Greetings, and welcome to the Nutrien First Quarter 2019 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. And as a reminder, this conference is being recorded. I would now like to turn the conference over to Richard Downey, VP of Investor And Corporate Relations.
Thank you, operator. Good morning, everyone, and welcome to Nutrien's conference call to discuss our first quarter results and outlook. On the phone with us today is Mr. Chuck Nagro, president and CEO of Nutrien, Mr. Pedro Farah, our CFO, and the heads of our 3 business units.
As we conduct this conference call, various statements we make about future expectations, plans, and prospects contain forward looking information. Certain material assumptions were applied to making these forecasts and conclusions. 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 and A and annual information form filed with Canadian and US security commissions to which we direct you. I will now turn the call over to Ms.
Chuck Mangro.
Thanks, Richard. Good morning, everyone, and welcome to Nutrien's first quarter 2019 earnings call. This quarter is seasonally our lowest earnings period, and this year was impacted by harsh winter weather conditions across North America. In fact, the US experienced the 2nd wettest 6 month period in a 125 years. The spring season is now well underway across much of North America.
And although we are still getting more moisture than we want in some regions, farmers are actively applying fertilizer and seeding. And at the end of April, all of our businesses were ahead of last year. As always, we remain focused on delivering what we can control. First is the successful completion of our merger synergy program. At the end of the first quarter, we achieved run rate synergies of $621,000,000, exceeding our revised 2 year target well ahead of schedule.
The realization of synergies has meaningfully lowered our operating costs and our sustaining capital. Our cash G and a expense, excluding retail, was down 8% in the first quarter. Now that we have exceeded our revised target, We will no longer be providing quarterly synergy updates. However, we still expect to achieve additional phosphate synergies. Once the conversion of our Redwater facility is completed later this summer, which will increase total synergies delivered from the merger to over $650,000,000.
Furthermore, we have plans to capture additional operating improvements across our businesses, and will provide new targets at our Investor Day in Toronto on May 28th. We utilized our strong cash flow and balance sheet to strengthen our retail business, allocating almost $1,000,000,000 a highly accretive acquisition from the US and Australia since January. We acquired approximately 40 US retail locations during the quarter, with revenue around $400,000,000 and expect the strong pace of retail consolidation to continue. We closed on the purchase of Actagro, which will provide Nutrien a strong pipeline of high value, high margin crop nutritional products. We also entered into an agreement to purchase Ruralco Holdings, the 3rd largest ag retailer in Australia.
This acquisition will strengthen the service and innovation that we deliver to Australian growers and is an excellent strategic fit in a market where we have a proven track record. We are making good progress on all necessary approvals, and expect the transaction to close in third quarter. We also continue to enhance our digital platform, including the launch of our e commerce capability on a select group of products in the first quarter. We now have customers representing almost 60% of our US retail revenue, on our platform. In a market where less than 5% of crop nutrients are currently purchased online today, We have an opportunity to be the digital leader and transform the ag retail space along the way.
We will outline our strategy in more detail provide a demo of shareholders through a growing dividend and share repurchases. In February, we announced another 5% share buyback and have repurchased 21,000,000 shares under this program since February 2018, we have purchased 63,000,000 shares at an average price of approximately $51.50 per share, which represents 10% of our initial outstanding shares. Now to our results. Nutrien's adjusted net earnings for the quarter was $0.20 per share. Adjusted EBITDA totaled $697,000,000, up more than 20% from comparable period in 2018.
Driven by higher potash prices and the realization of merger synergies. Retail EBITDA in the first quarter was $16,000,000 below last year, because of weather. We experienced significant delays in fertilizer and crop protection applications across the entire US. It is important to note that we have grown US retail significantly over the past 2 years, and typically our US business loses money in the first quarter. Growing our retail business in Australia and South America will help offset this seasonality over time.
