TORONTO (Reuters) - Potash Corp (POT.TO), the world's largest fertilizer maker, on Thursday reported a 38 percent drop in its second-quarter profit and forecast weaker than expected earnings for the second half of 2012, sending its shares down 1.7 percent.
The Saskatoon, Saskatchewan-based company said it trimmed its full-year earnings forecast largely to reflect the impact of an impairment charge that hurt its second-quarter results.
Potash Corp now expects 2012 earnings between $2.80 to $3.20 a share, down from a prior forecast of $3.20 to $3.60 per share. Analysts, on average, were expecting earnings of $3.47 a share, according to Thomson Reuters I/B/E/S.
The company expects third-quarter earnings in the range of 70 cents to 90 cents a share, well shy of Wall Street's expectations of 95 cents a share.
The lackluster outlook sent shares of Potash Corp down 1.7 percent to $43.75 on the New York Stock Exchange by noon. Its Toronto Stock Exchange listed shares fell 2.5 percent to C$44.18.
The fertilizer sector has been one of the few bright spots for investors in recent weeks, as drought in many key U.S. corn growing areas lifted crop prices. The drought may dent near-term fertilizer sales, but the spike in corn prices bodes well for demand ahead of next year's planting season in the United States - the world's top corn grower and a big fertilizer buyer.
Potash Corp itself became an investor darling in 2007-2008, as the price of potash - as the nutrient potassium chloride is called - spiked to record levels of over $1,000 a tonne.
In 2010 Anglo-Australian mining giant BHP Billiton (BHP.AX) made a $39 billion hostile bid for the company. The deal fell apart after the Canadian government stepped in, arguing that the deal would not be a net benefit for Canada.
Potash Corp said this year's expected crop shortfalls will support crop prices and encourage farmers to boost fertilizer use next year.
But some analysts remain cautious.
In a note to clients, National Bank analyst Robert Winslow cut his rating on the company's stock to "underperform" from "sector perform," partly due to the weak forecast. He cut his price target on Potash Corp's shares to $38.50 from $47.50.
Potash said second-quarter net income fell to $522 million, or 60 cents per share, from $840 million, or 96 cents per share, a year earlier.
Results were hurt by a $341 million impairment charge on its investment in Chinese fertilizer maker Sinofert Holdings Ltd.
Strong overseas demand boosted production and sales of its namesake nutrient in the quarter, but higher costs led to a slight narrowing of profit margins in its potash business.
The company expects gross profits from its potash business in 2012 to be in the range of $2.6 billion and $2.8 billion. It earlier forecast a range of $2.6 billion to $2.9 billion.
Lower volumes and prices for its phosphate-based nutrients hurt profit margins in that business, while lower natural gas prices helped boost profits from its nitrogen business.
Potash Corp boosted its forecast for combined phosphate and nitrogen gross margin in 2012 to a range of $1.4 billion to $1.6 billion, up from $1.3 billion to $1.5 billion.
Free cash flow, an indicator of its ability to service its debt and make strategic investments, rose to $797 million in the quarter, from $575 million, a year ago.
The results come just a week after, Potash Corp's smaller Canadian rival Agrium Inc (AGU.TO) raised its second-quarter earnings forecast. Agrium, which is also the top North American farm products retailer, is set to report second-quarter results on August 2.
Last week, U.S. fertilizer maker Mosaic Co (MOS.N) also came out with better-than-expected quarterly results.
Reporting by Euan Rocha in Toronto and Bhaswati Mukhopadhyay in Bangalore; editing by Jeffrey Benkoe and Janet Guttsman