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Nutrien (TSX:NTR) is a fertilizer company that operates a network of production, distribution, and retail facilities serving the needs of growers and helping them increase crop production. The company has lost around 12% of its stock value this year amid weak quarterly performance and a lowering of its 2023 guidance. So, let’s assess whether the stock is a buy, hold, or sell by looking at its recent performance and growth prospects. First, let’s look at its performance in the recently reported second quarter.
Nutrien’s second-quarter earnings
Nutrien reported weak second-quarter performance in August, with its revenue declining by 19.7% from its previous year’s quarter. Lower net realized prices, falling sales volume, and weaker Nutrien Ag sales weighed on its top line. During the quarter, the realized selling price for potash, nitrogen, and phosphate declined by 59%, 48%, and 21%, respectively. Also, its potash sales volume declined by 9%, while the sales volume of nitrogen and phosphate increased by 10% and 5%, respectively.
Along with lower sales, the increase in freight, transportation, distribution, and other expenses weighed on its net earnings. Its diluted EPS (earnings per share) fell 86.3% to US$0.89. However, removing one-time or special items, its adjusted EPS stood at US$2.53, representing a 57% decline from the previous year’s quarter. Meanwhile, the company also generated an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of US$2.5 billion, representing a 50% year-over-year decline. Now, let’s look at its outlook.
After touching record highs last year, fertilizer prices have declined substantially this year. Rising supply from Russia and Belarus and falling demand in key markets have dragged fertilizer prices down. Meanwhile, with inflation remaining sticky, the central banks worldwide won’t lower their benchmark interest rates soon. A prolonged period of high-interest rates could hurt global growth, leading to an economic slowdown. Amid the slowdown, farmers would be hesitant to make higher investments, which could lead to lower demand.
Amid the uncertain outlook and lower prices, Nutrien has paused the ramp-up of its potash production and suspended its work on its 1.2 million-ton Geismar clean ammonia project. Further, the company has reduced capital investments in smaller retail projects. From these initiatives, the company could lower its capital investments by $200 million to $2.8 million.
Considering these developments, management has lowered its guidance for this year. It now expects its adjusted EPS to come in in the $3.85-$5.60 range compared to its earlier guidance of $5.50-$7.50. Besides, it also slashed its adjusted EBITDA guidance from $6.5-$8 billion to $5.5-$6.7 billion. However, the company has also taken several cost-cutting initiatives to reduce its expenses by US$100 million this year.
Given the uncertain outlook, I expect Nutrien to remain volatile in the near term. However, the correction offers an excellent entry point for long-term investors as demand for fertilizers could rise with the improvement in macroeconomic factors. Besides, the company’s low-cost production base, strong distribution network, and diversified product mix could support its financial growth.
Also, amid the sell-off, Nutrien trades at a cheaper NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples of 1.1 and 12.6, respectively. Besides, it also pays a quarterly dividend of US$0.53/share, with its forward yield at 3.32%.