April 28, 2010 / 6:23 PM / 7 years ago

PREVIEW-Potash Corp investors eye stronger full-year forecast

5 Min Read

* Potash Corp Q1 results, April 29, 1000 GMT

* Co expected to post strong first-quarter earnings

* Investors anticipate big boost in FY2010 profit outlook

By Euan Rocha

TORONTO, April 28 (Reuters) - Potash Corp of Saskatchewan (POT.TO) is set to report a sharp increase in quarterly profit on Thursday, and investors are also hoping for a big boost in the fertilizer maker's full-year earnings forecast.

The world's largest fertilizer maker raised its first-quarter outlook last month, but left its 2010 full-year forecast of $4 to $5 per share unchanged.

Analysts see that range as too conservative, and Wall Street's current full-year average estimate of $5.52 a share is well above the company's view.

"Guidance in the $4.50 to $5.50 range might disappoint some folks, as people are expecting something stronger," said Broadpoint AmTech analyst Edlain Rodriguez.

Potash Corp's outlook could well determine the tenor of investor sentiment for the fertilizer sector, over the next few weeks. The price of potash -- the common name used to describe compounds containing potassium -- started to rise early this year after a big drop in 2009, but there are signs that the pricing trend may have stalled.

Shares of Potash Corp and its Canadian rival Agrium Inc (AGU.TO) are down roughly 15 percent since peaking in March this year. Languishing potash pricing, phosphate margin pressure and a lackluster corn price have quelled investor enthusiasm.

Saskatoon, Saskatchewan-based Potash Corp raised its first-quarter outlook in March to a range of $1.30 to $1.50 a share from a prior forecast of 70 cents to $1 per share. Now investors are eager to see the company confirm hopes for an even stronger view for the rest of the year.

"If they only raise it to the $4.50 to $5.50 (range), then it's just the upside in Q1, meaning that there isn't much upside in subsequent quarters," said Rodriguez.

That said, 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.

Potash Demand

Potash emerged from obscurity a few years ago when high grain prices, tight supplies and strong demand drove the nutrient to above $1,000 a tonne 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. The current spot price is around $400 a tonne.

The trend may be set to reverse again. North American potash inventories at the producer level have fallen in recent months, as dealers have begun to restock and farmers have started to replenish soil nutrient levels.

A sharp increase in potash demand and the increase in the price of phosphate-based fertilizers are likely to be the big drivers for Potash Corp in the first quarter.

Even so, companies have struggled to get pricing momentum going so far this spring and a proposed spring price increase of $30 per ton has yet to be implemented.

"We believe that 2010, while a major improvement over 2009, is part of a multi-year recovery cycle which will be marked by a period of supply gains that match up with demand increases and which may dampen the speed of the recovery especially for pricing," said Dahlman Rose & Co analyst Charles Neivert, in a note to clients.

Negative Sentiment

A bumper corn crop in 2009 and a robust planting season this year have pushed the price of corn lower, while high sulpher costs have hurt DAP profit margins. DAP, or diammonium phosphate, is a key phosphate derivative and fertilizer.

This had dragged shares of major North American DAP producers like Mosaic Co (MOS.N) and CF Industries (CF.N) down roughly 10 percent this year.

Rodriguez says Potash Corp's forecast could prove to be the catalyst that alters the current wave of negative investor sentiment within the sector.

"People are more interested in the guidance, to see how aggressive, or conservative they are going to be. That will go a long way in determining what happens to the stocks in the next few days," said Rodriguez. (Reporting by Euan Rocha; Editing by Frank McGurty)

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