Margins on crop protection products were impacted by compressed season last fall and the spring, which added to competitive pressure and some product mix shifts. However, we expect margins on crop protection products for the year to be normal by the end of the year. Our seed sales were up compared to the previous year as US growers look to increase corn acreage in 2019. Potash EBITDA was 41% higher in the first quarter, driven by higher net selling prices, a further reduction in our costs, and strong offshore demand. Domestic sales were down 22% compared to last year due to a limited application window over the past six months.
Potash cash cost of product manufactured was down 5 percent to $58 per ton, in the quarter as we continue to benefit from merger synergies and the optimization of our world class network. Nitrogen EBITDA was up slightly in the first quarter with higher realized prices offsetting lower fertilizer sales volumes. Industrial sales accounted for 55 percent of our nitrogen volumes in the first quarter, which contributed to stability in our our nitrogen earnings. Fosseate EBITDA increased 6% compared to the first quarter in 2018 as higher realized prices more than offset the impact of lower sales volumes. Our phosphate prices increased by 10%, reflecting favorable forward selling activity and the settlement of new industrial contracts.
Now turning to the outlook for our businesses in the second quarter the remainder of 2019. China US trade discussions remain a a source of uncertainty. And while we cannot predict the timing of an agreement, we do believe that US agricultural benefit from a resolution. The benefits would include higher crop prices and increased US ag exports to China including soybeans, corn, and ethanol. China is expected to adopt an E-ten policy in 2020 to help address its environmental priorities.
And may require significantly higher corn and ethanol imports to meet demand. This creates a potential win win situation for both countries, through increased trade volumes. The US EPA also proposed regulatory changes to allow year round sales of gasoline blended with 15% ethanol, which when approved will support domestic corn consumption. We expect corn planting will be up 3 to 4000000 acres this spring assuming weather improves over the next few weeks, which is favorable for crop input percent increase in North American crop protection expenditures and higher seed sales. We also expect strong demand for custom application services, resulting from the push to Although, although we are still behind the five year average, but as we have seen in recent years, a significant amount of planning can occur in a very short window and our leading distribution network is best positioned to meet elevated crop input demand in such a condensed spring season.
Global potash market fundamentals have remained strong, and we now expect this to continue throughout 2019. Capitex is fully committed until June, and we anticipate healthy domestic volumes in the second quarter and for the rest of 2019. We maintain our forecast that global demand will be between 67,000,691,000,000 tons in nutrient sales volumes between 13 and 13,400,000 tons. We expect global nitrogen demand to strengthen in the second quarter, including very robust U. S.
Demand. We anticipate a shift in product mix towards urea and UAN and an extended top dress and side dress application season into the third quarter. In recent weeks, this has led to higher urea prices with NOLA increasing by approximately $50 a ton, from February lows. In phosphate, we expect some pricing support in the second quarter from an improvement in global demand and announced production curtailment. Lower input costs and the completion of our phosphate synergy plan in the second half of twenty nineteen will also be supportive to earnings.
With Q1 behind us and based on what we are now seeing, we have provided adjusted earnings guidance for the 1st half in the range of a dollar 75 to dollar 95 per share. The midpoint of this range is up 11%. From the from first half of twenty eighteen. We maintained our annual earnings guidance at $2.80 to $3.20 per share, and our adjusted EBITDA guidance of $4,400,000,000 to $4,900,000,000, demonstrating the resiliency of our business model. As we look ahead to the remainder of 2019 and beyond, we have set clear priorities.
We will grow our retail footprint and create the industry's leading integrated digital platform, offering tools and services that will help our growers achieve their best outcomes for their farms. We will leverage our unmatched potash position to supply new demand with low cost incremental tons. With a strong balance sheet and free cash flow, we will be able to deliver on high quality growth opportunities, and continue to return capital to shareholders. I encourage you to join us for our first Investor Day on May 28th, as we provide more details around our long term plans and a pathway to create superior shareholder value. We would now be
Our first question comes from Jacob Bout with CIBC. Your line is now open.
Good morning.
