U.S. Markets closed

Potash Corp sees weaker than expected year ahead

The exterior of the Potash Corp. Rocanville potash plant on on Nov. 3, 2010 near Rocanville, Sask. THE CANADIAN PRESS/Troy Fleece

By Rod Nickel

Jan 30 (Reuters) - Potash Corp of Saskatchewan , the world's biggest fertilizer company, on Thursday reported a sharply lower quarterly profit and produced 2014 forecasts that were below Wall Street expectations.

The company's disappointing outlook shows that the global potash market has far to go to recover from a slide in prices, due to years of soft demand, burgeoning supplies and last summer's breakup of rival Belarusian Potash Company.

Shares of Potash Corp, the world's biggest producer of the crop nutrient by capacity, dropped more than 3 percent in New York before normal trading hours.

Potash said it expected a first-quarter profit of 30 to 35 cents per share, widely missing analysts' average estimate of 48 cents, according to Thomson Reuters I/B/E/S.

For the full year 2014, the company forecast a profit of $1.40 to $1.80 a share. That would be even lower than its performance during the disappointing past year, when it earned $2.04 per share, and the outlook fell well below analysts' average 2014 view of $2.00 earnings per share.

The mid-point of that 2014 profit range, $1.60 per share, would represent Potash Corp's least profitable year since global potash prices collapsed in 2009.

Buyers retreated to the sidelines last year, expecting prices to fall further. Chinese buyers agreed early this year to new potash contracts, but locked in deep discounts at prices that usually set the global floor.

Russia's Uralkali, the world's top potash producer, was forced to slash prices by 24 percent in a new semi-annual supply deal with China, announced on Jan. 20. Canpotex Ltd, the export arm of Potash Corp, Mosaic Co and Agrium Inc, struck its own deal shortly after for 700,000 tonnes at an undisclosed price.

Potash Corp said it expected to sell 8.2 to 8.6 million tonnes of potash in 2014, up from last year's 8.1 million tonnes. It said total global shipments of potash look to reach 55 million to 57 million tonnes in 2014, up 5 percent.

The mid-point of Potash Corp's forecasted potash sales volume would represent less than 4 percent growth, trailing the expected 5 percent uptick in global sales, said Spencer Churchill, analyst at Paradigm Capital.

"(Potash Corp sees) less than market growth in volumes and that's probably the factor people are going to point to," he said.

Potash Corp said in December that it would slash its workforce by 18 percent, or 1,000 jobs.

Net earnings for the fourth quarter fell 45 percent to $230 million, or 26 cents per share, from $421 million, or 48 cents per share, a year earlier. Those results included $60 million in severance-related costs, or 5 cents per share.

Revenue dropped to $1.54 billion.

Analysts on average expected Potash Corp to earn 33 cents a share in the fourth quarter on sales of $1.357 billion.

Prices of all three nutrients the company produces - potash, phosphate and nitrogen - fell during the most recent period, but sales volumes were higher year over year.

"Pricing headwinds - most notably in potash - weighed on our performance, although there were signs as the quarter came to a close that the uncertainty in global markets was beginning to abate," said Chief Executive Bill Doyle.

The company's potash sales climbed 34 percent to nearly 1.8 million tonnes in the fourth quarter. Potash Corp's average realized price of potash fell 27 percent to $282 per tonne.