Nutrien Ltd. (NTR) Q2 2016 Earnings Report, Transcript and Summary

Richard D. Downey - Vice President, Investor/Corporate Relations and Market Research Charles V. Magro - President, Chief Executive Officer & Director Steven James Douglas - Chief Financial Officer & Senior Vice President Stephen G. Dyer - SVP & President-Retail Business Unit Henry Deans - SVP & President-Wholesale Business Unit Jason Newton - Economist, Agrium, Inc.

Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker) Jacob Bout - CIBC World Markets, Inc. P.J. Juvekar - Citigroup Global Markets, Inc. (Broker) Joel Jackson - BMO Capital Markets (Canada) Mark Connelly - CLSA Americas LLC Vincent Stephen Andrews - Morgan Stanley & Co. LLC Yonah Weisz - HSBC Bank Plc (Tel Aviv Branch) Carl Chen - Scotia Capital, Inc. (Broker) Edlain Rodriguez - UBS Securities LLC Peter Prattas - AltaCorp Capital, Inc. Adam Samuelson - Goldman Sachs & Co. Sandy H. Klugman - Vertical Research Partners LLC Justin Wieland - Barclays Capital, Inc. Steve Hansen - Raymond James Ltd. (Broker) Andrew Wong - RBC Dominion Securities, Inc. Vincent Anderson - Stifel, Nicolaus & Co., Inc. Jeffrey J. Zekauskas - JPMorgan Securities LLC Michael Stuart Henry - Cleveland Research Co. LLC

