UPDATE 1-Agrium plunges nearly 7 pct, fertilizer rivals also lower
* Fertilizer names downgraded despite strong first-half view * Agrium Q4 EPS beat estimates, but was lower on adjusted basis * Potash Corp, Mosaic, CF shares also weaker (Adds further details, comments from Agrium and Jana) By Rod Nickel Feb 22 (Reuters) - North American fertilizer stocks fell in morning trading on Friday, led by Agrium Inc , after an influential analyst downgraded the leading names, saying that market conditions are becoming less favorable for the big producers. Dahlman Rose analyst Charles Neivert cut his rating for Potash Corp of Saskatchewan, the world's biggest fertilizer producer, to "sell" from "hold," and dropped Mosaic Co to "hold" from "buy." Neivert cut Agrium, CF Industries Holdings Inc and Rentech Nitrogen Partners LP to "sell" from "buy." Neivert said the most favorable market conditions for nitrogen, phosphate and potash fertilizers have passed now that producers are moving ahead with expanding capacity. "Although (the first half) looks good, the industry may be just one crop away from a significant earnings downdraft driven by crop and capacity issues," he wrote in a note to clients. From 2012 through 2016, capacity is set to grow 18 percent for urea, a key nitrogen-based fertilizer, 12 percent for phosphate and 31 percent for potash, Neivert wrote. Potash Corp is focused on its namesake nutrient, while Agrium and CF mainly produce nitrogen. Mosaic is a leading producer of phosphate. Shares of Potash Corp slipped 1.6 percent and 1.2 percent in New York and Toronto, respectively, while Mosaic fell 2.1 percent and Rentech lost 5.2 percent in New York. Agrium fell the most, by 6.6 percent and 6 percent in New York and Toronto, even though it reported record-high fourth-quarter profit after normal trading hours on Thursday and beat analyst expectations for earnings per share. Analyst Robert Winslow of National Bank Financial noted that on an adjusted basis, however, Agrium's quarterly profit declined to $2.16 per share in 2012 from $2.34 a year earlier. The large U.S. corn and soybean crops that the U.S. Department of Agriculture is forecasting could also pressure grain prices by year-end, which would weigh down fertilizer values in turn. "It may just be that investors are now viewing current strong senior fertilizer EPS results as being the cyclic top and that the best is now in the rear-view mirror," Winslow said. Calgary, Alberta-based Agrium is the world's third-largest producer of nitrogen fertilizers and the largest U.S. retail seller to farmers of crop inputs like seed, fertilizer and chemicals. It forecast on Thursday higher global demand for nitrogen and potash, which it also produces, with tight crop supplies leading into spring planting season giving farmers ample reason to maximize crop production. "The world's unrelenting demand for reliable food supplies has made the need to maximize grain production in 2013 even more critical as grain inventories have struggled to keep pace with the needs of a growing global population," CEO Mike Wilson said on a conference call. Expectations for fertilizer companies such as Agrium and CF have been high as of late, with Agrium's shares hitting an all-time high on Jan. 28. On Friday, Agrium's U.S.-listed stock fell as low as $99.28, its lowest price of 2013 so far. As with Agrium, CF Industries posted a record-high fourth-quarter profit on Tuesday, but shares fell on thoughts that the year ahead may not be quite as profitable. CF's shares dipped a further 1.5 percent on Friday. Agrium is facing a proxy battle with its largest shareholder, Jana Partners, which wants Agrium to split its retail and wholesale divisions and make other changes to improve shareholder returns and operations. "Shareholders are continuing to suffer from Agrium's entrenchment discount," said a Jana spokesman, referring to the company's refusal to make some of the changes the hedge fund wants. "The market has rendered its verdict." Wilson, Agrium's CEO, said Jana's arguments for change are flawed and defended the company's decision to move its annual meeting up about a month to April 9. "We've been talking with them for 10 months. Let's get this thing over with," he said. Equity markets were generally higher in morning trading. (Reporting by Rod Nickel in Winnipeg, Manitoba; editing by Sofina Mirza-Reid and Phil Berlowitz)
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