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PotashCorp flags forecasting hiccup as profits dip

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PotashCorp acknowledged failings in fertilizer demand forecasting as it unveiled a 38% slide in earnings to below levels expected by investors, hurt by tumbling potash export volumes and prices.

The group, which in October cut its guidance for full-year earnings to $2.40-2.60 per share, revealed that profits had slipped even further, to $2.37 per share, after an October-to-December period marred by a "weaker performance in all three" major nutrients – nitrogen, phosphate and potash.

"Global fertilizer markets paused in the absence of significant immediate needs and amid a lack of direction, particularly in phosphate and potash," Bill Doyle, PotashCorp chief executive, said.

A late-year slowdown in world demand for potash, the group's biggest earner, "was more pronounced" as buyers waited on China, the top importer, to agree new supply deals which set benchmarks for other contracts.

Shipments by North American potash producers to offshore markets slumped by 43% in the fourth quarter, with PotashCorp's own volumes falling by 37%.

Below forecasts

Indeed, PotashCorp's potash sales for the quarter came in at 1.32m tonnes, well below the 1.7m-2.6m tonnes that the group forecast early in the period.

Gross margin tumbled 40% to $281m, reflecting also a drop in prices achieved to $387 a tonne, from $431 a tonne a year before.

The price also represented a sharp decline from the $429 a tonne at which PotashCorp sold its potash in the July-to-September period.

In phosphates, gross margin plunged by 39% to $99m, also reflecting a decline in volumes and prices, while the result in nitrogen fell by 14.5% to $206m, largely down to an drop in urea values.

'An unpredictable business'

The results contrasted with ideas at PotashCorp, and other fertilizer groups, last year that farmers would ramp up fertilizer purchases to capitalise on high crop prices, lifted by weather-hit harvests in South America and the US.

However, the Canada-based group acknowledged on Thursday that "agriculture is inherently an unpredictable business", affected by factors from weather to government policy.

While rising crop prices "created an expectation that a surge in fertilizer demand – especially for phosphate and potash – was imminent… this failed to consider that our business is tied to growing seasons and does not necessarily move in lockstep with the rise and fall of commodity prices".

Mr Doyle said: "The only certainties in agriculture are that the world depends on farmers for food and that increased production is required to meet the demands of a growing population."

PotashCorp also cut its profits guidance in April last year, besides during 2009, as the world economic slowdown cut farmers' appetite for spending.

Recovery forecast

Nonetheless, PotashCorp maintained a forecast for a, delayed, fertilizer market revival, which will lift world potash shipments to 55m-57m tonnes this year, from the 2012 figure of 51m tonnes.

Potash imports by China will come in at 6.5m-7.0m tonnes, supported by efforts "to improve lagging crop yields", although purchases in India - the second-ranked importer, which has yet to agree fresh supply contracts - will remain relatively depressed at 3.5m-45m tonnes.

"While this would reflect an increase in potassium applications from recent levels, the agronomic risk of under-application continues to present a major barrier to improving yields in the long term," PotashCorp said.

The group forecast that its earnings per share in 2013 would reach $2.75-3.25 per share, compared with Wall Street expectations of a $3.19-a-share result.

For the current, January-to-March period, PotashCorp forecasts earnings of $0.50-0.65 per share, below the $0.67 per share expected by analysts.

PotashCorp shares eased 1.9% to close at Can$42.37 in Toronto.


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