Greetings and welcome to the Agrium, Inc. Second Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Richard Downey, Vice President of Investor and Corporate Relations for Agrium. Thank you, Mr. Downey. You may begin. Richard D. Downey - Vice President, Investor/Corporate Relations and Market Research: Thank you, operator. Good morning, everyone, and welcome to Agrium's 2016 second quarter conference call. On the phone with us today is Mr. Chuck Magro, President and CEO of Agrium; Mr. Steve Douglas, CFO; and the rest of our executive management team to review and discuss our results. As we conduct this conference call, various statements that we make about future expectations, plans and prospects contain forward-looking information. Certain material assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions are contained in our current Quarterly Report to our shareholders, as well as our most recent Annual Report, MD&A, and Annual Information Form filed with Canadian and U.S. securities commissions to which we direct you. I will now turn the call over to Mr. Chuck Magro. Charles V. Magro - President, Chief Executive Officer & Director: Thanks, Richard. Good morning, everyone, and welcome to Agrium's second quarter earnings call. As we reached midway through the 2016 growing season, our crop consultants and scouts are very busy across our retail network and are reporting excellent crops throughout North America. This is also evident through the high USDA crop condition ratings. The corn crop is now in the final stages of soaking. And between the high planted acres and the forecast for strong yields, we expect a large U.S. crop. This will mean significant nutrient depletion and should drive solid nutrient demand during the fall season. Looking at Agrium second quarter results, our retail earnings were excellent as we achieved our second highest gross profit and EBITDA. This was realized in a year that presented many challenges in terms of low crop prices, tight grower economics and bottom of the cycle nutrient prices. Our Wholesale operations were also impacted by low global nutrient prices, but we were able to mitigate some of this impact through reduce costs and increase production and sales volumes. At low points of the cycle, it's even more critical to have assets that have a cost to price advantage to ensure you can weather the storm and generate significant free cash flow to take advantages of the opportunities that arise during tougher times. We believe Agrium is the best positioned company in the sector in this regard due to our integrated strategy and the quality of our assets and people. Our continued focus on cost reductions and maximization of reliability and efficiencies also help to offset many of the market headwinds. And we see more opportunities going forward. Looking now in more detail to our earnings, Retail grew gross profit and EBITDA over the last year and achieved earnings that kept us on track to meet our annual Retail EBITDA guidance range. We achieved this due to strong margins across all of our product lines and a reduction in expenses. This was largely due to our success at continuing to grow our proprietary product sales and margins and focus on network optimization, again demonstrating the value of our position as the leading provider of crop inputs and services and the benefits of our unique offerings of proprietary products and grower solutions. We made excellent progress with respect to our Retail metrics this quarter, where we demonstrated year-over-year improvement across almost all operational areas. This included an impressive reduction in our cash operating coverage ratio to 60% from 64% last year as well as improvements in our return on capital metrics, normalized comparable store sales and the EBITDA to sales ratio. These results were supported by improvements in gross margins across most of our Retail product lines. Retail's crop nutrient volumes for the first half of the year exceeded last year's level. We achieved margins of $101 per tonne in North America, similar to last year's level, which is impressive considering benchmark nutrient prices were down between 25% to 40% over last year. Gross profit as a percentage of sales rose to 20% compared to 17% last year. For crop protection products, we saw slight increase in sales as weather conditions were conducive for growers to apply crop protection products. Margins remained strong supported by higher proprietary product sales. Our inventory levels for most crop protection products are now in line with or lower than they were last year. Second quarter seed sales were slightly lower than last year as the early spring drew some volumes into the first quarter. However, on a year-to-date basis, we increased our seed sales. And, more importantly, our seed margins were three percentage points higher than the same period last year. The stronger margins were due to a mix of corn and cotton seeds, increased volumes of treated seeds and robust Dyna-Gro seed sales. Looking at Wholesale, we increased our overall sales volumes this year and reduced our cost of product sold and selling expenses due to our ongoing review of fixed costs. Excluding Borger and Conda, which had planned turnarounds in the second quarter, our overall operations ran at high on-stream times again this quarter. And we continue to successfully ramp-up our Vanscoy potash operations. We were able to achieve solid nitrogen margins of $127 per tonne despite benchmark nitrogen prices being about 30% lower than the same period last year. Reported margins reflected our distinct low cost advantage and a continuous focus on optimizing reliability, managing costs and the success of our repatriation strategy. Our potash gross profit was impacted by the significant decline in market prices which saw domestic prices drop 41% and the international prices decline by 37%. While our potash gross profit margins were down to $22 per tonne this quarter, on a cash basis, our margins were over $60 per tonne. Our mine ramp-up is continuing on plan and the higher volumes help reduce the cash cost to production to $75 per tonne this quarter. However, we will continue to align our production volumes to market conditions. I'd now like to turn the call over to Steve Douglas to review our financial position and provide updates on some of our acquisition activity. Steven James Douglas - Chief Financial Officer & Senior Vice President: Thank you, Chuck, and good morning, everybody. Agrium continues to be well-positioned with regards to our balance sheet, financial metrics and cash generation, even in these challenging times for crop nutrient markets. While our peers are struggling with capital deployment decisions associated with significantly reduced cash flows, Agrium is continuing to move forward with its clear strategy of returns to shareholders and focused growth. The strength of our financial position has allowed us to continue to follow through on our retail growth plans, such that the total acquisitions this year are expected to total well over $0.5 billion in annual sales. We're on a record pace this year in terms of retail tuck-ins adding 33 sites in the U.S. and Canada with combined expected sales of over $230 million. In addition to these completed transactions, we've a couple other slightly larger deals that we have signed but not yet completed, including the recently announced Cargill acquisition. These other positions are expected to add an additional estimated $300 million of sales and more than 30 locations. We expect this strong deal flow to continue as we execute our strategy of growing the North American retail business. As we discussed at our Investor Day in June, one of the pillars of our strategy is to invest approximately $250 million in technology and innovation over the next five years to ensure we continue to solidify our position as a leading global provider of crop input products and solutions. In this regard, we've recently announced a $15 million investment in Finistere, a venture fund focused on identifying and investing in world-class agriculture technologies across early to growth stage companies within the areas of plant nutrition, biologicals, seed technology, digital agriculture and novel farm systems. Through this investment, Agrium will join a core of leading strategic investors in Finistere across the agriculture farming and food industries, which will provide access to unique collaboration and partnership opportunities. We see this investment as playing an important role in supporting Agrium's innovation and technology strategy, creating opportunities for new products and services for growers and generating future earnings growth for shareholders. I'm also pleased to report that Borger nitrogen expansion project continues to proceed on-time and on-budget. Another piece of positive news is for the first time in many years we were able to repatriate $20 million in cash in July from Profertil in Argentine with an anticipation of close to $90 million more to come in the future. We're very pleased to see the positive changes to the business environment evident in that country. As we announced at our Investor Day, we have recently refined our approach to extending credit to our retail grower customers through the creation of Agrium Financial Services and an investment in a private company, Ag Resource Management or ARM, which offers short-term loans to growers to help them with their seasonal crop input needs. I would like to take a few minutes to support our – to summarize our approach to garnering new customers and maximizing financial services income, while proactively reducing Agrium's credit risk profile. Agrium Financial Services will centralize and standardize our credit decision-making system across the business, which will allow for a more consistent and defined credit risk exposure, lower risk profile on existing and new receivables, while increasing interest earnings. Additionally, with the investment in ARM, we will be in a better position to direct specific customers and potential new customers who have special borrowing needs or credit profiles towards ARM, presenting a win-win situation for both organizations and for growers. We will participate in the financial returns from ARM's growing lending business for crop inputs through our 28% equity ownership with the company. ARM has some unique capabilities to provide lending for grower's crop input needs at competitive rates with loans secured through collateral from crop insurance and liens on crops. In addition to lowering our risk profile, both platforms will benefit Agrium through higher crop input sales commensurate with the additional available credit. Strategy is progressing well with ARM continuing to expand in the new states and AFS is expected to be available to the majority of our CPS locations by the end of 2016. We've issued updated annual guidance today of $5 to $5.30 of earnings per share or $0.78 to $1.08 per share in the second half of the year, with over 80% of the second half earnings expected to be in the fourth quarter. The reduction from the previous range is exclusively due to lower nutrient price environment. The annual guidance range estimate for retail was simply narrowed from the range provided earlier this year. I will now hand it back to Chuck to discuss the outlook for our key drivers and products. Charles V. Magro - President, Chief Executive Officer & Director: Thanks, Steve. Crop nutrient prices have clearly been under pressure this year, but have recently shown signs of stability. And we do see the potential for a firming trend across all three nutrients as we head into the fall season. The high yield expectations across North America this year will generate some puts and takes for the crop input outlook. On the positive side, the high yields will help offset lower crop prices with respect to North American farm incomes and will also lead to significant nutrient removal from soils this year. Crop maturity is well ahead of normal, which should result in an early harvest and a long fall nutrient application season. Furthermore, low nutrient prices ensure these important inputs are affordable for growers. This season's growing conditions have created disease and weed pressure, which has supported demand for fungicides and herbicides. However, the expected large crop in North America has pressured grain and oilseed prices and may result in some shift in crop acreage next year. Looking at the outlook for the specific nutrients, nitrogen and phosphate prices have seen significant pressure during a period of low seasonal demand. This has been exacerbated by India's urea imports being down over 700,000 tonnes and on a year-to-date basis and DAP imports down over a million tonnes. At current low nitrogen price levels, we estimate that about 60% of global capacity is uneconomic. Much of this is in China, which is the highest cost exporter of nitrogen products in the world. This has resulted in a significant reduction in Chinese production and export levels over the past few months. On the demand side of the equation, we expect Indian fertilizer import demand to increase significantly in the second half of the year. We anticipate solid demand in North America given the significant nutrient removal that has occurred and relatively low retail level inventories. Global potash prices were impacted by the delay in contract negotiations with China and India. However, agreements have recently been reached in both of these geographies. Given this recent clarity to international pricing and the normal increase in seasonal demand, we expect a robust global shipment of potash in the second half of the year. On the supply side, we've also seen several capacity closures and do not expect any new capacity to come online in the second half. As a result, we see effective potash capacity more than 2% lower than where it was two years ago. In summary, Agrium has once again demonstrated the value of our business model and our competitive strengths in a challenging nutrient price environment. This was evident in the breadth and resiliency of our retail earnings with improved retail metrics across the board. It was also apparent in our industry-leading nitrogen margins and solid cash margins for potash. We are maintaining a laser focus on costs and operating efficiencies. However, as we mentioned in our Investor Day, we're not done yet. And we believe we can continue to reduce costs and improve operating rates over the next few years. Our focus on operational excellence will continue as a daily part of how we do business from product manufacturing through to crop input sales and services to the grower. As Steve mentioned earlier, I'd like to reiterate that Agrium is very well-positioned to continue to deliver on our growth and capital allocation strategy. Our financial strength, robust balance sheet and integrated structure puts us in an excellent position to take advantage of opportunities to grow and expand across the agricultural value chain at this low point in the cycle both in Retail and in Wholesale. With that, I'll turn it over to the operator to get questions moving.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. Thank you. Our first question comes from the line of Christopher Parkinson from Credit Suisse. Please proceed with your question. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker): Perfect. Thank you very much. You made a decent amount of acquisitions in Retail during the first half as well as the impending Cargill deal. Can you just update us on your regional strategy within the U.S., including net closures, cost controls, working capital improvements? And then also any update on Australia very quickly would be appreciated. Thank you. Charles V. Magro - President, Chief Executive Officer & Director: Okay. Good morning, Chris. I'll turn the questions over to Steve Dyer. Stephen G. Dyer - SVP & President-Retail Business Unit: Hi, Chris. Yes. In terms of our acquisition profile, as Steve mentioned, we're very pleased with the progress we've made in our acquisitions, on track definitely to have a record year from an acquisition standpoint, from a tuck-in standpoint. So, again, very pleased with that, including the Cargill. And, as mentioned, we have a couple of other larger ones that we're looking to close before the end of the year as well. So as part of that, obviously, whenever we acquire, we take a hard look at our footprint and see where we can take a look at consolidation to bring efficiencies both delivering to the grower as well as from a cost structure standpoint. And if you take a look at our costs, year-to-date we're down year-over-year about $20 million in costs within the Retail organization. And that includes absorbing about $40 million of additional costs associated with acquisitions as well. So net-net, comparing apples-to-apples we're down about $60 million in costs, so very pleased with that performance. So, again, we're continuing to take a look at that. As well, what we mentioned at our Investor Day, we're also looking at complementing the acquisition with our new-builds as well. So we have several that we're looking at starting in second half of this year and are hoping to have ready for the spring season of next year as well. So that continues to progress well for us. In terms of Australia, they had another solid quarter and a solid first half. They are second bet. So we continue to see good progress in Australia as well. And they are actually set up for a very good second half. They were a little dry in the middle of the Q2 and they got good moist year that actually slowed them down a little bit in Q2 but set them up for a very strong second half. Charles V. Magro - President, Chief Executive Officer & Director: Chris, I might add, just on the Retail M&A. As Steve mentioned, we've had just a great year. We expect this trend to continue with firm economics the way it is and crop pricing. We are seeing a lot more opportunities. Our pipeline is quite full and we're also noticing that the average size of some of these deals are starting to increase. Where we used to get the onesies, twosies, now it's starting to be some of the larger retail businesses are becoming available. So strategically this fits really well with Agrium. We've got a nice pipeline and we look forward to an accelerated rate of tuck-ins.

