May 9, 2012 / 2:52 PM / 5 years ago

UPDATE 3-Agrium profit tops forecasts, driven by retail

* Q1 operating profit lifted by farm retail unit

* Co sees adj EPS of $5.50 to $6.10 in first half of 2012

* Says Argentina's move on YPF not to impact Profertil ops

* Agrium shares down roughly 2 percent in afternoon trading

By Euan Rocha

TORONTO, May 9 (Reuters) - Agrium Inc, a Canadian fertilizer producer and retailer, reported stronger-than-expected quarterly results on Wednesday, driven by a robust performance by its farm-supply stores and its nitrogen-based crop-nutrient business.

The company, North America's biggest farm-products retailer, said early spring weather in Canada and the United States boosted sales of fertilizers, crop-protection products and seeds, resulting in a 35 percent increase at its retail stores.

It forecast a range for earnings for the first half of the year whose midpoint exceeds the current average forecast of analysts who cover the company.

The outlook was in contrast to a lackluster forecast issued by Potash Corp, a larger fertilizer producer whose revenue depends more on demand for potash and phosphate-based nutrients.

"This goes to show that Agrium's retail and nitrogen segments remain more stable during uncertain market conditions," wrote Altacorp Capital analyst John Chu in a note to clients.

Even so, the shares dropped more than 2 percent as grain prices slipped ahead of a U.S. government crop report on Thursday, while operational issues in Argentina and Eygpt also weighed on the stock price. The stock ha s risen more than 20 percent this year despite a pullback in the sector this week.

While nitrogen-based fertilizers did well on the retail level, lower sales volumes for potash and phosphate-based nutrients held back Agrium's wholesale business. In addition, an unplanned outage at its Carseland nitrogen plant in Alberta thinned production.

That said, the wholesale segment benefited from higher realized prices and volumes for nitrogen-based ammonia and urea.

Agrium, already the dominant farm products retailer in the United States, has now set its sights on winning the same status within Canada.

Earlier this year, Agrium agreed to acquire the majority of Viterra Inc's retail network in Canada as part of a side deal to Glencore International PLC's C$6.1 billion bid for the grain handler.

ROSY OUTLOOK

Excluding one-time items, the Calgary-based company forecast earnings per share of between $5.50 and $6.10 for the first half of 2012. The mid-point is $5.80 a share, which exceeds the current Wall Street forecast of $5.67 a share, according to Thomson Reuters I/B/E/S.

Excluding a pretax loss on natural gas hedging and pretax share-based payment expenses, first-quarter earnings were $210 million, or $1.32 a share.

Analysts, on average, had forecast earnings of 99 cents a share, according to Thomson Reuters I/B/E/S.

Quarterly sales rose 23 percent to $3.63 billion, topping the average forecast of $2.98 billion,.

On a net basis, first-quarter profit dropped to $155 million, or 97 cents a share, from $171 million, or $1.09, a year earlier.

PROMISING SIGNS IN EYGPT

Agrium said it was still working with Egyptian authorities on resuming operations at the MOPCO nitrogen facility, in which it owns a 26 percent interest. The plant shut down in November 2011 because of civil unrest in the North African country.

"There are some promising signs on this front and we remain cautiously optimistic that the facility will be allowed to restart in the near future," said Chief Executive Mike Wilson said during a conference call.

Wilson said an accrual for the potential of higher gas costs in Argentina also weighed on first-quarter results.

The Argentine government recently imposed a tariff on industrial users of natural gas, a decree that companies are challenging in court.

Agrium owns a 50 percent interest in Argentina's Profertil S.A., which operates nitrogen production and storage facilities in the South American country. Its partner is YPF, Argentina's biggest oil company. The government recently seized control of YPF from Spain's Repsol.

The decision to nationalize YPF is not expected to affect Profertil, Agrium said on Wednesday, though the government has appointed a replacement for YPF's representative on the Profertil board.

Shares fell 2.4 percent to $82.51 in afternoon trading on the New York Stock Exchange, while its Toronto-listed shares fell 2.1 percent to C$82.66.

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