Potash Corp cuts 2016 profit forecast, dividend seen at risk

Thu Apr 28, 2016 10:45am EDT
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By Rod Nickel and Arathy S Nair

(Reuters) - Canada's Potash Corp of Saskatchewan (POT.TO: Quote), the world's biggest fertilizer company by capacity, cut its full-year profit forecast due to weak demand and lower prices on Thursday, raising concerns of another dividend cut.

The company in January cut its dividend by 34 percent to $1 on an annual basis. BMO analyst Joel Jackson said the dividend looked at risk of further reduction as it represents 143 percent of forecast profit this year.

U.S.-listed shares of Potash (POT.N: Quote) fell 2 percent to $17.87 after the company posted an 80 percent plunge in first-quarter profit.

Near term, cutting the dividend may be the best option, although Potash should weigh alternatives, such as selling stakes in other fertilizer companies, said Ryan Bushell, portfolio manager at Leon Frazer & Associates, which owns shares.

"Long-term, we're not fans of companies that cut dividends to appease pressure," he said. "We're fans of companies that stick to their discipline."

Potash owns stakes in China’s Sinofert Holdings Ltd (0297.HK: Quote), Israel Chemicals (ICL.TA: Quote), Arab Potash Co PLC APOT.AM and Chile’s SQM SQMa.SN, worth a combined $4 billion. The company's cash flow may increase next year after finishing expansion of a Saskatchewan mine.

Despite bleak current conditions, improving economic factors such as expected Chinese stimulus spending bodes well for a commodity rebound, Bushell said, adding that Potash is "weathering the storm" well by cutting production.

Potash prices have plunged over the past year due to overcapacity and weak currencies in major consumers such as India and Brazil.   Continued...

The Cory Potash Corp mine site west of Saskatoon is pictured on November 3, 2010. REUTERS/David Stobbe