Viterra has jumped out of the starting blocks like an Olympic sprinter.
The fledgling grain handling firm earned more than twice as much profit in its first three months of operation as its two parent companies combined earned in the previous three years.
Viterra, created by Saskatchewan Wheat Pool’s takeover of Agricore United, last week reported earnings of $96 million (44 cents per share), on sales of $1.4 billion, in the three months ending July 31.
By contrast, in the fiscal years 2004, 2005 and 2006, the two companies had total net earnings of $40 million.
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The $96 million includes three months of Sask Pool’s results and two months of AU results. It also includes $33 million from the sale of assets to Cargill Ltd., as part of the takeover.
Traditionally, the three-month period ending July 31 had marked the end of Sask Pool’s fiscal year.
However, Viterra has adopted an Oct. 31 year-end, so its 2006-07 fiscal year will be stretched to 15 months, making year-to-year comparisons problematic.
Earnings before interest, taxes, depre-ciation and amortization (EBITDA), considered a key measure of a company’s financial strength, were $149.7 million during the quarter, made up of $75.4 million from Sask Pool and $74.3 million from AU.
For the 12 months ending July 31, EBITDA was $202 million, compared with $78 million the previous year.
The strong fourth quarter performance was driven by a number of factors, including increased grain shipments coupled with a 17 percent increase in gross handling margins and increased sales and higher profit margins for agriproducts such as seed, fertilizer and chemicals.
Here’s how each of the company’s business segments performed during the quarter, in terms of EBITDA:
- Grain handling and marketing $57.7 million ($25.7 million Sask Pool; $32 million AU).
- Agriproducts $101.1 million ($55.5 million Sask Pool; $45.6 million AU).
- Agri-food processing $3.3 million (all Sask Pool).
- Livestock services $2.9 million (all AU).
- Financial products $700,000 (all AU).
- Corporate costs $16 million ($9.1 million Sask Pool; $6.9 million AU).
Analyst David Newman of National Bank Financial praised the new company’s performance but warned it will be hard to match.
“Our fundamental analysis suggests that this exceptional quarter will not be easily duplicated,” he said.
Grain shipments are expected to be down in 2007-08 due to a smaller crop, and it will be difficult to match last year’s crop input sales.
However, that could be offset by increased revenue from blending of this year’s higher quality crop and savings generated by the integration of the two companies.
Newman is forecasting 2007-08 EBITDA of $322 million, up from his previous estimate of $300 million, earnings per share of 58 cents, up from 49 cents, and share price target of $10.75.
While total grain exports may decline for 2007-08, chief executive officer Mayo Schmidt said he expects record demand for canola, of which Viterra is the No. 1 marketer and handler. He also said he expects high levels of fertilizer application this fall, a strong performance from Can-Oat and good demand for feed products, especially in the U.S.
Schmidt added the company is looking to expand the scope of business operations in the near future.
“Over the last year we’ve been primarily focused on the AU acquisition, which as you can see from the results, was the right thing to do,” he told reporters and market analysts during a teleconference.
“We’ll now turn our attention very shortly to other opportunities.”
He said the company is looking at expansion in Canada and the U.S. through acquisition or construction.
