January 28, 2010 / 11:27 AM / in 8 years

UPDATE 4-Potash Corp disappoints and its shares pay for it

* Q4 EPS 80 cents vs $2.56 a year earlier

* Sees Q1 EPS of 70 cents to $1.00; Wall St view $1.10

* Sees 2010 EPS of $4 to $5; Wall St view $5.89

* Shares down more than 6 pct in midday trade (Recasts, adds details, updates share price move. In U.S. dollars unless noted)

By Euan Rocha

TORONTO, Jan 28 (Reuters) - Potash Corp of Saskatchewan (POT.TO) reported a 70 percent drop in quarterly earnings and issued a profit outlook well below expectations on Thursday, sending the fertilizer maker’s shares down more than 6 percent.

However, the world’s largest fertilizer producer said it was optimistic that fertilizer demand in 2010 would be well above dismal 2009 levels as farmers scramble to replenish soil nutrient levels and dealers restock supply.

“Even though fertilizer demand can be deferred on a short-term basis, as we saw in 2009, the long-term requirement cannot be denied. We enter 2010 with a sense of optimism,” Chief Executive Bill Doyle said in a statement.

But his comments failed to allay investors’ fears and sparked a major selloff in fertilizer shares. Potash Corp’s stock was the worst hit, down $6.48 at 103.04 on the New York Stock Exchange and down C$6.96 to C$109.60 on the Toronto Stock Exchange.

“The results should temper a little bit of the enthusiasm for these (fertilizer) stocks, as Potash Corp is the industry leader and it is providing a much more cautious outlook than people expected,” said Atlantic Equities analyst Colin Isaac.

Potash Corp’s cautious forecast also hurt shares of its North American peers Agrium Inc (AGU.TO) (AGU.N), Mosaic Co (MOS.N), CF Industries (CF.N), Terra Industries TRA.N and Intrepid Potash (IPI.N).

The only gainers in the sector on Thursday were junior Canadian potash exploration companies such as Potash One KCL.TO, whose shares rose after mining giant BHP Billiton (BHP.AX) (BLT.L) announced that it has agreed to acquire Athabasca Potash API.TO for C$341 million. [ID:nLDE60R1SH]

BHP’s plan to sink $240 million this year into developing its Jansen potash project in Saskatchewan, coupled with its move to acquire Athabasca, indicate that the Anglo-Australian miner is more intent on building potash mines than on acquiring major existing producers. [ID:nN20132301]

Soleil Securities analyst Mark Gulley said BHP’s move for Athabasca “could possibly reduce the takeover premium in both Potash Corp and Mosaic shares,” as both companies have in the past year been mentioned as possible targets of BHP.

WEAK OUTLOOK

Potash Corp forecast earnings of 70 cents to $1.00 a share for the first quarter and $4.00 to $5.00 a share for the full year. Analysts’ average forecasts were $1.10 for the quarter and $5.89 for the year, according to Thomson Reuters I/B/E/S.

The Saskatoon, Saskatchewan-based company said it expected global potash shipments of about 50 million tonnes in 2010, well above 2009 levels. But it cautioned that this rebound was contingent on strong grain prices.

Potash is a common name used to describe various compounds containing potassium. Potash Corp is the world’s largest producer of the mineral, which emerged from relative obscurity a few years ago when high grain prices, coupled with tight supplies and strong demand, drove potash prices above $1,000 a tonne from below $150.

Prices have since retreated to about $350 to $400 a tonne as farmers, hit by the credit crisis and falling grain prices, drastically reined in their use of the nutrient.

Many analysts and investors expect a strong rebound in potash demand in 2010, after the drastic decline in 2009.

“Despite somewhat disappointing initial guidance, we believe the stage is set for a re-acceleration in fundamentals in 2010 and beyond that will lift investor sentiment,” said Broadpoint AmTech analyst Edlain Rodriguez in a note to clients.

Potash Corp said fourth-quarter earnings were $243.6 million, or 80 cents a share, down from $788 million, or $2.56 a share, a year earlier.

Quarterly revenue fell 41 percent to $1.10 billion.

Analysts on average had forecast earnings of 78 cents a share on revenue of $1.07 billion. (Reporting by Euan Rocha; Editing by Lisa Von Ahn, John Wallace and Peter Galloway)

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