Potash Corp.'s Earnings Beat but Profit Down - Analyst Blog

Potash Corp. of Saskatchewan Inc. POT posted lower profit in the first quarter of 2014 due to lower realizations in all three nutrient segments. Profit for the reported quarter slid roughly 39% year over year to $340 million or 40 cents per share from $556 million or 63 cents per share a year ago.

The reported profit included 6 cents per share special dividend from the company's investment in Israel Chemicals Ltd. (ICL) as well as 4 cents per share non-cash impairment charge related to its investment in Sinofert Holdings Ltd.

Barring one-time items, Potash Corp. posted earnings of 38 cents per share, exceeding the Zacks Consensus Estimate of 35 cents.

Revenues for the quarter fell roughly 20% year over year to $1,680 million, but beat the Zacks Consensus Estimate of $1,548 million.

Gross margin fell 35% to $565 million in the quarter from $867 million recorded in the comparable prior-year period.

The fertilizer company's shares rose as much as around 1.4% in the trading session following the earnings announcement.

Segment Review

Potash: Sales volumes rose roughly 4.5% year over year to around 2.3 million tons in the reported quarter led by strong buyer engagement. Sales volumes rose in North America as the company leveraged its extensive warehousing and distribution capabilities to meet strong demand. Sales volumes however fell offshore in the reported quarter as delayed Chinese and Indian contracts and rail constraints limited shipments. Average realized potash price was $250 per ton, down 31.1% from the prior-year quarter.

Nitrogen: Sales volume rose 6.7% to 1.6 million tons from 1.5 million tons a year ago, benefiting from strong operating rates across all of its nitrogen facilities and the benefit of a full quarter of production at the company's Geismar ammonia plant. Average realized prices for nitrogen products decreased 21.1% to $344 per ton due to weaker market fundamentals.

Phosphate: Sales volume of 0.8 million tons was up 11.1% year over year. Average realized phosphate price was down 11.8% year over year to $484 per ton. Weaker fertilizer market conditions through the second half of 2013 weighed on the company's first-quarter realizations.

Financials

Potash Corp. exited the first quarter with cash and cash equivalents of $533 million, down 9.8% year over year. Long-term debt rose roughly 7% year over year to $3,709 million.

Capital-related spending was $224 million during the reported quarter compared with $496 million in the year-ago quarter as spending related to Potash Corp's multi-year potash expansion program neared completion. Potash Corp. repurchased 11.7 million shares during the first quarter and completed around 60% of its expected total repurchases under the program at the end of the quarter.

Outlook
 
Potash Corp., which is among the prominent players in the fertilizer industry along with Agrium AGU, Mosaic MOS and CF Industries CF, increased its annual estimate for gross margin for potash to $1.1–$1.3 billion and sales volumes to 8.3–8.7 million tons based on slightly improved potash pricing and demand outlook.

For nitrogen, the company believes that typical seasonal trends will result in slightly weaker margins through the second half of 2014, although higher sales volumes expectations should partly offset this impact. For full-year 2014, the company expects total gross margin to remain historically high but lag 2013 levels.

For phosphate, the company expects prices for all products to be below those of 2013. Potash Corp. remains concerned by the weaker weather conditions. The planned closure of a chemical plant at the company's White Springs operation is expected to result in slightly lower sales volumes in the second half of 2014 and keep its non-cash costs elevated.
The company raised its annual estimate of income from offshore investments to a range of $230–$240 million to include the special dividend received from ICL during the first quarter.

Potash Corp. also adjusted its full-year 2014 earnings guidance to $1.50–$1.80 per share, which includes second-quarter net income in the band of 40 cents to 45 cents per share.

Potash Corp. is a Zacks Rank #2 (Buy) stock.