This holiday season may not be cheery for some
) employees. In a shocking move, the fertilizer giant said that
it will shave headcount in an effort to save cost amid a weak
price environment and challenging market conditions.
Potash Corp. noted that it will cut roughly 18% of its workforce
across Canada, the U.S. and Trinidad (affecting more than 1,000
positions) and execute other operational changes including plant
closures and capacity cuts.
The job cut will hit hardest in Saskatchewan, Potash Corp.'s
home turf in Canada, where the company will slash roughly 440
jobs. Moreover, around 130 people will lose their jobs in New
Brunswick. In the U.S., the move will affect employees in Florida
most, where roughly 350 positions will be eliminated. North
Carolina will see around 85 job cuts while another 40 people will
be laid off in 'Other US locations and Trinidad'.
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Potash Corp. cited weaker-than-expected demand in emerging
markets as one of the reasons that triggered the tough decision.
The company, which has been hobbled by challenging potash and
phosphate market conditions, noted that these actions are
necessary to run business on a sustainable basis, maintain
operational flexibility and protect shareholder interests.
The move will affect all three operating segments - Nitrogen,
Phosphate and Potash - and corporate services. The core Potash
segment will alone see around 570 lost jobs.
While most of these changes are expected to complete in 2013,
some positions are expected to remain in place through a
transitional period. Potash Corp. plans to offer voluntary
severance packages to affected employees and help in their
transition to new opportunities.
Potash Corp. is also making a number of operational changes. In
the Potash division, the company will suspend production at one
of its mills, reduce production in a facility and end production
in another facility next year. The company is optimistic that its
operational capability and inventory position will enable it to
supply over 10 million tons of potash next year.
Potash Corp. will also shutter one of its two White Springs, FL,
phosphate facilities in 2014, affecting roughly 350 positions.
The company expects a loss of around 215,000 tons of annual
production in its phosphate business starting in 2015. While
Potash Corp. is not making any operational changes across its
U.S. and Trinidad nitrogen facilities, it will be trimming
workforce by roughly 20 people.
Potash Corp.'s shares were little moved in the trading session
yesterday. The stock closed at $31.79, a roughly 0.3% gain.
Potash Corp. and other fertilizers makers such as
) face significant challenges following the exit of world's
largest potash maker Uralkali Group from one of the biggest
potash cartels - the Belarus Potash Company (BPC).
Uralkali's Board, in July 2013, decided to end export sales
through BPC and direct all potash export through its
Switzerland-based trade arm Uralkali Trading in a bid to boost
market share. Uralkali's game-changing move triggered
industry-wide fear of a price war and created significant
uncertainty in the potash market.
Potash Corp., a Zacks Rank #4 (Sell) stock, posted lackluster
third-quarter 2013 results in October. Profit for the quarter
slid roughly 45% year over year, hurt by lower pricing across all
three nutrients. Revenues fell by double digits on lower potash
volumes. Potash Corp. cut its earnings forecast for the full year
taking into account the soft pricing environment.
Potash producers are grappling with weak potash pricing. Potash
Corp. saw pricing pressure across its businesses in the third
quarter. Average realized potash price fell roughly 28% year over
year in the quarter on competitive pressure and cautious buyer
Weak potash demand in India, a key market, and oversupply in the
market is keeping potash prices under pressure. Indian
government's move to trim potash subsidy levels coupled with
currency depreciation has resulted in lower demand from farmers
in that country. These challenges may sustain through the final
quarter of 2013.
Potash Corp. expects to take one-time charges of roughly $70
million associated with the headcount reduction and may write
down values of the affected assets in fourth-quarter 2013. The
company envisions the changes will lead to lower operating costs
on a per ton basis, mostly across its Potash and Phosphate
segments. It sees cost savings of $15-$20 per ton in its potash
business in 2014 with a target of $20-$30 per ton by 2016.
It remains to be seen if Potash Corp.'s peers will follow suit
with similar moves.