Shares of Potash Corp of Sakatchewan Inc. (POT) dropped around 2.3% after the company cut its third quarter 2013 earnings guidance. The fertilizer company now expects earnings to be roughly 41 cents per share for the third quarter, down from its previous forecast of 45 cents to 60 cents per share. The company’s shares eventually closed at $31.39 in the trading session following the announcement, losing around 1.1%.
The reduction in the earnings guidance is mostly due to lower-than-expected potash sales volumes late in the quarter as buyers delayed their purchases owing to near-term market uncertainty. The company will report its third-quarter results on Oct 24, where it will further discuss about the full year guidance.
Potash Corp., which is among the prominent fertilizer companies along with Mosaic (MOS) and Agrium Inc. (AGU), released disappointing second-quarter 2013 results as both revenues and adjusted earnings missed the Zacks Consensus Estimate.
Revenues fell by double digits year over year, hurt by lower pricing across all three nutrients and competitive pressure. The company cut its earnings forecast for the full year taking into account the weak price environment.
While Potash Corp. will benefit from strong geographic diversification and expanded operational capability in potash, it is exposed to macroeconomic uncertainties and price volatility. Average realized potash price fell 18% year over year in the second quarter as competitive pressure pulled down contract and spot market prices. Pricing pressure was also witnessed in the phosphate segment.
Moreover, Potash Corp. is seeing somewhat weak potash demand in India, a key market. Indian government’s move to trim potash subsidy levels coupled with higher retail pricing and local currency devaluation resulted in lower demand in the country. Adding to the problems is declining crop yields. These challenges may sustain through second-half 2013.
Potash Corp. currently retains a Zacks Rank #5 (Strong Sell).
China Bluechip (CBLUY), with a Zacks Rank #1 (Strong Buy), is a good option for investment in the fertilizer industry.