On Nov 8, Zacks Investment Research downgraded fertilizer company Potash Corp of Saskatchewan Inc. (POT) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Potash Corp.’s earnings of 41 cents per share for the third quarter of 2013, reported on Oct 24, were down 44.6% from 74 cents reported a year ago. Earnings also fell short of the company guidance range of 45 cents–60 cents per share. The results, however, were in line with the Zacks Consensus Estimate.
Potash Corp. posted a profit of $356 million in the reported quarter, down roughly 45% from $645 million recorded in the prior-quarter. The decline was mainly attributed to weaker prices for all three nutrients – potash, nitrogen and phosphate – and lower potash sales volumes.
Sales came in at $1,520 million in the quarter, decreasing 29% from $2,143 million registered a year ago. It missed the Zacks Consensus Estimate of $1,552 million. The reduced sales were primarily due to lower-than-expected potash sales volumes in the quarter-end as buyers delayed purchases owing to near-term market uncertainty.
The market for all three nutrients-potash, nitrogen and phosphate remained challenging in the third quarter and weighed on the long-term fundamentals of the company. Potash Corp. suffered when Russian firm Uralkali left the potash cartel (Belarusian Potash Company) and announced that it would aim to boost market share, leaving buyers anticipating weaker prices.
Potash Corp. also faces challenges in India, a key market. Although contracts with major suppliers run through Mar 2014, weak domestic demand due to reduced government subsidies and currency weakness could result in lower shipments and price fall.
Following the third-quarter earnings release, the Zacks Consensus Estimate for 2013 for Potash Corp. dropped 12.7% to $2.13 per share. Similarly, the Zacks Consensus Estimate for 2014 has decreased 12.8% to $2.11 per share.
Other Stocks to Consider
Other companies in the basic materials sector with favorable Zacks Rank are Methanex Corp. (MEOH), The Scotts Miracle-Gro Co. (SMG) and BASF SE (BASFY). While Methanex carries a Zacks Rank #1 (Strong Buy), Scotts Miracle-Gro and BASF hold a Zacks Rank #2 (Buy).