Potash Corp (POT) Q2 Earnings & Revs Top, Raises View

Potash Corp. of Saskatchewan Inc. (POT) posted earnings of 56 cents per share in the second quarter of 2014, down 23% from 73 cents in a year ago. Earnings, however, surpassed the Zacks Consensus Estimate of 44 cents per share.

Revenues for the quarter fell roughly 11.8% year over year to $1,892 million, but beat the Zacks Consensus Estimate of $1,667 million.

Gross margin fell 23.7% to $747 million in the quarter from $979 million recorded in the comparable prior-year period.

Potash Corp. raised its earnings expectations for 2014. The fertilizer company’s shares rose as much as around 2.6% following the earnings announcement, reflecting better-than-expected results and upward guidance revision.

Segment Review

Potash: Sales volume remained flat year over year and came in at 2.5 million tons in the reported quarter. Sales volumes in North America rose 13% year over year due to continued strength. In North America, demand at the farm level was very strong through the spring planting season. Offshore sales volume of 1.6 million tons was impacted by backlogs. Average realized potash price was $263 per ton, down considerably from $356 per ton in the prior-year quarter due to price erosion during the second half of 2013.

Nitrogen: Sales volume rose 13.3% to 1.7 million tons from 1.5 million tons a year ago, benefiting from improved production levels across all facilities. Higher sales volumes led to gross margin of $304 million, up 10.1% year over year, marking the second-highest quarterly nitrogen gross margin in the company’s history. Average realized prices for nitrogen products decreased 4.1% to $393 per ton due to weaker benchmark prices contributing to lower realizations for ammonia fertilizer products.

Phosphate: Sales volume of 0.8 million tons was down 9% year over year. Issues related to weather, mining conditions and mechanical challenges created difficulties in sustaining the supply of ore feed to the facilities resulting in reduced production. Average realized phosphate price was down 1.5% year over year to $509 per ton.

Financials

Potash Corp. exited the second quarter with cash and cash equivalents of $107 million, down 83% year over year. Long-term debt rose roughly 25% year over year to $3,711 million.

Capital-related spending was $199 million during the reported quarter compared with $354 million in the year-ago quarter as spending related to Potash Corp’s multi-year potash expansion program neared completion. Potash Corp. repurchased 17.5 million shares during the second quarter and completed its share buyback program announced in Jul 2013.

Guidance

Potash Corp., which is among the prominent players in the fertilizer industry along with Agrium (AGU), increased its annual gross margin estimate for potash for 2014 to $1.2–$1.4 billion (from $1.1–$1.3 billion) and annual sales volumes to 8.9–9.2 million tons (from 8.3–8.7 million tons). The company aims to achieve its 2014 target of reducing per-ton cash costs by $15-$20 (from 2013's levels) although the third quarter will reflect its normal seasonal increase as it will complete its required maintenance downtime.

The company also raised its 2014 global shipment expectations to 56.5-58 million tons from its earlier view of 55-57 million tons on the basis of record first-half demand and an improved second-half outlook.

For nitrogen, the company raised its gross margin expectation for the rest of 2014. Sales volume is expected to outpace prior-year levels and act as a continued tailwind through the second half.

For phosphate, the company expects strong import demand from India. Potash Corp. believes that the closure at Suwannee River in the third quarter will keep its sales volumes at lower levels through the remainder of the year while reduced accelerated depreciation charges are anticipated to result in improved per-ton cost of goods sold and increased margins.

The company revised its selling and administrative expenses and finance costs to a range of $235-$245 million and $175-$185 million, respectively.
For the third-quarter of 2014, the company expects earnings to be in the range of 35 cents to 45 cents per share and increased its earnings guidance for 2014 to $1.70-$1.90 per share from $1.50–$1.80 per share expected earlier.

Potash Corp. is a Zacks Rank #3 (Hold) stock.

Some other stocks worth considering in the fertilizer industry include Yara International ASA (YARIY) and Chemical & Mining Co. of Chile Inc. (SQM). While Yara International sports a Zacks Rank #1 (Strong Buy), Chemical & Mining holds a Zacks Rank #2 (Buy).

Read the Full Research Report on POT
Read the Full Research Report on AGU
Read the Full Research Report on SQM
Read the Full Research Report on YARIY


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