Nutrien (TSX:NTR) is a fertilizer firm that operates a community of manufacturing, distribution, and retail amenities serving the wants of growers and serving to them improve crop manufacturing. The corporate has misplaced round 12% of its inventory worth this yr amid weak quarterly efficiency and a reducing of its 2023 steerage. So, let’s assess whether or not the inventory is a purchase, maintain, or promote by its latest efficiency and development prospects. First, let’s have a look at its efficiency within the just lately reported second quarter.
Nutrien’s second-quarter earnings
Nutrien reported weak second-quarter efficiency in August, with its income declining by 19.7% from its earlier yr’s quarter. Decrease web realized costs, falling gross sales quantity, and weaker Nutrien Ag gross sales weighed on its high line. In the course of the quarter, the realized promoting value for potash, nitrogen, and phosphate declined by 59%, 48%, and 21%, respectively. Additionally, its potash gross sales quantity declined by 9%, whereas the gross sales quantity of nitrogen and phosphate elevated by 10% and 5%, respectively.
Together with decrease gross sales, the rise in freight, transportation, distribution, and different bills weighed on its web earnings. Its diluted EPS (earnings per share) fell 86.3% to US$0.89. Nonetheless, eradicating one-time or particular gadgets, its adjusted EPS stood at US$2.53, representing a 57% decline from the earlier yr’s quarter. In the meantime, the corporate additionally generated an adjusted EBITDA (earnings earlier than curiosity, tax, depreciation, and amortization) of US$2.5 billion, representing a 50% year-over-year decline. Now, let’s have a look at its outlook.
Nutrien’s outlook
After touching document highs final yr, fertilizer costs have declined considerably this yr. Rising provide from Russia and Belarus and falling demand in key markets have dragged fertilizer costs down. In the meantime, with inflation remaining sticky, the central banks worldwide gained’t decrease their benchmark rates of interest quickly. A chronic interval of high-interest charges may harm international development, resulting in an financial slowdown. Amid the slowdown, farmers can be hesitant to make increased investments, which may result in decrease demand.
Amid the unsure outlook and decrease costs, Nutrien has paused the ramp-up of its potash manufacturing and suspended its work on its 1.2 million-ton Geismar clear ammonia mission. Additional, the corporate has decreased capital investments in smaller retail initiatives. From these initiatives, the corporate may decrease its capital investments by $200 million to $2.eight million.
Contemplating these developments, administration has lowered its steerage for this yr. It now expects its adjusted EPS to return in within the $3.85-$5.60 vary in comparison with its earlier steerage of $5.50-$7.50. In addition to, it additionally slashed its adjusted EBITDA steerage from $6.5-$eight billion to $5.5-$6.7 billion. Nonetheless, the corporate has additionally taken a number of cost-cutting initiatives to cut back its bills by US$100 million this yr.
Backside line
Given the unsure outlook, I anticipate Nutrien to stay risky within the close to time period. Nonetheless, the correction affords a wonderful entry level for long-term traders as demand for fertilizers may rise with the advance in macroeconomic components. In addition to, the corporate’s low-cost manufacturing base, robust distribution community, and diversified product combine may assist its monetary development.
Additionally, amid the sell-off, Nutrien trades at a less expensive NTM (subsequent 12 months) price-to-sales and NTM price-to-earnings multiples of 1.1 and 12.6, respectively. In addition to, it additionally pays a quarterly dividend of US$0.53/share, with its ahead yield at 3.32%.
