Agrium Inc. (TSX:AGU)(NYSE:AGU) has pulled back after a big run, and investors are wondering if this is a good time to start a position in the stock.

Let’s take a look at the current situation to see if the fertilizer giant deserves to be in your portfolio.

Earnings strength

The global fertilizer market is in a slump these days, but Agrium managed to deliver solid Q3 results.

Net earnings from operations came in at US$99 million, or US$0.72 per share, up from US$0.63 per share in Q3 2014. The company expects full-year 2015 diluted earnings to be US$7.10-7.40 per share.


Agrium produces nitrogen, potash, and phosphate for the global wholesale fertilizer market.

Nitrogen gross profit in the third quarter rose by 69% over Q3 2014 due to higher capacity utilization rates and lower prices for natural gas, which is the core input for nitrogen production. Margins came in at US$171 per tonne, up 63% from the same period last year despite an 11% drop in the average selling price.

Potash gross profit in Q3 was US$40 million higher than the third quarter last year. Agrium recently completed a large expansion project at its Vanscoy potash facility, and investors should see production costs drop as the facility ramps up output. Potash demand remains strong, but competitive pressures in both the domestic and international markets are pushing prices lower.

Phosphate gross profit was unchanged from Q3 2014.


Agrium is a major retailer of seed and crop protection products with more than 1,300 retail outlets and 3,000 crop consultants. The company helps more than 500,000 farmers increase their yield from 50 different crops.

Sales and gross profit in the retail business came in below Q3 2014 numbers. Low crop input prices, fluctuating exchange rates in international markets, and drought conditions in Canada all had an impact.

Crop nutrient sales dropped 10%, crop protection sales fell 8%, and seed sales increased 11% compared with the third quarter last year.


Agrium pays a quarterly dividend of US$0.875 per share that yields about 3.6%. The company has increased the payout considerably in recent years.


Market conditions are expected to remain tight moving into 2016, but Agrium believes demand will improve in areas where downstream distribution networks have been working through inventories and filling shortages on a just-in-time basis in the spot market.

Should you buy?

Agrium’s integrated model provides a balanced revenue stream that investors can’t get from the other players in the sector. The dividend looks safe and increases should continue once the market firms up.

The stock trades at a reasonable 12.4 times forward earnings. If you have a buy-and-hold approach, Agrium should be a good addition to your dividend portfolio at the current price.

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Fool contributor Andrew Walker has no position in any stocks mentioned. Agrium Inc. is a recommendation of Stock Advisor Canada.