Jacob. Hoping you can talk about the assumptions behind your first half guidance. Specifically, you know, how application is is actually going. Did did you actually say that the application was higher than 2018 levels? And then if the delays continue, at what point should we think about revising us as lower?
Yes. Good morning, Jacob. So let me try to set the stage from a guidance perspective for you. So we are maintaining full year guidance. And we set the 1st half guidance, based on what we've seen through the month of April and then early in May.
So from an an April perspective, all of our businesses were ahead of last year. And the application rates in the areas where we were, moving and had cooperating weather, they were above last year. That's exactly what we've seen. Now there are pockets where we're behind because of the weather. And and, our view though is that we still have plenty of time to to get the applications down.
In fact, you know, every day now counts, but through the end of May, there is a a a good sized window to deliver on all the applications and get the fertilizer, on the ground. So when you look at our guidance then, the way the way we think about it is, if you just compare it to last year, at this time last year, we raised the bottom end of the lower end of our guidance range. Because generally by that point, volumes are not a question. It's really a matter of price. This year, we've left the range, the same because of the weather uncertainty.
So what we would expect is that if weather normalizes in in the remainder of May and pricing for fertilizer stays the same, we would expect to be somewhere between the midpoint and the upper end of our guidance range. Now if weather continues to be challenges in in pockets because now it is really down the pockets, in the US, then we would drift below the midpoint towards the lower end. But right now, as I've mentioned, we still think we have plenty of time in the month of May, to to get the fertilizer down and get the seeding in.
Our next question comes from Andrew Wong with RBC Capital Markets. Your line is now open.
Hi, good morning. So I want to feel the thunder away from your Analyst Day later this month. But could you provide a little bit
of a preview on some of the cost savings that you'll be targeting? Sure. So, good morning. Maybe I'll give a broader preview of the investor day. So, the the themes around the investor day will be, we will set operational targets for all three of our businesses.
And they will embedded in them will be, cost savings, but, but also, our plans to drive up margin enhancement, beyond just costs. And, what what I think, we're we're trying to clear clarify is, different things for for some of our businesses and then looking at the overall nutrient picture. So, we will lay out a 5 year plan for each of those businesses. They will have a key performance metrics And I think that when you see those, they will be quite impressive. The other thing we're gonna do is we're gonna lay out a a 5 year plan when it comes to the allocation of capital from a Nutrien perspective.
And I think that this is really important. And just to give you a bit of a preview, If you take our midpoint of our guidance from an EBITDA perspective and you back calculate cash from operations, you're gonna get a number for this year of somewhere between $3,500,000,000 $4,000,000,000. If you then take up the the dividends and the sustaining capital is you're gonna be left with about $2,000,000,000 of of free cash flow. And that's just for this year with no price appreciation at all. So you can see that where we are in the cycle, there's more upside than downside.
That's our strong belief. The company is going to generate significant free cash flow in that 5 year period. And in the investor day, what we plan to do is lay out a plan for that capital that will balance investment in our businesses to drive long term shareholder value and a significant return of capital to shareholders. So that's the preview. And I'm I'm we're really hoping that you'll join us.
Our next question comes from Chris Parkinson with Credit Suisse. Your line is now open.
Hi. Good morning, everyone. This is Graham Lowe's on for Chris. Curious about your expectations for pricing coming into 2Q season with everything being so condensed. We're seeing very healthy Midwest Premiums, particularly in the nitrogen space.
But at the same time, we've also seen pretty choppy conditions for pricing in the Gulf and the Caribbean. So I'm curious with the nitrogen assets that you have both in the interior and in the Caribbean and how you're thinking about that's on what your thoughts are around nitrogen price realizations going into 2Q?
Good morning, Graham. We'll have Ray Sully, our head of our nitrogen business sent to your question.
So look, you've got to separate our business into a couple of different areas. The trend of that volume going offshore is industrial and it's for its priced Tampa. The stuff inland, we're in a good position to take advantage of. We've got a great supply chain. We've got a great the product they're ready to go.