Our next question comes from the line of Jacob Bout with CIBC. Please proceed with your question.

Good morning. I had another question on Retail, specifically looking to get some granularity on your guidance. So maybe you can breakdown for us looking at three areas specifically what's baked into your numbers, first of all, from acquisitions in the Retail side; second, you talked a bit about this but on the operational excellence cost savings; and then lastly just the impact of mix, i.e., moving more to the proprietary and the higher margins from that. Charles V. Magro - President, Chief Executive Officer & Director: Okay. Good morning, Jacob. I'll have Steve Dyer answer those three questions. Stephen G. Dyer - SVP & President-Retail Business Unit: Yes. I think your question was around how much did the tuck-ins actually add. So if you look at it, a lot of the tuck-in additions for this year were tuck-ins we did last year. And it was – for the first half was around $14 million to $15 million of EBITDA. A lot of tuck-ins we're doing this year, well, merely contributed to next year's EBITDA. And, again, from a cost standpoint, I mentioned that the tuck-ins that we've done this year will add around $40 million of costs. So we expect to absorb those costs plus still have cost reductions on top of that. So it will be down year-over-year like we are so far this year down $20 million. And then I think the last part of your question was -

Mix. Stephen G. Dyer - SVP & President-Retail Business Unit: Oh yes, in terms of -

