Potash Corp. of Saskatchewan Inc. has cut its earnings outlook for the year as it struggles with tough market conditions and low prices.
The world’s largest producer of the crop nutrient Thursday posted second-quarter profit of $643-million (U.S.) or 73 cents per share, up from $522-million or 60 cents in the year-earlier period. The $643-million profit failed to beat analysts’ estimates of 80 cents per share.
Potash sales volumes in the second quarter reached 2.5 million tonnes, compared to 2.6 million tonnes in the year-ago period.
The average potash price declined to $356 per tonne from $433 per tonne in the second quarter of 2012.
The company is forecasting full-year net profit of between $2.45 per share and $2.70 per share, a major downward adjustment from the guidance of $2.75-$3.25 provided in April.
“We understand that the perceived lack of a near-term catalyst to rapidly increasing potash volumes and prices has left some investors on the sidelines for the time being,” Potash president and chief executive officer Bill Doyle said on a conference call with analysts.
“Yet we have always maintained that fertilizer is a long-term play, one that is built on the world’s essential need to improve food production. Even though it includes occasional fluctuations or plateaus, we believe growing populations and improving diets around the world create an undeniably compelling platform for an efficient, well-placed producer.”
Paradigm Capital analyst Spencer Churchill said the markets were expecting Potash’s second-quarter earnings to be at the low end of expectations, but the steeply reduced guidance is a bit of a shock.
“The big surprise was on the guidance. We weren’t expecting anything spectacular, but it was worse than feared,” he said in an interview Thursday.
“The concern here is pricing,” he said about the decline in the price of potash.
“It looks like we might be bottoming out on price but we haven’t seen any rebound as yet.”
Among the reasons for the weak pricing are the lingering impact of last year’s reduced demand from China and India and “some hesitancy on the part of dealers to keep their bins full,” Mr. Churchill said.
Desjardins Securities analyst John Hughes said the company produced decent volumes in the quarter in all three categories – potash, nitrogen and phosphate – but what really hurt was the decline in nitrogen and phosphate prices from the first quarter to the second quarter.
“It’s just been a suffering trend for them on the past several quarters,” he said.
“Global fertilizer demand was strong during the quarter, but highly competitive markets around the world had an impact on our results,” said Mr. Doyle.
“Despite some weakening of prices in each of our nutrients [potash, nitrogen and phosphate], the continued engagement of buyers in our key markets was a positive sign. Farmers demonstrated their commitment to improving soil fertility and capitalizing on favourable agricultural economics, which benefits global food production and our company.”
Potash also announced a $2-billion share buyback program – approved by the board of directors – over a one-year period, subject to regulatory approval.
If the maximum number of shares are bought, that would equal 5 per cent of the total outstanding shares.