nitrogen EBITDA in the first half of 2019 was 17 percent higher than the same period in 2018 as higher realized selling prices more than offset lower sales volumes.
- Nutrien generated $1.7 billion in free cash flow in the first half of 2019, up 47 percent from the same period in 2018.
- Nutrien announced a 5 percent increase in the expected quarterly dividend payout to $0.45 per share commencing with the quarterly dividend having a record date at the end of the third quarter of 2019.
- Nutrien executed on its most recent Normal Course Issuer Bid program, purchasing the maximum authorized shares in less than four months. In the first half of 2019, Nutrien repurchased over 36 million shares representing nearly 6 percent of shares outstanding. Over the past 18 months Nutrien has allocated $3.7 billion to repurchase over 11 percent of shares outstanding.
- Nutrien full-year 2019 adjusted net earnings per share and adjusted EBITDA guidance is lowered to $2.70 to $3.00 per share and $4.35 billion to $4.70 billion, respectively.
Management’s Discussion and Analysis
Agriculture and Retail
Record precipitation in the first six months of 2019 led to delayed planting and is expected to have caused record US prevented planting of more than 10 million acres. Nutrien estimates US corn planted acreage at 85-87 million acres and soybean planted acreage of around 80 million acres in 2019.
Nutrien expects growers that were able to plant crops will look to maximize yields, which will support crop input demand in the second half of 2019. Assuming favorable weather conditions, we expect strong fall fertilizer applications as growers begin to plan for 2020 with the prospects of low US crop inventories and higher crop prices.
Nutrien anticipates South American growers will respond to the US production problems by increasing soybean and corn acreage, which Nutrien expects will continue to support crop input demand in the second half of 2019 and early 2020.
Crop Nutrient Markets
Global potash prices in the first half of 2019 were largely stable across key spot markets as import demand was strong particularly from China and Brazil. At the same time, supply was tight due to further production delays from greenfield projects.
However, due to weather and policy-related issues impacting the second half of 2019, Nutrien is lowering its projection of global potash deliveries to 65-67 million tonnes and its 2019 potash sales volume guidance to 12.6 to 13.0 million tonnes (previously 13.0 to 13.4 million tonnes). North American spring potash demand was impacted by weather related delays and lower crop planting, which only a proportion is expected to be made-up in the fall. Chinese demand could be deferred by import policies, while potash demand in India is being negatively affected by a below normal monsoon.
Global ammonia prices were pressured in the first half of 2019, while urea prices have been supported by strong demand in key regions such as India and the US. Nutrien expects strong in-season application of nitrogen to continue in the US and that growers will be incentivized to maximize fall fertilizer applications with the expectation of strong crop prices and elevated corn planting in 2020.
Dry phosphate prices continue to be pressured by the combination of increased supply from Saudi Arabia and Morocco, strong exports from China and weakness in raw material prices. Liquid fertilizer and industrial phosphates prices continue to be more stable.
Nutrien’s second-quarter and first-half 2019 net earnings from continuing operations were supported by higher global nutrient prices, solid operational results and the continued benefit of synergy realization. This more than offset the impact that a delayed spring season and lower US planted acreage had on crop input sales volumes and margins. Net earnings were down from the same periods in 2018 as we recognized net earnings from discontinued operations related to the required divestiture of certain equity investments in connection with the merger of Potash Corporation of Saskatchewan Inc. and Agrium Inc. (Merger) in the 2018 periods.