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PotashCorp reports earnings drop, raises full-year guidance

4:27 PM MDT | April 28, 2014 | —Lindsay Frost

PotashCorp reports first-quarter net income of $340 million, down 38% year-on-year (YOY). Earnings were 40 cts/share, above analyst estimates of 35 cts/share, according to Thomson Reuters (New York). Earnings include a $69-million special dividend from the company’s investment in Israel Chemicals Ltd. (ICL) and a $38-million charge from its investment in Sinofert Holdings, the company says. Sales of $1.7 billion dropped 19% YOY.

“After an especially challenging environment in the second half of 2013, greater demand and stability emerged early in the year,” says PotashCorp president and CEO Bill Doyle. “We saw strong customer engagement ahead of the spring planting season, particularly in potash. Despite weather-related issues that impacted our results, especially in phosphate, we were able to deliver earnings above our quarterly guidance range.”

Although potash demand and spot market pricing strengthened through the first quarter with particularly high demand in North America, the segment reports a 24% drop in net sales, to $671 million. Gross margin of $300 million fell 40% YOY, since the favorable impact of lower per-tonne costs and slightly higher sales volumes was more than offset by lower prices.

In nitrogen, first-quarter US ammonia production reached its highest level in more than a decade as additional capacity came online and producers responded to strong agricultural and industrial demand, the company says. However, sales of $581 decreased 11% YOY. Gross margin fell 11%, to $239 million, since increased sales volumes were more than offset by weaker price realizations, the company says.

Production and logistics challenges hurt global phosphate markets during the quarter, the company says. This situation was especially true in North America, where a combination of supply disruptions and an improved demand environment strengthened prices for all phosphate fertilizer products during the quarter. Sales of $428 million dropped 23% YOY. Gross margin of $26 million fell 71% YOY. The company says gross margin was almost entirely generated from its feed and industrial business.

Looking forward, the company says recent potash contracts in China and India as well as a strong order book in key spot markets are expected to create an environment that should support robust shipment levels through at least the next two quarters.

Based on these factors, the company has increased its full-year earnings guidance to $1.50–1.80/share from its previous guidance of $1.40–1.80/share. Second-quarter net income is expected to be 40–45 cts/share.

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