When does 12 percent equal 87 percent?
When you’re talking about making money from handling grain.
A 12 percent increase in grain handling volumes in the first nine months of Agricore United’s fiscal year translated into an 87 percent increase in grain operating income.
Because a grain handling company’s costs are relatively fixed and remain stable as more grain is handled, once the break-even point has been surpassed earnings can sharply increase.
That’s what has happened to AU so far in 2005-06.
The company handled 2.8 million tonnes of grain and oilseeds during the third quarter, pushing the year-to-date total to 8.2 million tonnes, which is 12.1 percent ahead of the previous year’s nine-month total of 7.3 million tonnes.
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That produced divisional earnings for the nine months ending July 31, before interest and taxes, of $51.8 million tonnes, an increase of 87 percent from the previous year’s $27.2 million.
Overall, the company recorded net earnings of $56.3 million in the three months ending July 31, the best quarterly result since AU was created by the 2001 merger of Agricore and United Grain Growers.
Earnings before interest, taxes, depreciation and amortization, or
EBITDA, which is considered a key measure of a company’s financial health, totalled $110.2 million for the quarter, up from $102.9 million a year ago.
It was clearly grain that carried the day.
“The results in our grain segment are certainly the best we’ve seen in recent years and we’re beginning to capture the benefit of our tremendous operating leverage,” said AU chief executive officer Brian Hayward.
The company has been earning higher margins per tonne of grain so far this year, taking in $22.97 per tonne for the first nine months, up from $21.80 last year.
The increased margins reflect a higher proportion of shipments moved through the company’s port terminals than the previous year, when a smaller crop meant lower exports.
That resulted in improved terminal handling margins and produced increased revenue from services such as drying and wharfage charges.
The company’s prairie-wide market share declined by one point to 33 percent. However, Hayward said that could improve in the coming year. A 19 percent reduction in Saskatchewan’s 2006 crop due to spring seeding problems and an increase in Manitoba production should benefit AU, which is better represented in the Manitoba market.
The glowing results from grain handling were dimmed somewhat by reduced earnings in crop production services as high fertilizer prices limited spring fertilizer application, resulting in tighter margins and reduced earnings.
EBITDA in the crop production area was down by $7 million for the quarter and $23 million for the nine-month period.
Hayward said a recent successful refinancing will reduce company costs, free up additional cash flow and also provide flexibility to enable the company to pursue expansion.
In August the company finalized a previously announced deal to purchase Hi-Pro Feeds, a feed manufacturing business in Texas and New Mexico, for a price of $38.5 million.
