Potash Earnings Meet, Outlook Cut - Analyst Blog

Shares of Potash Corp of Saskatchewan Inc . ( POT ) dropped as much as 5.5% after the company cut its full-year 2013 earnings guidance. The fertilizer company's earnings of 41 cents per share for the third quarter of 2013 were down 44.6% from 74 cents reported a year ago.

Earnings also fell short of the company guidance of 45 cents to 60 cents per share. The results however were at par with the Zacks Consensus Estimate. The company's shares eventually closed at $31.06 in the trading session following the announcement, losing around 2%.

Potash posted a profit of $356 million in the reported quarter, down roughly 45% from $645 million recorded a year ago. The decline mainly resulted from weaker prices for all three nutrients - potash, nitrogen and phosphate and lower potash sales volumes.

Sales came in at $1,520 million in the quarter, down 29% from $2,143 million registered a year ago and missed the Zacks Consensus Estimate of $1,552 million. The lower sales were primarily due to lower-than-expected potash sales volumes late in the quarter as buyers delayed their purchases owing to near-term market uncertainty.

Gross margin declined 47.8% to $484 million in the quarter from $927 million generated in the same period last year. Challenging fertilizer market negatively impacted gross margin during the quarter.

Segment Review

Potash: Sales volumes of roughly 1.6 million tons in the reported quarter were down 24% from 2.1 million tons in the year-ago quarter. Sales volumes declined in North America and offshore due to weak potash demand, reduced sales to Canpotex and fewer tons shipped from New Brunswick facility.

Production declined 27% to 1.2 million tons from the year-ago quarter as the company was affected by routine maintenance downtime along with an additional downtime at Cory and reduced operating rates at Lanigan and Rocanville.

Average realized potash price was $307 per ton, down 28.4% from the prior-year quarter due to buyer caution and competitive pressure in all key markets, weakening the pricing environment.

Nitrogen: Sales volume of 1.4 million tons was ahead of the year-ago sales volume of 1.1 million tons despite maintenance-related downtime in Trinidad. Restart of ammonia capacity at Geismar led to the increased sales. Average realized prices for nitrogen products decreased 28.6% to $327 per ton due to decline in ammonia and urea prices.

Phosphate: Sales volume of 0.9 million tons was down 2.7% year over year. Average realized phosphate price was $467 per ton, down 13% year over year, attributable to decline in prices for fertilizer products and a decline in feed and industrial realizations.

Financial Condition

Cash and cash equivalents amounted to $555 million as of Sep 30, 2013, compared with $562 million as of Sep 30, 2012. Long-term debt was $2,969 million versus $3,466 million a year ago.


Potash Corp., which is among the prominent players in the fertilizer industry along with CF Industries Holdings, Inc. ( CF ), expects earnings for the full-year 2013 to be in the range of $2.00-$2.20 per share compared with $2.45 to $2.70 per share expected earlier.

Potash Corp. cut its gross profit forecast from its potash business to the range of $1.5-$1.7 billion from the previous forecast of $1.8 billion to $2.1 billion for 2013. The company also reduced its expectation for shipments to a range of 8-8.4 million tons from the earlier expectation of 8.5-9.2 million tons in 2013.

Potash Corp. expects annual sales volumes for nitrogen segment to surpass the previous-year mark. Prices for most nitrogen products weakened, which led to a decline in the gross margin estimate for the full year.

Weakness in Indian phosphate fertilizer demand for the remainder of 2013 is expected to be offset by strong North American fall applications. Potash Corp. now expects nitrogen and phosphate business to contribute combined gross margin of $1.2 -$1.3 billion versus the previous forecast of $1.3-$1.5 billion for 2013.

The company expects contributions from equity investments and dividend income to be roughly $300 million with all the earlier disclosed annual guidance assumptions for 2013 remaining intact.

Potash Corp. currently has a Zacks Rank #5 (Strong Sell).

Companies in the fertilizer industry worth considering include China Bluechip ADR ( CBLUY ), and The Scotts Miracle-Gro Co. ( SMG ). Both hold a Zacks Rank #1 (Strong Buy).


CF INDUS HLDGS (CF): Free Stock Analysis Report

POTASH SASK (POT): Free Stock Analysis Report

SCOTTS MIRCL-GR (SMG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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