We're about 65 percent of the co committed for quarter 2 on those on the nitrogen products. Now those commitments Our prices are in line with our forecast, so 35% are ready to go, in the spot markets in those areas away from the Gulf that we should see some good price realization in this quarter.
It's just a couple other comments, maybe, Graham. So look, it it has been a volatile market, but it's been weather driven. The underlying fundamental demand we think is quite strong. And certainly what we're seeing right now is in areas where the weather has been moderated, or normalized, growers are doing everything they possibly can to get nitrogen down. And we expect that that will continue through the spring season.
So you know, we're we're optimistic that there'll be the window to get the the nitrogen down, and growers are certainly motivated because of the impact that they they did not get as much down in the in the fall of last year. So certainly, we think that the underlying fundamentals are are strong.
Thanks very much.
Our next question comes from Ben Isaacson with Scotiabank.
Trying to figure out what the incremental value, is to nutrient of a million acres of corn over soybeans. So In other words, if we sweep if if we see switching from corn to soy, what does that mean to nutrient when it comes to seed crop protection service and then, of course, NP and K.
Good morning, Ben. Mike Frank, our head of retail can answer that question for you.
Yes, good morning, Ben. So every million acres of switch between soy and corn for us translates to about $3,000,000 at the EBITDA line. So, you know, as Chuck mentioned, we're expecting corn acres up 3 to 4,000,000 this year. Our our seed sales will be consistent with that. So I I do believe that that is the growers' intentions.
And so, you know, we'll see a lift of about $9,000,000 to $12,000,000, if we see that, that, those acres shift that way.
Our next question comes from Vincent Andrews with Morgan Stanley. Vincent Andrews. Your line is open.
Sorry, it was on mute. Just a question, looking at Slide 21, the natural gas prices in the nitrogen cost curve, Just curious if you guys have a view on European hubgas, through not just the, I think we all know what's called the collapse of it,
but what the forward looking outlook for that is
and what impact you you think that's going to have on, if there's any nitrogen prices going forward? Good morning, Vincent. Jason Newton, our Head of Market Research can answer your question for you.
Hey, good morning, Vincent. Yeah, we certainly have seeing, the European hub, gas prices decline in the 1st part of this year and they're down under $5 today. I think as as we look
forward, I think the
forward curve is definitely above, current values. And if you look at where the oil index values are. It's it's more in the $8 range today. And historically, you see those converge. And so we We expect that to, converge as we get later in the year,
from, from current levels.
Definitely, if you look, this year compared to where we were a year ago, that is a factor, that has put some pressure on nitrogen prices. As those, nitrogen producers in
particular Western Europe that
are using the index
based gas, are benefiting from lower gas prices today.
Our next question comes from Jeff Zekauskas with JP Morgan. Your line is now open.
Thanks very much. Do you expect your potash shipments to North America to grow this year?
Good morning, Jeff. Susan Jones, our head of our potash business can give you our perspective on that.
Good morning, Jeff. I think, you should be looking at our North American shipments to be pretty steady year over year. Offshore. On the other hand, we're seeing, very good growth. And I would say that, you know, if you look at our offshore shipments for the first quarter.
We were up about 75,000 tons, and we actually could have we saw demands about another 100,000 tons of that despite the railroad's not being able to move it. So we are really seeing good demand growth. We expect global demand to be kind of between the 67,169,000,000 ton, and you can expect that we're going to maintain our market share and continue with those robust shipments into the U. S.
Our next question comes from Don Carson with Susquehanna Financial.
Yes, sir. Good morning, Chuck. Got 22 Canadian questions. 1 on canola with the trade issues going on with China. What kind of acreage shift do you expect on canola and what's the impact on the retail and wholesale business?
And secondly, on carbon taxation in Canada, I mean, you've had some positive regime change in in Alberta, but you still have a very unfriendly federal, government. Do you see them trying to lift the level of carbon taxes on on industrial, natural gas? And if so, what impact could that have on, on your cost competitiveness?
