BUSINESS

PotashCorp lowers 2013 profit forecast as Q2 results miss analyst estimates

07/25/2013 07:04 EDT | Updated 09/24/2013 05:12 EDT
SASKATOON - Potash Corp of Saskatchewan warned Thursday that its profits this year will be lower than previously expected with the prices of crop nutrients coming under pressure.

The fertilizer giant also posted second-quarter results that missed analyst expectations and announced a $2-billion share buyback program.

Although the pace of global fertilizer shipments was strong during the quarter, with buyers in all key markets actively snapping up supplies, prices have come under competitive pressure.

As a result, Potash lowered its earnings-per-share targets for all of 2013 to a range between $2.45 and $2.70 per share, well below the previous guidance of $2.75-$3.25 per share.

It also estimated that it would earn between 45 and 60 cents per share in the current quarter, which ends Sept. 30 — below analyst estimates of 75 cents per share in adjusted earnings.

CEO Bill Doyle told analysts on a conference call the long-term prospects for the company are bright.

"We understand that the perceived lack of a near-term catalyst to rapidly increase potash volumes and prices has left some investors on the sidelines for the time being," he said.

"Yet we have always maintained that fertilizer is a long-term play, one that is built on the world's essential need to improve food production. Even though it includes occasional fluctuations or plateaus, we believe growing populations and improving diets around the world create an undeniably compelling platform for an efficient, well-placed producer."

He added that few players have what it takes to compete in the industry, in which barriers to entry are "unique and significant."

"It is expensive for newcomers and it takes a long time to become profitable. We have seen a lot of tire-kickers in recent years, but they are not bringing much in the way of new production to the market," he said.

"Nearly eight million tonnes of potash capacity expansions have been cancelled or deferred over the past year, as the economics of even building new brownfield supply make the introduction of new greenfield projects more difficult than ever before."

Potash posted Thursday a second-quarter profit of $643 million, or 73 cents per share, up from $522 million, or 60 cents per share in the same period a year ago.

The profit fell short of the average analyst estimate of 81 cents per share, according to data compiled by Thomson Reuters.

Sales fell to $2.14 billion compared with $2.4 billion a year ago.

Potash sales reached 2.5 million tonnes in the second quarter and the average potash price declined to $356 per tonne from $433 over the same period last year, primarily due to competition and spot market pricing.

In North America, challenging spring planting affected fertilizer activity in some regions, but a late push by farmers to ensure the required nutrients were in place kept dealers busy throughout the quarter.

Shipments to most other international markets were also strong. But India remained a challenge, where fertilizer subsidy policies Doyle said are motivated more by politics than agronomic need.

"And while political motivations can change, the need to feed more than 1.2 billion people in that country does not. The nutritional value and quality of India's crops are suffering, and recent data suggests yields are declining from already low levels," said Doyle.

"It is clear that India needs to improve its approach to crop nutrition, but it is a complex issue, which makes it difficult to identify when necessary change will take hold."

Potash said its board of directors has approved a plan to buy back up to $2 billion in its own stock over a one-year period, subject to regulatory approval.

If the maximum number of shares are purchased, they would equal about five per cent of the company's outstanding common shares.

Shares in the Saskatoon-based company (TSX:POT) dropped as much as five per cent on the Toronto Stock Exchange before recovering some ground later.

In late afternoon trading, the stock was at $38.26, or down 2.3 per cent from its previous close.