Nutrien is the world’s largest provider of crop inputs, services, and solutions. The company engages in the production and distribution of over 25 million tonnes of potash, nitrogen, and phosphate products for agricultural, industrial, and feed customers worldwide. It has a large agriculture retail network servicing over 500,000 grower accounts at 2,000 retail locations in seven countries.
Nutrien provides its customers with complete agriculture solutions including nutrients, crop protection products, seed, service, and digital tools. The company operates through segments: Retail (29% of 2019 EBITDA), Potash (37%), Nitrogen (29%), and Phosphate (5%). It has a unique global footprint and well-positioned assets in North and South America and Australia. Nutrien operates across the entire agricultural value chain from the ground to the grower.Investment Data
- Opportunity Score: 35
- Ticker: TSE:NTR
- Sector: Basic Materials
- Industry: Agricultural Inputs
- Market Cap: 39.11B
- P/E: 67.67
- Dividend Yield: 3.41%
- Payout Ratio (Earnings): 229.85%
- Canadian Dividend Aristocrat: NO
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 3/10
- Dividend Income Fit: 3/10
Revenue Growth & Market Exposure
With a history dating back almost 50 years, Nutrien has built an extensive size and scale, and innovation and technology to address the growing and changing needs of its customers. The company has a large fleet of nutrient and crop protection application equipment and a host of digital tools in North America to better serve its grower customers.
Nutrien is the world’s largest potash producer with over 20 million tonnes of potash capacity at its low-cost mines and third-largest nitrogen producer in the world. It also operates two large integrated phosphate mining and processing facilities. Potash, nitrogen, and phosphate have a large number of fertilizer, feed, and industrial uses.
Nutrien continues to grow both organically as well as through acquisitions and contributions from its proprietary product lines. It has achieved annual run-rate synergies with $650 million in the last year. COVID-19 had a limited direct impact on its operations and crop input demand. Total online sales surpassed $170 million in the U.S. in the latest quarter, up from about $3 million in the same period last year and accounted for ~40% of U.S. sales. Nutrien expects strong crop input demand in its core markets and some negative impacts from lower non-food consumption, in particular, reduced corn use for ethanol production. The company estimates its global industrial nitrogen demand and global potash shipment will be negatively impacted as a result of the pandemic in FY2020.
Nutrien has a history of paying stable and growing dividends over the years. The strength of its dividend is underpinned by the stability of its retail earnings and strong Potash and Nitrogen business. The company has returned more than $6 billion to shareholders by way of dividends and share repurchases. The company sports an annual yield of over 4.5% but has a high payout ratio. It last raised its dividend by 4.6% and at a rate of 18% CAGR in the last ten years. At the end of March 2020, Nutrien had ~28 million shares available to repurchase under an NCIB and it repurchased ~4 million common shares in the latest quarter. The company also paid $256 million in dividends to shareholders.
Nutrien has a strong balance sheet, a stable dividend, and substantial access to liquidity. Its business was designated as an essential service by all governments during the lockdown. The company’s retail business is attractive and continues to deliver growth while becoming increasingly diversified. Nutrien’s wholesale business should benefit from a rebound in fertilizer prices, which is expected to provide a catalyst for earnings growth. The company is an essential service provider supplying food that the world continues to need and is hence, recession-proof. The scale and diversity of Nutrien’s integrated portfolio further provide a stable earnings base and multiple avenues for growth.
Nutrien expects its dividend payout ratio to be in line with its target of 40%-60%. The company reduced its FY 2020 adjusted EPS and adjusted EBITDA guidance to $1.50-$2.10 and $3.5-$3.9 billion, respectively. It continues to enhance its digital offerings, drive down costs, reduce working capital, and grow its market share. Nutrien also continues to invest in its retail business over the next five years to expand its network in core markets, enhance its product offerings, and drive organic growth.
Nutrien faces extensive competition in most developed retail agricultural markets. The company competes with mid-sized national retailers, co-operatives and smaller independent operations in North America and Australia, and smaller independent owners in Brazil. World-class low-cost production platform, extensive distribution network, and direct relationships with growers are its key competitive strengths.
Nutrien is feeding the future by helping growers increase food production in a sustainable manner. With large production capacities and leading agriculture retail network, the company is well-positioned to supply the needs of its customers and deliver long-term value for shareholders. Crop prices have been less impacted than other commodities in the global economic downturn. Growing demand for crop inputs, high-quality food, and increasing population acts as strong tailwinds for the company.
My reluctance in Nutrien is the global pricing issues with Russia and how it can impact them and have no control over it. In turn, it impacts their ability to sell internationally due to the price pressure. Investing is about growth and growing profits, if Nutrien is price limited internationally, then growth is limited.