April 28, 2011 / 10:12 AM / in 6 years

UPDATE 6-Potash Corp profit lifted by surging grain prices

* Q1 EPS of $0.84 tops analyst view of $0.80

* Sees Q2 EPS $0.70 to $0.90; Street view $0.84

* Sees FY EPS $3.00 to $3.40; Street view $3.29

* Tight grain inventories, high prices to spur demand

* Shares fall on NYSE, TSX (Adds CEO comments, share move. In U.S. dollars)

By Euan Rocha

TORONTO, April 28 (Reuters) - Potash Corp (POT.TO), the world’s largest fertilizer maker, reported a higher quarterly profit that topped expectations on Thursday, as soaring grain prices boosted demand and prices for crop nutrients.

The Saskatoon, Saskatchewan-based company also raised its full-year earnings forecast, as it expects tight global grain inventories, coupled with strong returns on crops, to spur higher demand for potash, phosphate and nitrogen -- the three main nutrients in fertilizers.

Potash Corp said demand for its namesake nutrient rose to fresh highs with demand particularly strong in Latin America and Asian countries outside of China and India, which typically buy potash via longer-term contracts.

“Overall, the quarter was in line with my expectations,” said Gleacher & Co analyst Edlain Rodriguez. “I think the good thing is they raised the full year guidance, which is something a lot of people were waiting for.”

Shares of Potash, which was the target of BHP Billiton’s (BHP.AX)(BLT.L) failed $39 billion hostile takeover in 2010, have risen more than 50 percent in the last 12 months.

However, shares of the company fell 3.0 percent to $55.43 in New York on Wednesday. The Toronto-listed shares were down 2.7 percent at C$52.69.

“It’s all about expectations,” said Rodriguez, adding that the company beat Wall Street’s average forecast, but possibly the beat was not as big as some investors were hoping for.

POTASH CAPACITY

Potash Corp Chief Executive Bill Doyle said he expects that the global potash industry will find it challenging to meet demand this year, with possible shortages looming toward the end of the year.

Doyle indicated that his company -- the world’s largest potash producer -- only has limited capacity to meet any further increases in demand. He warned that India, which has yet to sign an import contract with North American potash producers this year, may find it hard to get the volumes it needs.

The company said it expects potash prices to rise further in both international and domestic markets this year. Doyle said, however, that prices were still far short of a level that would justify building new potash mining capacity from scratch.

Doyle, an industry veteran and long-time head of Potash Corp, said that while many exploration companies tout their potash projects, few will be able to take them into production given the huge capital costs associated with building new potash mines.

“It’s like the people that are camping out in front of Westminster Abbey today thinking they got an invitation to the wedding tomorrow, those hopes don’t work so well,” he said on a conference call. “You really have to look at this realistically.”

STRONG RESULTS

Net income rose in the quarter to $732 million, or 84 cents a share, from $444 million, or 49 cents a share, a year earlier.

Revenue rose almost 30 percent to $2.20 billion, driven largely by higher prices for all three nutrients.

Analysts, on average, had forecast earnings of 80 cents a share, on revenue of $2.01 billion, according to Thomson Reuters I/B/E/S.

The company’s average realized potash price in the quarter rose to $366 per tonne from $321 a year earlier. It reported similar gains in both its nitrogen and phosphate segments.

Salman Partners analyst Jaret Anderson noted that Potash Corp’s quarterly results were solid and its forecasts were as expected.

“This company has massive leverage to potash price changes and fertilizer markets overall,” Anderson said. “Small changes in realized prices and volumes make a very large difference to their earnings.”

Potash Corp expects second-quarter net income to be in the range of 70 cents to 90 cents a share, in line with analysts’ average forecast of 84 cents a share.

The company also raised its full-year earnings forecast to a range of $3.00 to $3.40 a share, from a previous range of $2.80 to $3.20. Analysts were looking for earnings of $3.29, according to Thomson Reuters I/B/E/S. ($1=$0.95 Canadian) (Reporting by Euan Rocha; Editing by Frank McGurty and Peter Galloway)

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