Fun Facts Gleaned from Agrium’s Sell-Side Event

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Despite the growing stock price, Agrium (NYSE: AGU) felt the need to take a “deep-dive” into the business on January 28, 2013.

Punchy words like “switch a roo” and “midnight comparables” seem to have found their mark on Agrium’s CEO Michael M. Wilson. Roughly 10% of their presentation was spent punching-back against activist investor JANA Partners LLC.

Extensive JANA justification stole the show— but it’s unclear as to whether it spread insecticide or fertilizer on the situation? Unfortunately, Teddy Atlas was not in attendance to judge the bout.

The Fun Facts:

Potential Revenue per Service Area…

*assuming $300 per acre

a) 15 Mile Radius… 450,000 Acres (80% tillable) = $108 million

b) 25 Mile Radius… 1,250,000 Acres (80% tillable) = $300 million

Farmer revenue must be reinvested into chemicals, fertilizers, and seed. As farmers grow, Agrium must grow right along with them. It’s a people business— farmers place a great deal of faith and confidence in the recommendations of their local professionals.

Agrium would argue that they are an integral part of the farm’s operation and their relations with farmers run deeper than you would expect from an ordinary supply house.

The Starbucks of Plant Nutrients

Re: 9 locations in Indiana within ten miles (some say that’s too many).

Management compares it to Starbucks’ locations in Time Square… it’s not necessarily good or bad. Perhaps in some regions you will always need a lot of locations, “if you’re not nearby, you don’t get the business.”

Agrium retail does NOT sell manure spreaders!

Tractor Supply Company is not one of Agrium’s competitors; so if you didn’t know now you know. Agrium addressed the slight confusion during the show… apparently one of the analysts (who remained nameless to preserve their dignity) was surprised that a member of Agrium’s management team was shopping at Tractor Supply for a manure spreader.

The presenter cut through the crap by showing pictures of what actually is at Agrium’s farm centers: storage areas, liquid chemicals, fertilizers, and seeds. In addition, a fleet of 2,800 applicators are utilized to transport products to where they are needed.

Therefore, if you are searching for rakes, animal feed, outdoor clothing, or manure spreaders make sure you go to Tractor Supply Company—because you won’t find them at Agrium’s farm centers.

Spring can come at any time; suppliers must have product in place.

Agrium’s team is hopeful that spring is March 1 – May 15 this year. The retail network structure to make it happen looks like this:

(4) Formulation Plants

(18) Distribution Centers

(40) Terminals

(640) Farm Center / Branches

(216) Satellites

Fun Facts Rapid Fire:

Cooperatives still control nearly 40% of the entire market.

Agrium is the only agricultural retailer handling barge loads of ammonia.

Each of Agrium’s 7 regional territories in North America average $1.29 billion in revenue.

There is a lot of money to be made by not wasting expensive nutrients. Agrium has the people and technology to advise the farmer on what seeds, chemicals, and fertilizers to use— and precisely where to use them.

Agrium has closed 20% of US farm centers and 255 worldwide over the past seven years. While this is not a fun decision, when done right, they keep a majority of the business and synergies are realized right away.

Revenue per Facility = $5.3 million (2007) versus $13.8 million (2012)

EBITDA per facility = $450,000 (2007) versus $1,277,000 (2012)

Loveland private label products have double the margins of 3rd party sales.

Dyna-Gro seed platform is one of their largest opportunities for growth, between 2006 and 2012 the CAGR was 38%, the market size is approximately $13 billion.

Bowman vs. Monsanto

The Supreme Court began hearing arguments on February 19.

410 farmers have already lost patent infringement suits brought by Monsanto Company (NYSE: MON); Vernon Hugh Bowman is expected to be number 411.

         -“All through history we have always been allowed to go to an elevator and buy commodity grain and  plant it,” he said in an interview.

Thus far, the courts have not agreed, Monsanto has received $23.67 million in recorded judgments. In the US, it’s estimated that 93% of soybeans and 86% of corn crops are grown from genetically modified seeds. Monsanto, Syngenta, and DuPont control approximately 53% of the seed industry and they won’t give it up easily— not to farmers, not to Dyna-Gro, not to anyone.

A verdict in favor of the farmer, though highly unlikely, would have implications on the medical and bio fuels sector as well.

In the 52 page report: “Seed Giants vs. US Farmers”… the Center for Food Safety shares their thoughts.

The USDA expects farm-income in 2013 to be the highest in 40 years. Will farmers use proceeds to keep fighting the likes of Monsanto? Or will they give in? Further solidifying the stronghold Seed Giants have on the market.


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