Products. Stephen G. Dyer - SVP & President-Retail Business Unit: Yes, in terms of the proprietary products. Again, very pleased with where we are with the proprietary products. If you look at our overall – across all our proprietary products, our nutritionals, chemicals and seed, on a revenue basis, we were up just over 7%. If you take a look at our chemical shelf as a percentage of our chemical sales, we went from 23% for the first half to 25% of our sales, again, coming from our proprietary products. So, again, very pleased on the performance. We're up across all shelves on our proprietary products and see that continue to grow for us as we reported as well. Charles V. Magro - President, Chief Executive Officer & Director: Yes. Jacob, just a couple more comments from my perspective. So this is the strength of our Retail business. We have significant growth engines. Of course, we can grow it through M&A which we're very good at. We've been doing that for years. You're starting to see the investments we've made in our network and hub and spoke model starting to really improve the cost as a percentage of gross profit. We're adding a new tool to our toolkit which is to start building retail facilities. And we expect that to really take a hold for 2017 and beyond. And, of course, we have the strongest suite of proprietary products both for chemistry and seed than any other retailer. And that's really been a huge driver of value creation. And that's the really wonderful part of our retail models. We just have so many different ways to grow the business and continue to optimize it. And, of course, we're not done yet. So we're pretty excited about our platform. Stephen G. Dyer - SVP & President-Retail Business Unit: Yes. Jacob, the last thing I'd probably mention is just on our comparable store sales. They were up 2% as well. And our read the first half year has been a flat to slightly down overall across all shelves in terms of the overall market. So, again, very pleased with that performance in terms of, we'll call, true organic growth across our portfolio of branches.

Our next question comes from the line of P.J. Juvekar from Citi. Please proceed with your question.

Yes. Hi. Good morning. Just a question on seeds. What did you see in terms of seed pricing this year? And then we've had three great growing seasons. Maybe aren't all way to a fourth great growing season. If that happens, what do you think producer inventories of seeds are and what's your expectation for seed pricing next year? Thank you. Charles V. Magro - President, Chief Executive Officer & Director: Steve Dyer, do you want to take those questions? Stephen G. Dyer - SVP & President-Retail Business Unit: Sure. P.J., in terms of seed pricing, we've seen continued pressure on seed pricing through this year, similar to what we saw last year. As Chuck mentioned in his commentary, we did have an improvement in margins and that was largely driven by both our growth in our proprietary product line as well as the seed mix of a higher cotton as well as corn that drive a higher margin for us as well. But we do see continued pressure on seed. And you're right, very strong crop will probably have robust seed supply as well. So we'd expect continued pressure into next year as well.

Our next question comes from the line of Joel Jackson from BMO Capital Markets. Please proceed with your question.

Hi. Good morning. I had a question, so your fertilizer volumes across nutrients and retail were flat in Q2. But this year there was an acreage increase in corn in the U.S. and you had the tuck-ins. And your margins are great. But can you talk about what's going on where crop nutrient volumes were not up this year in your business in Q2? Are we seeing lower applications per acre of fertilizer and which nutrients are we seeing it in? Charles V. Magro - President, Chief Executive Officer & Director: Joel, it's Chuck. I'll turn it over to Steve. You have to look at it, of course, first half of the year, the spring season sometimes muddies each quarter. So, Steve, why don't you explain that? Steven James Douglas - Chief Financial Officer & Senior Vice President: Yes. So if you look at it, in the quarter, we were down slightly in volume. But if you look at the full year basis for the first half, as Chuck just mentioned, we were up on volume. So we saw application rates in alignment to last year and again a slight uptick in fertilizer, to the point you made slightly higher corn acres or higher corn acres as well as we do have some additional volume from the tuck-ins as well. We did have a little bit lower volume in Canada from a fertilizer standpoint. So if you look at the U.S., actually the U.S. was up even more. If you look at Canada, we were actually down slightly and that was driven by the high pulse acres that we had that do not use a whole lot of nitrogen as well. So if you look at the mix, we actually had very good growth on the fertilizer volume within the U.S. Charles V. Magro - President, Chief Executive Officer & Director: And then, Joel, if you just look forward to the fall application season, we're going to see a very big crop, as I mentioned significant removal of nutrients from the soil. If you recall last fall, the nitrogen season was quite compressed and we didn't get as much on as we needed to. So all these things are positive catalyst for what we think will be a pretty healthy fall application season across the NPK complex.

Our next question comes from the line of Mark Connelly from BLSA (sic) [CLSA] (26:43). Please proceed with your question.

Thank you. So Agrium's exposure to NYMEX and AECO is obviously a unique competitive advantage. When you think about the overall cost competitiveness, do you share the view that some investors do that more LNG trade is going to permanently flatten the global curve? And I'm curious if you do, whether you think that that's going to affect the AECO, NYMEX relationship too? Charles V. Magro - President, Chief Executive Officer & Director: Yes. Mark, I'll give you my perspective, and then I'll have Harry Deans, our Wholesale President, provide some insights. So the way we're looking at gas is at least to the short-term and medium-term, we're still very, very bearish on pricing. If you look at what we expect to happen over the next season or so as demand will increase very modest 3% to 4%, there's ample supply. The cash cost of production is still hovering between $1 and $1.50 per MMBtu. So we don't think that even if the LNG trade starts to increase – and our view is that that's going to be a lot longer. It's going to take a whole lot more capital than people are predicting. And so when I look at the NYMEX gas position, we're bearish. When we fast-forward and we look at AECO which, of course, 80% of our North American production is on AECO gas, there's new finds being found almost every week up in Canada. There is a tonne of gas sitting up there. If you look at inventory storage right now, it's almost full. And the differential between NYMEX and AECO, which would be an Agrium cost advantage, is pretty substantial. We don't see that narrowing long-term. Harry, do you have any other color you'd like to provide? Henry Deans - SVP & President-Wholesale Business Unit: Yes. I think you've covered most of it, Chuck. And, also, if you look at the U.S., the storage there in the U.S. is still 476 BCF of the 580 (28:36) average. There's a bit of volatility at the moment in the gas pricing given the high temperatures we're seeing in the U.S., but we expect that to calm down.

