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Why Potash Corp.’s earnings call was so important for the industry

Xun Yao Chen

Why investors should follow Potash Corp.'s earnings call (Part 1 of 5)

Why follow Potash Corp.?

Potash Corp. is one of the largest fertilizer producers in the world. Unlike Agirum Inc. (AGU), which has significant exposure to retail business, or other fertilizer producers like CF Industries Holdings Inc. (CF), Mosaic Co. (MOS) and Intrepid Potash Inc. (IPI), which focus on one or two types of fertilizers, Potash Corp. (POT) manufacturers all three types of fertilizer. These fertilizer types are commonly separated into nitrogen, phosphate, and potash.

Earnings release date

Because POT releases its earnings earlier than its peers, the company’s earnings and commentaries provide investors with clues to other companies’ earnings and business conditions, which will also affect the Market Vectors Agribusiness ETF (MOO). While company-specific factors like lower-cost mine expansions, share buybacks, and dividend increases do affect overall share price performance, many of the reasons these companies perform well depend more on industry factors, which is our focus at Market Realist.

Third-quarter earnings are down

Third-quarter earnings for 2013 were just released on October 24, early in the morning, at 6:00 AM Eastern Time. Potash Corp. reported 0.41 in diluted EPS (earnings per share), matching analysts’ mean estimate of 0.41. The company had warned of lower profits in September and had revised its guidance down to 0.41 in early October.

Factors contributing to lower earnings

A weaker pricing environment for all three nutrients and lower potash sales were the main factors that negatively impacted third-quarter earnings. While third quarters tend to see a seasonal slowdown, it was made worse this year for potash when Uralkali announced it will focus on sales volume over price strategy at the end of July and broke away from a partnership with Belaruskali to sell potash in the international market. Increased competition means lower selling prices and profits.

This is particularly important in the potash industry because a significant portion of the industry’s market is controlled by a handful of large producers. In the international market, only two major players—Canpotex and the Belarusian Potash Company—dominated. Canpotex acts as an international distributor for POT, AGU, and MOS, while BPC (the Belarusian Potash Company) was the distributor for Belaruskali and Uralkali.

Continue to Part 2

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