What happened
Shares of agricultural fertilizer producer Intrepid Potash (NYSE: IPI) fell 14.8% through 11:35 a.m. ET on Thursday after reporting a much smaller profit than expected in its fiscal Q1 2023 -- despite sales falling off much less than expected.
Heading into Q1 2023, analysts had forecast that Intrepid Potash would earn $0.67 per share, adjusted for one-time items, on sales of only $67.9 million. As it turned out, Intrepid Potash beat that sales estimate easily, reporting $86.9 million in revenue -- but its profits disappointed regardless, coming in at just $0.37 per share, non-GAAP. Actual earnings as calculated according to generally accepted accounting principles (GAAP) were a bit worse than the non-GAAP figure -- $0.35 per share.
So what
Plummeting prices for potash and other fertilizers lay behind Intrepid Potash's 17% year-over-year decline in revenue, as potash that fetched $703 a ton a year ago fell 31% to sell for just $485 a ton (on average) in Q1 2023. The price of Intrepid Potash's Trio product -- composed of the mineral langbeinite, and containing low-chloride potassium, magnesium, and sulfur fertilizers -- declined 27% to $344 per ton.
Profits, which had swelled alongside fertilizer prices a year ago, fell off a cliff this quarter, down 85% year over year. This was despite the fact that falling prices increased demand for fertilizer, resulting in about a 10% increase in the total volume of fertilizers shipped.
Now what
So that's the bad news. The good news is that demand for fertilizer seems to be growing as prices moderate. At the same time, company CEO Bob Jornayvaz assured investors that current fertilizer prices still yield "solid" profit margins for Intrepid Potash. With farmers buying in bulk, and pricing starting to improve, the company says it still has a "constructive outlook" for this year.
How "constructive"? Management didn't give specific guidance. But analysts who follow the stock are forecasting profits of $1.34 per share this year.
Unfortunately, that still suggests a 78% drop in profits year over year -- and that was before Q1 earnings disappointed by $0.30. (So if you're an investor in Intrepid Potash, it might be better to assume earnings of no more than $1.04 per share.) This implies about a 20.5 P/E ratio for Intrepid Potash stock, which doesn't look terribly expensive. But even so, timing an entry point into this very cyclical stock could be tricky.
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