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Thanks very much and good morning, everyone. I'm wondering if you could just talk a bit about your premium service demand as well as the demand for this precision agricultural products that are out there and how that played out this year. And given the lower corn price environment, again, how you think that's going to play out going forward? Charles V. Magro - President, Chief Executive Officer & Director: Steve Dyer? Stephen G. Dyer - SVP & President-Retail Business Unit: Yes. Vince, in terms of our premium services, again, the way we look at precision ag, it is – the biggest information we're using, the services we're providing as well as what we call our precision products are proprietary products. And, as mentioned, our proprietary products grew nicely. Now a lot of that's driven through the use of our precision agriculture, our Echelon, and working with growers to demonstrate the value we can bring with our nutritionals and our biological type products to the growers. So from that standpoint, as I mentioned, we were up across all shelves on our proprietary products. And a lot of that is facilitated through our Echelon program. Overall, we see Echelon acres up slightly year-over-year. Yes. It's a little more challenging in this environment definitely but we do see continued growth in the utilization of our Echelon program. Charles V. Magro - President, Chief Executive Officer & Director: Yes. Vincent, I'd like to share a quick story, if I could. So I was traveling through our Texas division just last week and on our cotton field and the cotton there looks good. They've had some dry areas. But what we talked to the growers there, they said to me – well, I asked them very explicitly. Are you using the tissue sampling and the precision agricultural services? And they said yes. Because it's been a little dry and the yields are okay, the way they are viewing to really get higher incomes and drive their yields up is to do the services that we provide and were using our Loveland products. And they are seeing – and when I asked one grower, he said he's seeing about a 30% increase in yields by using our Loveland products. And that's all being designed and planned by our crop consultants with the grower using this new advanced technology that we have. So the point of the story is this is dropping to their bottom-line. And if they're profit moted (31:11), which they are, they are really not going to cut back on the services, especially in these times, where, I think, every bushel counts.

Our next question comes from the line of Yohan (sic) [Yonah] (31:24) Weisz from HSBC. Please proceed with your question.

Yes. Hi. It's Yonah Weisz from HSBC. Thanks for taking my question. I wanted to ask you about the margins in crop protection and in seeds and essentially the counter play with your proprietary products. In the past, you've mentioned or talked about how there's a limit to how much proprietary products you put into your mix because at certain points the other producers who sell through you may be a bit less happy to see their share going down and your proprietary share going up. So 25% mix – can we see higher shares of proprietary products in the future or have you reached a plateau? Charles V. Magro - President, Chief Executive Officer & Director: Good morning. Steve Dyer, do you want to take that question, please? Stephen G. Dyer - SVP & President-Retail Business Unit: Yes. So, again, as we said, we're very pleased with the growth that we've seen in our proprietary products being up that 7%. And we do see the ability to continue to grow at a very good pace going forward as well. So we have not hit the ceiling yet. And there is many ways we're looking at this. A big part of our proprietary products is on the nutritional side, the biologicals, which is a new market. So we're not competing with others out there from that standpoint. But we do see continued growth on the crop protection side, again working with our suppliers in terms of incorporating into our existing products, so it's actually a win-win situation in many case with our suppliers looking at using some of our proprietary products to go along with theirs. A good example would be our adjuvants. And getting their new products approved with our adjuvants, again, a win-win situation for both the supplier and ourselves.

Our next question comes from the line of Ben Isaacson from Scotiabank. Please proceed with your question.

Hi. This is Carl Chen stepping in for Ben. Thank you for taking my question. So with a couple of nitrogen plants slated to come online in North America, what impact do you see on the in-market price premium that you've been receiving from the regions that you're selling to? Charles V. Magro - President, Chief Executive Officer & Director: Good morning, Carl. I'll have Harry Deans talk about the in-market premiums we've seen or going to see. Henry Deans - SVP & President-Wholesale Business Unit: Yes. So what we expect, Carl, is we expect – because of all the reasons that Chuck outlined, we expect that there's going to be seasonal uptick in our prices going forward into the fall because inventories across the NPK are low. There's been excellent plant development with a large crop which is depleting the nutrients and also because of the fact that we expect a longer application season than normal. Charles V. Magro - President, Chief Executive Officer & Director: Yes. Carl, I'll give you a couple other thoughts that we have as well with regards to North American nitrogen. So you're right. There's significant capacity that will be coming online in the next 12 to 18 months. But if you look at it overall we still expect North America to be a net importing country and continent. We certainly believe that the transportation is getting more expensive, not less expensive, to move our products. And so the premiums that we see in-market we don't see them receding to any great degree because we completely see North America remaining to be a net importer. The transportation differentials, which really define the pricing premiums, are going to be set. Now what we've seen, of course, is right now we have fairly low nitrogen prices, as Harry mentioned. But, as we move into the fall application season, we would expect prices to rise with the demand. And, as I mentioned in my prepared remarks, 60% of global capacity today is losing money. So that's not a sustainable business to operate on when it comes to supply/demand. And we think from a truly economic and supply/demand, we would expect higher prices in the fourth quarter and we would expect our in-market premiums to hold.

Our next question comes from the line of Edlain Rodriguez from UBS. Please proceed with your question.