Good morning, Don. Great questions, by the way. So look, on canola, the situation is about 30% of the total Western Canadian acres, we have canola grown, and 40% of that crop goes to China. So right now, the situation is quite dynamic and fluid. But what we understand by looking through our retail business is that we do expect, what I would consider to be a modest acreage shift, from canola through to the cereals, either wheat or barley.
And that will have an impact on, on farmer economics and it'll have a modest impact on us. For every, you know, just rough guideline, for every, million acres that shift, it's a couple of $1,000,000 of EBITDA for us. So, you know, if it's 1 to 2,000,000 acres shift, you can see that the the impact would be, $2,000,000 to $4,000,000. For us. So it's modest.
That's not the issue for us. The issue is making sure that our farmers have access to markets that they need. And that they're getting the support, from the government to, to resolve this issue because China is a core market for canola. As for carbon tax, yes, you're right. So the Alberta government now has changed, and they have made it, one of their mandates to, to resist the federal carbon carbon tax.
It's too early to comment on exactly what that could mean for Nutrien. But I'll just remind you that we already have, a carbon tax for large emitters in Alberta. It's been in place for some time. We already pay that So if that's where we land, then there would be absolutely no impact. And I think that there's a a lot more to come on this story, but certainly, we believe that, what what's in place today, it works in the province And we already paid that, that today.
So we're hoping that, you know, this will come to the right conclusion we won't see a material impact at all when it comes to our carbon production or taxes.
Our next question comes from Joel Jackson with BMO Capital Markets. Your line is now open.
Hi. Thanks. Let me have Alaska 2 parter.
The first one will
be a follow-up. My memory is as part of the, I guess, we'll call them the phosphate energy bucket as you were gonna, repurpose red water, into, ammonium selfie. Part of that was to target higher canola acres. So could you talk a little bit about the impact on that? And my second question would be on seed.
I mean, I think we've seen some pretty competitive seed pricing on germplasm from some of the big players. Can you talk about how that's filtering in your business and on seed margins going forward?
Hi, Joel. So, we'll have Mike Frank talk about seed and then I'll answer your phosphate question.
Good morning, Joel. So as you can see in our first quarter numbers, our seed margins are strong. They're up a little bit. You know, that part of that's because corn acres are are up and and our margins are strong in corn. Also, our proprietary mix is up in seed as well.
And so you know, what we're expecting for our own business, from a margin standpoint is that our seed margins are going to be strong this year. I, you know, I think at the, at the grower level, it's It's an extremely competitive market. We're seeing as much or more discounting coming from our suppliers that flows through to, to farmer customers. And so it's a very competitive market, both in, in soy and in corn. And so, you know, that's that's how it's playing out so far.
And Joel, on your question on phosphate related to, Kamala Acres. So If you're right, if you recall that the phosphate plan was to go from 3 phosphate operations down to 2, we've just made great progress. The expansions in White Springs are up and running and that they came in actually under budget. The team there did fantastic work. We did shut down our phosphate operation in Redwater just this week after 50 years of phenomenal production, and that team should be celebrated as well.
The ammonium sulfate plant is we'll we'll start it up. The expansion will start up in the second half of this year. So we still have a a few months. That project is also, well on schedule and on budget. And the marketing plan was was a a combination.
It was to to sell some tons in Western Canada on on more canola acreage, but really the existing production really satisfies that. The the marketing plan for this was to move more into the U. S. And, we still think that over time, because there's gonna be a ramp up, not only for production, but sales over the next, call it, 18 months or so, we're hopeful to see some resolution to the Canada trade situation.
Our next question comes from Adam Samuelson with Goldman Sachs.
