People walk by the Potash Corp logo at the entrance of the company's office tower in downtown Saskatoon.Liam Richards/The Globe and Mail
Strong global demand for fertilizer is driving up Potash Corp. of Saskatchewan's profits, boosting the company's outlook for the third quarter.
The Saskatoon-based company reported a 75-per-cent increase in second-quarter earnings Thursday, thanks to surging grain prices around the world and rising food demands from emerging economies in Southeast Asia and Brazil.
The world's largest potash producer said its second-quarter net income jumped to $840-million from $480-million (U.S.) a year earlier. Earnings per share climbed to a record-high 96 cents per share, from 53 cents a year earlier.
The strong performance topped industry expectations, and investors reacted positively by sending shares up, despite a drop in grain prices on Thursday.
The healthy results reflect "pressure on global food production and a widespread demand for core nutrients," Potash chief executive officer Bill Doyle told analysts in a conference call Thursday.
The company's global sales rose to $2.33-billion from $1.44-billion, and its profit margins expanded. In a statement, Mr. Doyle cited the strong global demand for fertilizer, for which potash is a key component, as a major element in the rosy results.
Other factors include higher prices for potash, phosphate and nitrogen-based crop nutrients, as well as bad weather in the U.S. Midwest in the spring. Poor crop yields there led to increased demand for fertilizer to make up for lost crops.
Last fall, Potash Corp. was the centre of a hostile takeover bid by global mining giant BHP Billiton. Potash management firmly rejected the bid, which was eventually blocked by the federal government. The company's current market capitalization is above $51-billion, about 30-per-cent higher than BHP's initial $39-billion bid.
Mr. Doyle said sales were strong around the world, except in India, where he said "potash negotiations have been a real tragedy." But he expects India will need to increase its purchases next year to make up for lost time. He noted that India and China combined accounted for only about 10 per cent of Potash Corp.'s sales in the first half of the year.
Asked whether his company intends to expand production, Mr. Doyle did not answer directly, but noted that "the world food supply has little margin for error."
Potash Inc. expects third-quarter earnings of between 80 cents and $1 a share against analyst forecasts of 86 cents. Tightening market conditions will only drive potash prices higher in most major markets including China, with shares already rising 15 per cent this year.
It raised its full-year earnings forecast from $3.40 to $3.80 per share, up from $3 to $3.40.
In the conference call, Mr. Doyle also spoke of the general economic climate, assuring investors that the uncertainties surrounding the debt-ceiling drama in the United States and the sovereign-debt crisis in Europe are not likely to have an impact on the demand for potash.
"These are very important issues, but not ones that are likely to alter global population trends and the underlying pressures on global food production," he said.