January 28, 2016 / 11:45 AM / 2 years ago

UPDATE 3-Potash Corp forecasts bleak year ahead, slashes dividend

(Adds CEO comments from interview, analyst call)

By Rod Nickel and Narottam Medhora

Jan 28 (Reuters) - Potash Corp of Saskatchewan forecast its bleakest year in a decade and slashed its dividend, due to tanking fertilizer prices.

Shares of Potash Corp, which also reported lower-than-expected quarterly profit on Thursday, bounced off earlier losses, climbing 1.9 percent in New York by afternoon. On Monday they tumbled to a nine-year low.

Potash prices have fallen under pressure from bloated capacity, soft grain prices and weak currencies in consumers such as India and Brazil. Saskatoon, Saskatchewan-based Potash Corp suspended operations at its newest mine this month.

The world’s biggest fertilizer company by capacity lowered its quarterly dividend by 34 percent to 25 cents per share.

“The real story is how poor 2016 guidance is due to weak potash fundamentals and a 34 percent dividend cut may not be deep enough,” BMO analyst Joel Jackson said in a note.

The company forecast 2016 earnings of 90 cents to $1.20 per share. The midpoint, $1.05, would be the smallest profit in 10 years.

Analysts on average were expecting $1.33, according to Thomson Reuters I/B/E/S.

“Weaker fertilizer prices late in the year reduced our earnings for the quarter, giving rise to a more cautious outlook,” Chief Executive Jochen Tilk said in a statement.

Tilk told analysts the company is not planning more mine closures.

Even with the cut, Potash expects its dividend to use up its 2016 net earnings. Tilk said it maintains flexibility for acquisitions, although he’s not interested in bidding again for Germany’s K+S AG, which rebuffed Potash last year.

As Potash idles capacity, rivals have seized market share, but Tilk said the company can increase production when conditions improve.

“We have more future incremental capacity than any other producer,” he said in an interview. “What we intend to do is capture that incremental growth as demand kicks out.”

Potash forecast 2016 global potash shipments of 59 million to 62 million tonnes, about flat from last year’s 60 million.

Supply contracts between potash producers and Chinese buyers, which usually set a global price floor, are anticipated to include a steep discount.

Average realized price for potash fell 16 percent to $238 per tonne in the fourth quarter.

Net earnings fell in half to $201 million, or 24 cents per share from $407 million, or 49 cents per share.

Revenue decreased 29 percent to $1.35 billion.

Analysts expected earnings of 30 cents per share and revenue of $1.44 billion. (Reporting by Rod Nickel in Winnipeg, Manitoba and Narottam Medhora in Bengaluru; Editing by Sriraj Kalluvila, Bill Trott, Diane Craft)

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