I was hoping to dig
a little bit more into into the potash outlook, and both domestically and internationally. And domestically, just from what you see in your retail business and the orders that you
see in the on the
on the wholesale side, just the confidence level that you have that the inventories that are built in the system from a bat from a a sluggish fall and a wet one queue get cleared. In the second quarter. And then on a global basis, just talk about the demand environment Southeast Asia, Brazil, China, how we think about different market dynamics impacting the pricing outlook for the balance of the year? Thanks.
Good morning, Adam. So Susan will answer some of those questions, and then I'll provide some color commentary as well.
Good morning, Adam. Let me start with, the North American market. So, you know, as we've discussed in our prepared comments, we have had impact from the spring season. We saw that, through Q1. However, what I want to, just clarify as the windows have opened has been very strong pull that we've seen by growers.
And our ability to get potash to the ground obviously is going to depend on the next few but as Chuck Medical has mentioned, this is really coming in pockets now versus, all over the U S, in areas where the weather has been closer to normal. We've seen very high application rates and excellent disappearance, including restocking. So, you know, this is a really positive and what we back to see for good demand. If the window closes out and, we don't get it all down in the first half, we do it expect the fall to be, robust, because the soil needs to be re replenished. And so we're very optimistic for the 2nd half domestically.
In terms of, the offshore markets, you know, as I've already mentioned, we did have volumes up on a year over year basis into the offshore markets. We are we continue to see a robust demand. Canpotex is sold out until June. And, you know, what I would say, by markets is, you know, we've got, Brazil sitting at around 3.40 to 3.55 right now. They're they're pretty constant.
We do expect to see volumes as good, if not a little bit better in in that market this year. China, we do expect to see volumes come up and I would just say for China and India, we, our expectation is, moving into the second half of the year when they settle out the contracts that they are going to have to come up from the 290 where they are at today. And then, you know, we we've continued to see good growth in Africa, Latin America, And so our view on the outlook, both offshore, and domestically is is fairly robust for the second half of the year.
Yeah. Just a few more comments. Susan covered that very well. Just at the macro level, you know, the way we were coming into this year was we expected global demand to grow, if you just take the midpoint of our guidance range, it's up about a 1,500,000 times. And and that's a global number.
And then if you look at the new supply, what's been communicated by the new supply coming into the market, that number would be closer to a 1,000,000 tons. So that's why we raised our guidance level up to to make up the difference. Now the weather is the weather, and we can't control that. That may impact, some movements from the spring into the fall. We we don't know.
But the underlying fundamentals and the supply demand is getting tighter for potash. And whether that spills over into the fall or even next year, we're not so bothered about that because we we strongly believe that what what we're seeing here and what we saw over the last 2 years is really good demand growth globally for potash. And limited supply coming online. And we expect those trends to continue. So when you look at the end of the day, Nutrien is one of the only companies that has excess capacity And that's what we plan to put in the market over time.
Our next question comes from Michael Piken with Cleveland Research. Your line is now open.
Yeah. Hi. Just wanted to follow-up a little bit on your commentary here that you just mentioned on power. So Is the implication then in your full year EBITDA guidance for potash that prices are going to be up for China in India? And then what type of expectations should we expect for you guys in terms of full pricing in the US for the back half of the year?
To hit the potash EBITDA range that you provided. Thanks.
Yeah. Good morning, Michael. We don't really wanna get into giving, pricing, guidance. I think that that's, not our job. So when you look at our guidance range, what I would say is that between the lower end and the upper end of the range, there's a whole host of views, that that we are continually and constantly monitoring and refining.
What I said earlier, will still hold is that if prices, holds as as of today's prices, we would be at the midpoint to the upper end of our guidance range. So we don't need a lot of price appreciation to get there. But some is built in, and and that's I don't really wanna say much more than that, but if you look at the supply demand fundamentals, but and Susan mentioned it, and I'll just reiterate it. If you'd even just look at China inventory. So I know that there's been some concern about, inventories at the port.