Thank you. Good morning, guys. Quick question. I mean, Chuck, you've talked about nutrient removal that could lead to stronger market during the next application seasons. But how does that balance against the continued softness in crop prices that could lead farmers to use less fertilizers? Like which one is a bigger driver? Charles V. Magro - President, Chief Executive Officer & Director: Yes. Good morning, Edlain. It's a great question. And we think that – look, there is going to be a big crop. And that is a double-edged sword, right. You're going to have significant nutrient removal which will cause growers to need to replenish their soils, but it helps their overall incomes. With lower prices, if you have more bushels, it's going to help their overall income. So we don't see the broad majority of the growers, the good growers out there, cutting back on application rates to any great extent, because as soon as you do that, you know as well as I do, that you're going to have immediate bottom-line impacts for them. So they are cost conscious. They always have been. They always will be. They've really looked at their budget overall. And we haven't seen them pull back in the areas of certainly nitrogen applications and we don't believe to any great extent potash and phosphate. They've trimmed their budgets in many, many other areas. And actually we've seen more investment in some of our nutritionals and biologicals to supplement the traditional NPK blends, because they are seeing good yield enhancements from that. So it's going to be tougher for them and that means it's going to be tougher for the whole ag value chain. But we don't see a move away from fertilization or balanced fertility because as soon as they do that they are going to really destroy their assets which are a sustainable resource. So we think moving forward that we could see some pressure in PNK but not a substantial move.

Our next question comes from the line of Peter Prattas from AltaCorp Capital. Please proceed with your question.

Good morning, guys. I'm encouraged by the accelerated pace of tuck-ins, but I guess related to making acquisitions as the strength of your balance sheet. So just looking at your leverage ratio they ticked a bit higher here in the quarter, up to 2.7 times. And I'm wondering with the lower guidance and the tuck-ins you have planned for the second half of this year, perhaps you push up near that three times metric. So can you talk about your willingness to expand your leverage ratios to pursue growth? And are you prepared to go beyond three times if the opportunity arises? Thanks. Charles V. Magro - President, Chief Executive Officer & Director: Hi, Peter. I'll have Steve Douglas, our CFO, handle those questions. Steven James Douglas - Chief Financial Officer & Senior Vice President: Thank you, Peter. Good question in the context of what we're seeing today. I think the uptick in that number is driven by as much lower nutrient prices driving our EBITDA from our Wholesale business downward as much as it's actually incurring additional debt. I am not a huge fan of picking individual numbers as whether or not we – I've always said through the course of the cycle. Our goal is to remain investment grade. That has not changed. But we do have, I think, financial flexibility in the dialogues we constantly have with the rating agencies and to a degree debtholders. I think people understand that in times of depressed markets is the times where, in fact, leverage prudently used can add an enormous amount of value over the course of a cycle. Given that we do have I think – and we've said this in the past and I think Chuck would agree that we are in an environment where there are select assets and select opportunities out there that, I think, represent a great entry point given where we're in the cycle. From a balance sheet perspective, as I said, just to reiterate, we're committed to investment grade, but we look at it over the long-term and upticking over three is really going to be predicated on the combination of the opportunity, the risks we see associated with the opportunity. But I absolutely believe that the time in the commodity space to invest is when times are difficult. And if you are uniquely positioned, which we think we are, to take advantage of those through a combination of your valuations and debt capacity, I think, it's incumbent upon us to look at it and look at things in the long-term.

Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question. Adam Samuelson - Goldman Sachs & Co.: Great. Thanks very much. Maybe, Steve, following-up on those comments. Any comments on the average multiples as the tuck-in opportunity set seems to be expanding here? I think there's been some comments of multiples ticking higher a few quarters ago. But as some of the bigger opportunities come forth, are you seeing any meaningful change in the target costs and/or the synergy opportunity associated with it? And maybe just a quick follow-up, in Canada, Viterra. I think the gross profit was down year-over-year. There was some comments about pulses being a drag on nitrogen, but anything else there because your comps have been pretty easy with some of the weather issues in Western Canada in 2015. Thanks. Charles V. Magro - President, Chief Executive Officer & Director: Yes. Hi, Adam. It's Chuck. I'll take the tuck-in multiple question and then I'll pass it over to Steve Dyer to talk about our Canadian Retail business, which had a very good first half. From a multiple perspective, we're seeing a slight uptick in the multiples. We're not uncomfortable with that. On the larger M&A acquisitions, we don't really want to provide specific multiples because, as we mentioned, we have a very robust pipeline. There is some competitive pressure. And, right now, we're in active discussions with counterparties, which would not be appropriate for us to talk about specific multiples for specific deals. But what I can tell you is when we look at the overall portfolio and every single transaction they are still highly accretive. And I'd remind you that we get at least one EV/EBITDA multiple synergy just because of our size, scale, cost reductions and movement of our proprietary products. So, these are very creative, one of the best uses we can allocate our capital towards. And we're just going to refrain from talking about the specific multiples on these deals because of the competitive pressure and we have active negotiations going on right now. Steve, do you want to talk a little bit about how our Canadian Retail business did and address the margin question? Stephen G. Dyer - SVP & President-Retail Business Unit: Sure, Adam. And I might just add something on the multiples side. The other thing – again, we've seen a slight uptick but what also you have happening, you're obviously – it's a little bit of a depressed market, so multiples tend to be creep up naturally in a lower market as well. So, you have a little bit of that dynamic going on. In terms of Western Canada, as Chuck mentioned, very good performance in Western Canada, very pleased where we came in for the first half. We mentioned gas fertilizer was down a little bit. The chemistry was up significantly. Remember last year we had drought in Western Canada. This year, early on, it was looking like some drought conditions but then we've gotten extremely good moisture. The crops are good. A lot of fungicide spray's been going on which were non-existent last year. So even though fertilizer is down a little bit, chemistry is up significantly and then overall pleased with the performance.

Our next question comes from the line of Sandy Klugman from Vertical Research Partners. Please proceed with your question.

