Potash Q3: Earnings In-Line, But Down Steeply from '08

The world’s largest fertilizer producer, Potash Corporation of Saskatchewan Inc. (POT), earned 82 cents per share in the third quarter of 2009, within its previously announced guidance of 80 cents to $1.20. Earnings were slightly better than the Zacks Consensus Estimate of 81 cents while it declined 79% from $3.93 per share reported in the same period of the previous year. The shortfall was based on lower demand and weaker fertilizer pricing, especially nitrogen and phosphate.

The reported quarter’s sales totaled $1.1 billion, down 64% from $3.1 billion in the third quarter of 2008. The drop in sales and thereby earnings was driven by a decline in potash, phosphate and nitrogen sales volumes coupled with lower phosphate and nitrogen prices. The company blamed the global economic downturn for the drop in sales volumes and prices. However, it expects to see a strong rebound in potash sales volumes in 2010.

Sales in the Potash segment declined 63% year over year to $423.4 million on a 44% decrease in sales volumes to 1 million tons and a 34% drop in average selling prices to $389.2 per ton. For 2009, Potash Corp. expects sales volumes to be in the range of 3.0 to 3.2 million tons, down from the previous estimate of 4.5 to 5.0 million tons.

Phosphate sales volumes decreased 9% year over year to 882,000 tons in the quarter due to lower liquid fertilizer, feed and industrial volumes. Average realized phosphate prices in the quarter halved to $356.24 per ton compared to the year ago quarter. Phosphate net sales amounted to $319.2 million in the quarter, a decline of 69% from the prior-year quarter.

Nitrogen sales were down 64% to $3 billion in the quarter on a 63% decline in average selling prices to $203.73 per ton. Volumes remained almost flat at 1.4 million tons. Urea sales volumes increased 31% to 367,000 tons in the quarter.

The global economic crisis and weak demand are matters of concern for Potash Corporation. Potash Corp is expecting fourth quarter net income per share to be in the range of 65 cents to 85 cents. For the full year, the company anticipates earnings to be at the lower end of $3.25 to $3.75 per share, down from the previous estimate of $4.00 to $5.00. Full-year potash gross margin is expected to be in the range of $0.7 million to $0.9 million against the prior guidance of $1.2 million to $1.5 million.

Foreseeing lower demand, Potash Corp. -- which directly or indirectly accounts for more than 22% of the world's potash production capacity -- regulated the price of potash by adjusting output aims. It curtailed potash production in early 2009 by more than 2 million tons, which is slightly below the 2008 level.

Although the company has forecast a rebound in potash demand in 2010, it anticipates some of its production capacity to remain idled through the year. Potash Corp expects global potash demand of about 50 million tons in 2010.

We downgrade Potash Corp. from Neutral to Underperform.

Comments

[optionsgirl:]

These downgrades are a good signal to watch the fertilizer companies to initiate long positions.

Oct 25 09:41 AM

[Mad Hedge F...:]

osn The world population has doubled from 3.5 to 7 billion since then, eating up surpluses, and is expected to rise to 9 billion by 2050. Now we are running out of water in key areas like the American West and Northern India, droughts are hitting Africa and China, soil is exhausted, and global warming is shriveling yields. Water supplies are so polluted with toxic pesticide residues that rural cancer rates are soaring. Food reserves are now at 20 year lows. Rising emerging market standards of living are consuming more and better food, with Chinese pork production rising 45% from 1993 to 2005. The problem is that meat is an incredibly inefficient calorie transmission mechanism, creating demand for five times more grain than just eating the grain alone. I won’t even mention the strain the politically inspired ethanol and biofuel programs have placed on the food supply. It is possible that genetic engineering, sustainable farming, and smart irrigation could lead to a second green revolution, but the burden is on scientists to deliver. The net net of all of this is that food prices are going up, a lot. Entertain core long positions in corn, wheat, and soybeans on the next dip, as well as the second derivative plays like Agrium (AGU), Potash (POT) and Monsanto (MON). You might also look at the PowerShares Multi Sector Agricultural ETF (DBA). These will all surpass last year’s stratospheric highs at some point.

Oct 25 10:33 AM

[User 206032:]

I think this quote from head of the company sums it up.

Just months after declaring an end to the "depression" in potash prices, chief executive officer Bill Doyle conceded "I fell on my face " when it comes to predicting when the world's farmers would be purchasing the nutrient again.
"I've looked like a jerk all year long," he said, referring specifically to his failed prediction that the Chinese market would bolster demand and put a bottom on prices that have fallen from $1,000 (U.S.) a tonne last year to about $500 per tonne this fall.

If he can't get it right ...

Oct 25 05:58 PM

[nutty buddy:]

Timing these fertilizer plays has made me beaucoup bucks. Keep your powder dry for the next run-up.

Oct 26 08:04 AM

[camm77:]

would you buy pot at on nov 1 opening bell ay 92.00

Oct 31 07:42 AM

[User 206032:]

The underlying commodity for Potash Corp. is not the mineral they mine, but the produce from the crops that it is used to fertilize. If crop prices are up, potash demand rises with them and so dose the price for potash itself. With the grain harvest nearing completion in North America the results are beginning to show a bumper crop in all categories. So economics 101 states that as supply increases without an increase in demand prices will drop. With the current global recession I think we can assume that demand will not be increasing for the short term so grain prices will depress during this time period. Low grain prices will pull down potash demand & thus pull down the price per tonne for potash. Unfortunately this poor demand will affect Potash Corps earnings negatively.

Nov 01 10:55 PM