CALGARY -- Agrium Inc. (TSX:AGU) expects its profits to bloom to record levels during the second quarter thanks to an "unprecedented demand" for fertilizers and other farm products -- although it acknowledged some concern over a delayed project in Egypt.
The Calgary-based company is increasing its second-quarter earnings outlook to between US$2.80 and $3 per share from its previous guidance of $1.92 to $2.22 "due to very strong results from both our retail and wholesale operations."
Analysts had been expecting $2.50 a share, according to Thomson Financial.
Shares in Agrium soared more than eight per cent, or C$7.97, to close at C$100.13 on Wednesday at the Toronto Stock Exchange. Earlier in the day they went as high as $103.66 -- up from $40 a year ago.
Agrium's second-quarter results are expected to be "particularly impressive given that the North American spring application season has been hampered by excessively cold and wet weather," president and CEO Mike Wilson said in a release.
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"Continued strong global crop prices have created unprecedented demand for crop inputs and we foresee an extended demand-driven cycle."
Crop inputs refer to not only fertilizers but also to seeds and pesticides.
UBS Investment Research analyst Brian MacArthur bumped up his share price target for Agrium to US$118 from $95 and gave Agrium shares a "buy" rating.
"We continue to like AGU over the long-term as the company provides good exposure to various fertilizer markets combined with a growing retail business," MacArthur wrote in a research note.
"While margins in retail can be lower, we believe this segment complements the portfolio well as it tends to generate more consistent profits throughout the cycle."
Last month Agrium completed its US$2.65 billion takeover of U.S. agricultural retailer UAP Holding Corp. The earnings guidance does not include contributions from UAP, which the company said it expects to be "significant."
Raymond Goldie, an analyst with Salman Partners, said he has a "hold" rating on Agrium shares and a target price of US$94.
"I think the market has overdone its response," he said in an interview.
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One reason is the possible impact of delays and financing issues with a nitrogen plant Agrium plans to build in Egypt.
"I think that was actually more negative than the earnings news was positive," Goldie said.
The company said its profit forecast assumes no unfavourable financial impact from its Egyptian project, at which construction was halted in April "due to permitting and other delays created by the Egyptian government."
A syndicate of banks providing financing for the project has requested the suspension of future draws on a credit facility and says the loan is in default.
Agrium said it expects government approval but has "concerns these issues may not be re-solved in the near term, in which event Agrium's shareholders would be exposed to the loss of their total equity commitment."
Agrium has US$165 million invested in the project with a total commitment of $280 million.
Goldie said investors are also looking to cash in on "phenomenal" strength in fertilizer prices, driving those commodities well into speculative territory.
"If you look at the prices of fertilizer, they've doubled, tripled our quadrupled in the last year," Goldie said, noting that sulphur alone has gone up 1,000 per cent.
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"You can't buy a truckload of sulphur and you can't buy a truckload of potash, so you've got to do it some other way. You've got to buy shares in a fertilizer producing company."
Non-stop rain in much of Western Canada is another reason why Agrium's stock "has got a little bit ahead of itself," Goldie said as farmers put off applying their fertilizer, thus curtail-ing demand.