But in inland inventories in China, we think, are quite tight. And they still need a lot more potash for their for their year this year. So we do think that the supply demand is tight inventories in China are are reduced even though that there's been some recent volume going in, and that will all manifest itself when Canpotex talks to them about price. But We certainly don't want to get ahead of those discussions.
Our next question comes from John Roberts with UBS. Your line is now open.
Hey guys, this is Josh Spector on for John this morning. Just a question around the retail side of the business. And kind of the season through the rest of the year. So, you know, 2Q last year hit a pretty high watermark given the weaker 1Q season. Kind of similar to this year.
I'm just thinking, you know, just 2 Q EBITDA, are you thinking that's similar to the last year? Do you have do you have the opportunity for it to be higher than last year? Or are you thinking that the rest of this year is a little bit higher giving, you know, potentially longer application seasons and the acquisitions rolling through?
Good morning, Josh. Yeah, Mike Frank will answer your question.
Yeah, good morning, Josh. So you're right. Last year, Q2, we hit a high watermark terms of our business. And the way we, we started Q2 this year with a, with a very strong April, we expect to see the same trend. And so we we do believe that Q2 this year will be, likely quite a bit stronger than last year's Q2.
And so far we're starting out that way. Obviously, we need to get the corn and beans planted in the Eastern Corn Belt, which is where they've been really wet. The outlook for the next 10 days looks pretty good there. And so we expect, fertilizer to start going down and, and, corn and beans to start getting planted. And so look, I think at the end of the day, there's likely gonna be a little bit more side dress that goes on with, planting this year, And, that also means there's going to be more talk to us.
And so some of that could get pushed into July, but, nonetheless, we were expecting a very strong Q2 which which, should be stronger than last year.
And then, Josh, if you just go, oh, just a little longer in, the first quarter of this year, you know, we've allocated, not only about a $1,000,000,000 towards M and A in retail. Some of that is closed in integrated as we speak. And of course, Ruralco is still pending, and we expect that to close in the third quarter. So if you look forward to 2020, you know, you can see that there's going to be significant EBITDA growth in the retail business, not just from M And A, but from some of the investments we've made in our supply chain and our marketing organization to drive up overall margins as well. So organically, So looking looking over the next couple of years and when we'll lay this out for you at our investor day, we do expect significant, bottom line growth in in the retail business through a combination of organic growth and M And A.
Our next question comes from Steve Byrne with Bank of America. Your line is now open.
Yes. Thank you. Can you talk a little bit about the dynamics that you're seeing in these competitive pressures in crop production chemicals, is this coming from your suppliers that are getting more aggressive, because of inflated inventories or just more your your competitors at the retail level or or is this an e commerce driven, impact on pricing?
Thank you for your questions, Steve. I'll have my Frank answer that for you.
Yes, good morning, Steve. So as you can see in our Q1 results, Q1 was a, was a slow quarter for crop protection sales. You know, we, we carried significant inventory into, the start of this year. We know that was true for our competitors as well. And so, you know, when when you have a market where sales are slow and inventories are high, you get a great competitive marketplace, which we saw in Q1, and, that reflected it in our margins that were down slightly.
But you know, the real story is that as Q2 starts to unfold and we really move into the crop protection season, you know, we're expecting, normal margins similar to last year, and we're already starting to see that. So based on mix, based on our proprietary products, And, you know, as inventories start to get drawn down, you know, from our sheds and from our competitors, we are seeing a return to say normal, margins on our side. To your point on, e commerce that that really hasn't been an impact. Of course, you know, we launched our own e commerce capability here at the start of the year. And so we're engaging with our customers and we're pleased with how that's going.
But in terms of online business from, you know, nontraditional competitors, I would say that's a non issue. It doesn't come up, you know, when I talk to growers, and it's not coming up through our field.
Our next question comes from Steve Hansen with Raymond James.
Yeah. Good morning, guys. Just a quick question on the M and A outlook. You've clearly been very active over the past 5 months. Should we expect you to moderate your pace a little bit in the coming quarters here or maybe just give us a bit of a description around how the pipeline looks and how you feel about your integration efforts relative to further business development on that front?
