April 24, 2008 / 10:54 AM / in 10 years

Potash Corp boosts outlook, but stock sinks

WINNIPEG, Manitoba (Reuters) - Potash Corp of Saskatchewan POT.TO nearly tripled its first-quarter profits and ratcheted up its outlook for the rest of the year because of soaring demand and record prices for fertilizer, the company said on Thursday.

Potash, the world’s largest fertilizer company, said it earned $566 million, or $1.74 a share, for the quarter ended March 31, up from $198 million, or 62 cents a share, a year earlier.

“We see this as just the beginning,” Chief Executive Bill Doyle told analysts, adding farmers will try to maximize yields to cash in on record crop prices that have fueled concerns about food inflation around the world.

Sales in the quarter were $1.89 billion, up 64 percent from $1.15 billion a year earlier.

But even though the results and forecasts beat analyst expectations, and the company’s earlier estimates, Potash shares plunged as much as C$12.81, or 6 percent, on the Toronto Stock Exchange, and were down C$7.62 at C$198.88 late on Thursday.

Charts show potash shares have been overbought, said Joe Ismail, a technical analyst at Maison Placements Canada.

“There is a euphoric enthusiasm about Potash in general. There could be a bit of a stampede for the exits when investors start to bail out,” Ismail said.

Potash stock has tripled during the past year, making it one of the top three companies by market capitalization on the Toronto Stock Exchange.

The company forecast second-quarter earnings of $2.20 to $2.50 a share and increased its full-year forecast by about 50 percent from its January estimate of $9.50 to $10.50.

Potash and other major producers inked a deal last week with China, the world’s largest importer, to supply potash at more than triple last year’s contract price.

China will be short as much as 3 million tonnes of potash by the end of 2008, Doyle said.

Russian competitors since raised their spot prices for Brazil and Southeast Asia to $1,000 per tonne, effective July, but Canadian suppliers have not yet followed suit, Doyle said.

Canpotex, the export consortium for Potash Corp, Mosaic Co (MOS.N) and Agrium Inc AGU.TO, recently announced hefty spot market price hikes to as high as $750 a tonne, effective June.

“I do think we’re heading toward $1,000 per tonne. When we get there remains to be seen,” Doyle said.

“We’d rather have (customers) understand what we’re doing, give them time to digest, give them time to plan,” he said.

The company’s 2008 earnings forecast conservatively did not include potash sales at $1,000 a tonne, Doyle told analysts.

Potash will produce 10.1 million to 10.2 million tonnes of potash this year and, like other suppliers, is effectively sold out, although not all sales have been priced, Doyle said.

Farmers are unlikely to cut back on fertilizer because of higher grain prices, he said, noting U.S. corn farmers will reap $3 for every dollar spent on fertilizer, and Indonesian palm producers $9 per dollar spent on nutrients.

Doyle criticized governments that have slapped curbs on food exports <ID:nL15333482> as a response to food inflation, explaining they result in lower prices and smaller crops.

“The only real way to fight food inflation and increase food security is to grow more food,” he said.

($1=$1.01 Canadian)

Additional reporting by Scott Anderson and Jonathan Spicer in Toronto and Euan Rocha in New York; editing by Rob Wilson

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