August 12, 2010 / 5:50 AM / 7 years ago

UPDATE 2-K+S ups potash sales target as world demand returns

* Q2 sales 1.058 bln eur vs 1.029 bln fcast

* EBIT up eight-fold at 155.5 mln eur vs 123 mln fcast

* Gives precise sales, earnings targets

* Sees strong demand continuing in H2

* Shares down 2.6 pct, underperform German market (Adds analyst comment, shares)

By Nicola Leske

FRANKFURT, Aug 12 (Reuters) - German salt miner K+S SDFG.DE raised its potash sales volume forecast for this year as a global rebound in demand for fertiliser helped earnings beat forecasts in the second quarter.

“The welcome development so far this year shows that the economic situation has bottomed out,” Chief Executive Norbert Steiner said on Thursday. “The positive trend in fertiliser demand is set to continue in the second half of the year too.”

K+S said it based its sales forecast mainly on the assumption of a stronger recovery of markets in Europe and North America and higher expected consumption in Latin America.

Wheat farmers, who are benefitting from rising grain prices, are expected to spend more on fertiliser after holding back during the financial crisis. Global grain prices have risen after Russia banned exports due to drought and fires in the country.

Bigger Canadian rival Potash Corp (POT.TO) of Saskatchewan, the world’s largest fertiliser producer, and U.S. fertiliser manufacturer Mosaic Co (MOS.N) have also reported strong second-quarter profit thanks to strong potash sales and higher margins. [ID:nN28198150] [ID:nN22265581]

K+S, the world’s fourth-largest potash supplier, said it should sell 6.5 million to 7.0 million tonnes of potash products this year, more than its May forecast of “a good” 6.5 million tonnes. Second-quarter earnings before interest and tax, adjusted for effects from currency hedging instruments, jumped eight-fold to 155.5 million euros, beating an average forecast of 123 million euros in a Reuters poll.

K+S shares were down 2.6 percent at 0859 GMT, having fallen as much as 5 percent in early trade as investors that had hoped for even greater gains or a more bullish outlook sold their shares for profit, traders said.

“Strong results may be diluted by the outlook, which may disappoint some overly optimistic ‘prices-will-rise-immediately’ participants,” brokerage Equinet said in a note, adding that it remained optimistic in its outlook for K+S, saying that an increase in volume was more important than rising prices.

“Guidance for 2010 sales is in line but looks disappointing for EBIT versus our and market estimates,” BHF Bank analyst Annett Weber wrote, adding that revenue for the last quarter was “disappointing too”.

POTASH BACK IN DEMAND

K+S also gave a more concrete outlook for sales and earnings after previously only saying it expected significant growth.

In 2010, revenues of between 4.6 billion euros ($5.99 billion) and 5.0 billion euros appeared “realistic from today’s perspective”, the group said. Last year, sales were 3.6 billion euros. Operating earnings are expected to more than double to between 550 million euros and 600 million euros this year.

It also said it expects demand for fertilisers to increase significantly this year due to lower stocks at the beginning of the year and because less fertiliser had been used since late 2008, when farmers had started holding back on potash use speculating on a decline in fertiliser costs.

Potash stays in the soil longer than other fertilisers such as nitrogen, allowing farmers to delay using it if they think prices will fall -- a tactic that intensifies swings in demand.

According to Thomson Reuters StarMine, which weights analysts’ forecasts according to their track record, K+S trades at 14.6 times its 12-month forward earnings compared with Mosaic and Potash, which trade at 15.2 times and 17.3 times respectively.

($1=.7681 Euro)

Editing by Erica Billingham

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