Thanks.
Good morning, Steve. Good question. So Look, we can't do a $1,000,000,000 a quarter,
even though, you know, some of us may want to.
So, look, it it I think that that was a a an atypical quarter. We were able to, acquire, assets and companies that were, top quality fit well within our overall strategic plan and highly, highly accretive. So going forward, you know, what we would expect is that we would be more more towards the normal end of our M and A, historical M and A ranges to the upper end. You know, the pipeline that we have today is quite strong in the US. And we are building a pipeline in Brazil.
And, of course, with Australia now, we're really focused on closing the transaction and then getting onto the integration work because the synergies for that transaction are are, are very accretive. And that will be the focus area. So I I would say going forward, a solid M and A pipeline, but not for the levels that you saw in the first quarter.
Our next question comes from Jonas Oxgaard with Bernstein.
Chinese crop protection prices were already elevated before the explosion dealing. And so it looks like it might get even higher. And now we have the awesome spectrum, even more tariffs. Can you talk a bit how the how how you see that evolving and how that impacts you? Yeah.
Great question. So I'll have Mike Frank talk about, hearing now and what what he's seeing, and then I'll I'll give a strategic overlay.
Good morning Jonas. So you're right. I mean, if you look back over the last 12 months, you know, crop protection products that have been imported from China, we've seen inflation on those, both because of the environmental controls that are being put in place and and not reflecting any higher costs. And of course, you know, the what were 10% tariffs that have now been turned up to 25%. You know, I think if you look across the US market, is just over $600,000,000 worth of, active ingredients that are imported from China.
And, you know, So, you know, you can calculate yourself the impact of that going from 10% to 25% tariffs. I think as you think about 2019, At least from our perspective, you know, we've already secured our inventory for 2019. And so we won't see an impact from our own costs, with the increase in tariffs. I can't speak for the rest of the industry, but, you know, we, we feel like we're secured for this year. And of course, if the 25 percent tariffs continue into 2020, then that will be a market wide impact for sure.
Yeah. And just a little bit more on that. So, you know, I think we're well positioned as a company from an inventory perspective. The the concern lies beyond that. If this situation can persist for the foreseeable future.
We just have underlying concerns that this is more headwind for U. S. Farmer Economics. Of course, it's not just higher costs from crop protection products, but we do believe that there is an influence on crop pricing itself because of the uncertainty. So this isn't good for the US farmer and the long term health of the US farmer.
And, like, Mike covered very well, this year, we think that, you know, the the crop will get planted, and, we're well positioned from a crop protection product. Our our concern is that this becomes the new normal, and this continues into 2020, then we would have a different view, of the situation.
Our last question comes from
Good morning. Just wanted to see your take on the effects of the African swine fever. Is that something that concern to you. Do you have any, you know, any thought that you can that you can share on that in terms of specifically for China, but back to the Global Housing. Thank you.
Good morning, Alex. Jason Newton will answer your question for you.
Yes, good morning, Alex. Yes, definitely, I mean, it's a significant issue for the Chinese swine population. There's been a dramatic, and the numbers are sort of all over the map as far as, as how much the size of the herd has declined, but it it could be as much as 25 to 35%. So it's a significant reduction, which obviously will have a negative impact on domestic feed demand. I think it's, too early at this point to really know what the full impact will be and I think as we look longer term, what we've seen in the past when these situations develop is that the herd will be rebuilt.
And in the meantime, that it's likely positive for, domestic poultry and beef consumption trends. And elsewhere in the world, it's good for hog producers in, major hog producing countries like Brazil and the US, and and and should be positive for feed consumption in those markets.
Operator, it looks like all the questions we have in the queue for this morning, I wanna remind everyone we have Investor Day in Toronto, May 28th. So, hopefully, we'll see you all there, and thank you for attending this morning.
This concludes today's conference call. You may now disconnect.