Thank you. Good morning. Given how far fertilizer prices have fallen, is your retail network aggressively building inventory ahead of the fall application season? And if so, where are you seeing the best opportunities both in terms of product availability and in terms of where you see the most upside to prices? Charles V. Magro - President, Chief Executive Officer & Director: Steve Dyer. Stephen G. Dyer - SVP & President-Retail Business Unit: Yes. In terms of just a little comment on where we ended for the quarter – for the first half. I think we were close to an all-time low at least in the recent history on fertilizer inventory. So year-over-year in North America, we were down about 20%. So actually very pleased with that that we were able to manage that very well from an inventory standpoint. And yes, we are starting to build inventory obviously for the fall season. And I'd say what we're seeing a little bit – starting to see a little bit of tightness on potash in terms of logistics and supply around potash. And I think we may see a little bit of that on the other nutrients as well. I think we ended inventory quite low. I think the rest of the retail network did as well. And it's time for everybody to fill. So, I'm comfortable where we are in terms of our supply. So I don't expect us to have any concerns particularly with our ability to draw off our Wholesale business as well and marry up that integration that we have. So that's kind of a little bit of commentary where we are today.

Our next question comes from the line of Matthew Korn with Barclays. Please proceed with your question.

Hey, everyone. This is Justin filling in for Matt. My question is on Chinese urea imports. And as they have declined, do you still see China as a marginal importer of urea to U.S. or have other sellers like from the Middle East or Russia or somewhere else stepped up to import more on their place? Charles V. Magro - President, Chief Executive Officer & Director: Great question. There is some moving parts. I'm going to have Jason Newton, our Head of Market Research, answer your question.

Hi, Justin. Yes. We have seen other export volumes move into the U.S. in place of Chinese volumes, but we also have seen continued Chinese urea volumes move into the U.S. market. Just as an update, year-to-date the Chinese exports are down about 25% or about 1.7 million tonnes, so a significant decline year-over-year. The last 12 months it's the lowest export total since 2014. So the market definitely is working albeit slower than you might expect given where current prices are today. I think there is some expectation as well heading into the second half of this year that there will be increased supply in the U.S. markets. But in terms of actual product volume coming on-stream we think we'll be later – at the latter part of this year and definitely not in time for the fill season. So there will be a need, definitely, for increased volumes of imports moving in from other regions to take the place of that Chinese volume. We think that will be from – Algeria is one example. There's also new supply that's come on-stream in Nigeria, just starting in the second half of this year.

Our next question comes from the line of Steve Hansen with Raymond James. Please proceed with your question.

Yes. Good morning. Thanks, guys. Just one more on pace of Retail M&A here. I'm just curious whether you think the pace we're sitting in 2016, which, I guess, will exceed $500 million in revenues this year is going to be a sustainable pace into 2017. Are we just seeing a confluence of larger above average transactions starting to move through the pipe on a temporary basis? Thanks. Charles V. Magro - President, Chief Executive Officer & Director: Steve Dyer, what do you think? Stephen G. Dyer - SVP & President-Retail Business Unit: Yes. I think, obviously, we've had a good pace here. Again, we see continued pressures going into 2017 as we talked about on crop and that type of things. So I would say that our pace will be better than – over the last several years we've added around $30 million. My expectation it's better than that. This is a good year. I'd love to do this again and we'll see what happens. Charles V. Magro - President, Chief Executive Officer & Director: Yes. The key, Steve – it's Chuck. Of course, we don't want to move the market when it comes to the previous questions in terms of the valuations and the multiples. So we're seeing strong demand when it comes to sellers. We're having good discussions. I think there's a lot of reasons why that's happening right now in these market conditions, but we haven't changed our approach because we're being quite selective. Even though we're on a record pace, it's not like we're buying everything that comes at us. We're quite selective where we want to have a bigger presence and in facilities. And it has to fit our overall five year to 10 year plan that we have for ourselves. And so we're working through the pipeline that we have. We don't want to be overly aggressive where we have to start overpaying for these assets but so far things look quite good.

Our next question comes from the line of Andrew Wong with RBC Capital Markets. Please proceed with your question.

All right. Good morning. Thank you. So I want to ask about the nitrogen urea cost curve. We've seen the cost curve change pretty significantly year-over-year, some of that new capacity comes online and the costs changed. What does that curve look like beyond 2018 given the view that some of the marginal cost producers like China, maybe they close but that's on top end? There is a curve flying now. How does that affect prices? Just maybe talk about that. Thanks. Charles V. Magro - President, Chief Executive Officer & Director: Good morning, Andrew. I'll have Jason Newton again just talk about his view of the – I guess your question is the cost curve in 2018. Jason?

Yes. Hi, Andrew. Looking out to 2018, we do expect and we have seen significant closures already at the high-end of the cost curve over the past two years in addition to the overall cost curve coming down. I think as we look out two years, even with expected – closures that are expected to take place, primarily within China, there will still be a significant amount of supply available in that high cost range. So if you look at the market clearing price expected, at today's energy values, it's not a lot different, even though the cost curve will be shifting to the right slightly with new supplies. Of course, the big question is what happens to energy prices as well. And so we're at still recent history low levels of prices for both coal and oil. We would expect that there is more upside than downside from current levels to those costs. All of those will have the impact of increasing the cost curve and in turn supporting urea prices. The other thing that's important from a North America standpoint is ocean freight rates. And ocean freight rates have increased over the past six months but remain really at historically low levels. So as those ocean freight rates increase not only does the cost of importing increase, but it also increases freight advantages and decreases competition in some import markets.

