April 26, 2012 / 8:19 PM / 6 years ago

Potash Corp profit hit by weak demand; outlook cut

(Reuters) - Potash Corp of Saskatchewan Inc (POT.TO) reported a 33 percent drop in quarterly profit on Thursday and it lowered expectations for the rest of the year, pushing down the shares of the world’s top fertilizer maker.

Potash Corp's head office in Saskatoon is pictured on November 3, 1010. REUTERS/David Stobbe

A nearly 60 percent decline in shipments of the crop nutrient potash led to a much bigger decline in Potash Corp’s first-quarter profit than analysts had expected. The industry giant also trimmed its estimate of global potash demand for 2012 and lowered forecasts for its shipments and profits.

“Buyers continued to move cautiously at the beginning of the year, especially with potash purchases,” Chief Executive Bill Doyle said in a statement. “Although we anticipated that an increase in global fertilizer purchasing would not take hold until the latter half of the first quarter, it took longer than we expected for demand to emerge.”

Doyle said he expected demand for potash - the common name for potassium chloride - to strengthen through the rest of the year.

Some analysts remained skeptical, however. The results prompted National Bank analyst Robert Winslow to cut his rating on Potash Corp shares to “underperform” from “sector perform”.

“We too expect robust spring-buying but suggest there is more downside risk than up for grain prices, which in our view signals the prospects for further fertilizer demand weakness later in the year,” wrote Winslow, who also trimmed his price target on the company’s stock to $42 from $45.

Shares of Potash Corp closed 3.2 percent lower at $42.87 on the New York Stock Exchange on Thursday, while its Toronto-listed shares fell by the same margin to C$42.25.

OUTLOOK DISAPPOINTS

The company, the target of a failed $39 billion hostile takeover bid by mining giant BHP Billiton (BHP.AX) in 2010, now expects 2012 earnings to be in the range of $3.20 to $3.60 a share. That is down from an earlier forecast of $3.40 to $4, and well below the current analyst average forecast of $3.64.

“We think investor expectations were relatively low going into the quarter, although the 2012 guidance cut was likely larger than expected,” wrote Citigroup analyst PJ Juvekar in a note to clients.

The company sees second-quarter earnings in the range of 90 cents a share to $1.10 a share. Wall Street currently expects earnings at $1.06 a share, according to Thomson Reuters I/B/E/S.

Potash Corp now expects total global potash demand to be in the 53 million to 56 million tonne range this year, with its own sales volumes in the range of 8.8 million to 9.2 million tonnes. In January, it had forecast global sales of 55 million to 58 million tonnes, with its own shipments in the 9.2 million to 10 million tonne range.

The company expects 2012 gross profits from its key potash business to be $2.6 billion to $2.9 billion. Previously it saw gross profits of between $2.9 billion to $3.3 billion.

Saskatoon, Saskatchewan-based Potash, which also produces nitrogen- and phosphate-based nutrients, expects combined gross profits from the two segments of $1.3 billion to $1.5 billion. It had previously forecast combined profits of $1.3 billion to $1.6 billion from the two segments.

Potash Corp’s outlook contrasted a forecast issued by its rival Mosaic Co (MOS.N) on Wednesday. The Minnesota-based producer expects its fertilizer sales to be at the top end of a previously announced forecast.

Mosaic’s business is more heavily weighted toward phosphate products. Results posted by Potash Corp for its own phosphate operations topped some analysts’ expectations.

PROFIT LAGS

First-quarter profit slid to $491 million, or 56 cents a share, from $732 million, or 84 cents, a year earlier. Wall Street had expected earnings of 63 cents a share, according to Thomson Reuters I/B/E/S.

Its potash sales volumes in the quarter fell to 1.2 million tonnes from 2.8 million tonnes, a year earlier. The change was reflective of slower sales to China, which did not settle on a new contract until late March. Buyers in North America and India also deferred major purchases of potash, which is widely used to increase yields of corn and other grains.

Although potash pricing in the spot market declined slightly quarter-on-quarter, Potash Corp said its average realized potash price rose nearly 20 percent from year-earlier levels. The gains reflect the lower percentage of volumes shipped to contract markets China and India, which typically pay a lower price for the commodity.

Though prices for potash have not been as volatile as those for crop nutrients such as phosphate and nitrogen in recent months, the company said prices had recently pulled back due to limited demand and competitive pressures.

In a bid to keep potash inventories in check, Potash Corp shut down some of its potash mines in the first quarter. On Thursday it said it expected no ”inventory-related downtime in the current quarter.

Bunge (BG.N), which buys and sells fertilizer via its vast grain-handling network, also felt the sting of weak fertilizer demand. The St. Louis-based company reported a 60 percent decline in quarterly profits earlier on Thursday.

Agrium Inc (AGU.TO), Potash Corp’s smaller Canadian rival, will report results on May 9.

($1=$0.98 Canadian)

Reporting By Euan Rocha in Toronto; Editing by Frank McGurty; and Peter Galloway

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