April 29, 2010 / 10:31 AM / 8 years ago

Potash Corp profit, outlook up; shares rise

TORONTO (Reuters) - Potash Corp of Saskatchewan reported stronger than expected quarterly earnings on Thursday and raised its earnings forecast due to a sharp rebound in potash demand, and its shares rose 1.4 percent.

Shares of Potash, the world’s biggest fertilizer producer, were buoyed by talk that China’s first imports of corn from the United States in nearly four years could be followed by more shipments.

“The fact that the slide in corn prices has probably stopped for now with China in the market, that is definitely helping (market/farmer) psychology,” said Broadpoint AmTech analyst Edlain Rodriguez. “As there is a high co-relation between corn prices and fertilizer stocks.”

Chicago Board of Trade corn for May delivery rose almost 2.5 percent to $3.66 per bushel by 11 a.m. (1500 GMT) after surging nearly 3 percent on Wednesday on news of China’s purchases. The reversal of a negative trend in price of corn helped boost shares of Potash Corp and those of its North American rivals.

Potash Corp’s shares were up $1.49 at $110.5 on the New York Stock Exchange. Shares of rivals Mosaic Co, Agrium Inc and CF Industries also rose in early trade

Potash Corp’s shares had fallen more than 4 percent in pre-market trade on Thursday due to initial market disappointment with the company’s outlook.

OUTLOOK FALLS SHORT

The company raised its full-year earnings forecast to a range of $4.50 to $5.25 a share. Its previous forecast was $4.00 to $5.00 a share..

The revised range still fell short of Wall Street’s current consensus forecast of $5.52 a share, according to Thomson Reuters I/B/E/S.

The company’s second-quarter forecast of earnings of $1.00 a share to $1.30 a share was also shy of Wall Street’s average forecast of $1.46.

“The quarter itself was fine and (results were) great. It’s just the guidance that is not robust enough for people right now,” said Broadpoint AmTech analyst Edlain Rodriguez.

“But again it depends on how aggressive or conservative they (Potash Corp) want to be. I think they would rather surprise on the upside than disappoint,” he added.

Potash Corp has stayed cautious with its forecasts this year, after it was forced to repeatedly cut its 2009 outlook in the face of weak potash demand.

QUARTERLY RESULTS

Net income for the quarter ended March 31 rose to $449.2 million, or $1.47 a share, up from a year-earlier profit of $307.4 million, or $1.01 a share. The results beat Wall Street’s average forecast of $1.32 a share.

“We believe the higher demand we are seeing today is a precursor to a longer-term rebound as farmers strive to catch up on applications missed in 2009,” said Chief Executive Bill Doyle, in a statement.

Quarterly revenue rose 86 percent to $1.71 billion, driven primarily by a jump in potash sales volumes.

Potash -- the common name used to describe compounds containing potassium -- emerged into market consciousness a few years ago when high grain prices, tight supplies and strong demand drove the nutrient to above $1,000 a ton from less than $150.

The price gradually retreated last year, as farmers, hit by the credit crisis and falling grain prices, reined in their applications of the nutrient. But demand has begun to pick up again, as the spot price has fallen to about the $400 a ton level.

POTASH DEMAND

North American potash producers shipped record volumes to domestic customers during the first quarter of 2010, more than quadruple the total shipped in the same period last year and 34 percent above the five-year average, prior to the global economic downturn.

Furthermore, offshore shipments from North American producers improved significantly as buyers purchased nearly triple the total of last year’s first quarter.

Potash Corp expects that global potash shipments in 2010 will be about 50 million tons, or more than 50 percent above year-earlier levels. The sharp increase is being driven by strong potash demand in both Asia and the Americas.

Despite recent inventory drawdowns at the producer level, North American producers have been unable to implement a spring price increase of $30 per ton, however. At the same time, profit margin on DAP, or diammonium phosphate -- a key phosphate-based fertilizer -- has been hurt by rising sulphur costs.

“We don’t think an anticipated rally in the potash price will unfold and we think higher raw material costs in DAP will pressure gross margin,” said Soleil Securities analyst Mark Gulley.

Potash Corp expects its 2010 potash segment gross margin will be within the range of $1.5 billion to $1.8 billion. It expects its total potash sales to range between 7.4 million and 8.0 million tons.

In phosphate and nitrogen, the company expects to generate combined gross margins of about $500 million to $700 million in 2010.

($1= $1.003 Canadian)

Reporting by Euan Rocha; editing by Peter Galloway

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