NYSE: NTR | USD 81.89 | Outperform | Price Target USD 135.00
Sentiment: Neutral
Our view: We expect a neutral-to-positive reaction as Q2 was slightly better than expected and the new guidance range brackets current consensus. We also think the guidance trim may be conservative as the reduction was due to lower expectations for nitrogen, but we see potential upside into the back-half of this year given extremely high nitrogen marginal costs set by expensive European natural gas prices — we note urea prices jumping up 15-20% this past week as an example. Additionally, we think the company's plans to continue significant buybacks and capital return will be well-received given strong cash generation and a strong balance sheet.
Actual: $5.0B EBITDA | RBC $4.7B | Consensus: $4.8B
Summary: Q2/22 results were slightly better than expected on strong Retail and Potash segment performance, offsetting lower sales in Nitrogen and Phosphates. In Retail, performance was much better than expected due to strong margin performance (25% actual GM vs. 20% RBCe), driven by high selling prices across all product categories and growth in proprietary products. Potash Segment performance was better than expected due to stronger sales volumes (3.7Mt actual vs. 3.5Mt RBC), primarily in offshore markets, and realized prices were slightly higher ($719/tonne actual vs. $703/tonne RBCe). In the Nitrogen segment, sales volumes were lower than expected (2.6Mt actual vs. 2.9Mt RBCe) due to a slow US spring season, while realized prices were in line. In Phosphates, sales were lower than expected (0.6Mt actual vs. 0.7Mt RBCe) and realized prices were lower ($925/tonne actual vs. $1,008/tonne RBCe).
Nutrien trimmed 2022 full-year EBITDA guidance to $14.0-15.5B, primarily due to lower expected earnings in Nitrogen ($4.0-4.7B, from $5.0-5.8B), partially offset by stronger performance in Retail ($2.1-2.2B, from $1.8-1.9B), while Potash guidance was narrowed ($7.6-8.2B, from $7.5-8.3B). The company lowered nitrogen guidance primarily due to lower benchmark prices and higher expected natural gas costs. However, we note that nitrogen has significant upside potential into the back-half of the year, given very high European/international natural gas costs, and we think Nutrien may be conservative on their revision.
Nutrien also announced intentions to complete the 10% share buyback program in 2022. The company has repurchased 22M shares for $1.8B as of August 2. Based on the maximum 55M shares allowable under the current program, that implies Nutrien intends to repurchase 33M shares (6% of current float) through the rest of 2022.