Our next question comes from the line of Vincent Anderson with Stifel. Please proceed with your question. Vincent Anderson - Stifel, Nicolaus & Co., Inc.: Good morning. Thanks for taking my question. I believe, Chuck, at the Investor Day, you had stated that outside of the retail space you had been walking away from some potential acquisitions simply because valuations hadn't come in yet. Has that started to change or are asset owners still pretty confident that nutrient prices are near trough levels? And if you share the view that we're nearing trough levels, have you started de-risking some of these proposals yet? Charles V. Magro - President, Chief Executive Officer & Director: Yes. Good morning, Vincent. I did say that at the Investor Day. And we have been looking at lots of opportunities. When I look at it from a priority perspective, we really like North American retail. We would really like to add other wholesale assets into our integrated network for our business model. And when we're looking at opportunities like that, what I would say is the bid/ask spreads have come down since we've talked last. And maybe that – deals can start to get done that make sense for both sides. I'm not sure. But I think that everybody is starting to realize that – I'm not sure this is the bottom. I'll never go out on a limb and say we're at a bottom, but there is certainly a lot of more upside than downside. And I think what's needed more than anything right now is just a bit of stability whether it's at this price or higher prices, so that people can understand how to de-risk these projects and go forward with their valuations. So my view is that we haven't changed. That consolidation is going to happen. We're starting to see it, as you can see in our retail business, in that part of the value chain. I would suspect that that will continue. You could see an acceleration in certain other parts of the ag value chain, as people get more comfortable with the future outlook for pricing. And we're able to then build economic models that we get comfortable with. So, to be determined, but I can tell you from an Agrium perspective, as Steve Douglas mentioned, I think, we're the best positioned to take advantage of these sorts of market conditions.

Our next question comes from the line of Don Carson with Susquehanna. Please proceed with your question.

This is Ben Richardson (54:20) sitting in for Don. I had a question on crop protection. Maybe you can just go into – talk a little bit about the strength in crop protection. But also wanted to understand the inventory situation in that market and then anything you might be seeing in glyphosate pricing? Charles V. Magro - President, Chief Executive Officer & Director: Hi, Ben (54:44). Steve Dyer, do you want to take those questions? Steven James Douglas - Chief Financial Officer & Senior Vice President: Sure. In terms – I'll start off, Ben (54:48), with the inventories and can talk about our inventory. At the end of the quarter, we were down about 7% in North America on inventories, so down slightly. Again, we've been managing our inventories carefully. I can't speak for other retailers. But I think, overall, the channel has been cleaned up a little bit. Again, overall, I think it's pretty good chemistry movement overall. And, obviously, we had strong performance on our chemistry with our margins pretty much flat year-over-year as well. And, again, that was supported by a little higher mix of retail versus some of our wholesale within retail and as well as our proprietary products. In terms of – you're asking – the second question was around? Charles V. Magro - President, Chief Executive Officer & Director: Glyphosate. Steven James Douglas - Chief Financial Officer & Senior Vice President: Sorry, glyphosate, and so I'll give you a little color on glyphosate. If you look at it year-to-date, pricing is about down 10% on glyphosate. So we did see some pressure on it this year. But our sales of our proprietary glyphosate were up significantly that helped support our margins. So our margins on glyphosate were actually flat year-over-year.

Our next question comes from the line of Jeff Zekauskas from JPMorgan. Please proceed with your question.

Thanks very much. Can you remind me what your Canpotex allocation is in potash? And with Potash Corp. ramping up Rocanville and maybe Mosaic ramping up Belle Plaine or expanding those mines, how might your Canpotex allocation change and does it make a difference to you? Charles V. Magro - President, Chief Executive Officer & Director: Good morning, Jeff. Yes. So our Canpotex allocation is just north of 10% right now. Vanscoy continues to perform very well. We're pleased with the overall cost position of Vanscoy. And we have, as you will recall, one more year of our ramp up. As per where our allocation will go post others' expansions, it's a little difficult for me to predict that right now. It's going to depend on what they actually deliver. Doing Canpotex runs are always a challenge and interesting journey. But if what's been publicly communicated happens, our Canpotex run – our Canpotex allocation would drift downward to probably where we were pre-expansion, in that, I'd say, rough neighborhood. And we'll have to see the specifics once these runs are actually completed and validated.

Our next question comes from the line of Michael Piken from Cleveland Research. Please proceed with your question.

Hi. This is Mike Henry in for Mike Piken. Just a real quick question on the margins in retail that you guys saw. Kind of curious if this is kind of a new base that we should be thinking of for some of those that saw the improvement, whether or not this is sustainable going forward and the rate of potential opportunities for some of the product lines that we didn't see as much margin expansion in that business. Thank you. Charles V. Magro - President, Chief Executive Officer & Director: Steve Dyer? Stephen G. Dyer - SVP & President-Retail Business Unit: Yes. In terms of margins maybe just kind of running through the three shelves again. On the fertilizer side, our margins were fairly flat year-over-year and again very pleased with that. They've come down a little bit the last couple of years with some of the lower commodity prices, but some of that's being offset with our nutritionals and the contribution of nutritionals to our fertilizer margins. So we expect fertilizer margins to continue on about the level that we see right now in this environment. On the chemistry side, again, year-over-year we were pretty much flat from a chemistry standpoint. And, again, we see that's sustainable as well, again, with the strength of our proprietary products, that type of thing. Even if we see a little bit of pressure on the chemistry side, I would expect us to be able to offset that with some of the growth in our proprietary products. And on the seed, you did see an uptick in our seed. Again, that was a product mix, so that would be dependent on product mix going forward as well, corn acres, cotton acres versus soybean from that standpoint. Charles V. Magro - President, Chief Executive Officer & Director: That's all the time we have this morning. So thanks, everyone, for listening. And if you have any follow-up questions Investor Relations is available for discussion. Thank you.