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PotashCorp cuts profits hopes as 'weaker environment' bites

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PotashCorp warned over a "weaker fertilizer environment" as it cut its forecast for earnings and potash sales, and unveiled production cutbacks which will lower volumes by nearly 500,000 tonnes in the current quarter.

PotashCorp ditched hopes of a rise in earnings this year, cutting its forecast to $1.55-1.65 per share from previous guidance of $1.75-1.95 per share, putting the group on course for its worst results since 2009, when the world financial crisis sent fertilizer demand tumbling.

The downgrade reflected weakened potash market expectations, with the group, saying that world industry volumes no longer looked like reaching the "approximately 60m tonnes" it had previously guided to.

The group lowered its forecasts for world industry potash sales in 2015 in China, India and, in particular, North America, where volumes will come in at 8.5m-9.0m tonnes, below the 9.0m-9.5m tonnes previously expected.

"Cautious buying patterns" in North America "are expected to keep total potash shipments for this year below 2014 levels", the Canadian-based group said.

Potash shutdowns

The group cut hopes for its own potash sales this year to 9.0m-9.2m tonnes, from previous guidance of 9.3m-9.6m tonnes.

Gross margin in the division was now seen coming in at $1.4bn-1.5bn for the full year, below the figure of $1.5bn-1.7bn previously expected, "reflecting weaker volumes and pricing".

The $250 a tonne that the group achieved for its potash in North America in the July-to-September quarter matched the lowest since the last three months of 2007.

PotashCorp said that it was bringing forward to next week the closure of its Penobsquis mine in the province of New Brunswick, with capacity for 800,000 tonnes a year, "to improve out cost profile and help manage inventories", and preparing three-week shutdowns at three Saskatchewan mines too.

"The combination of these shutdowns and the closure of Penobsquis is expected to reduce [October-to-December] quarter production by nearly 500,000 tonnes."

'Weaker fertilizer environment'

"Broader emerging market concerns have weighed on customer sentiment, contributing to a weaker fertilizer environment in the second half of 2015," said Jochen Tilk, the PotashCorp chief executive, acknowledging "challenges over recent months".

The group also trimmed expectations for nitrogen and phosphate margins this year.

And as an extra blow to earnings hopes, the group said that its provincial tax rate would rise to about 21-23% of gross margin, compared with a previous estimate of 20-22%, with the weaker Canadian dollar inflating the returns in local terms of US dollar-denominated fertilizers.

Nonetheless, Mr Tilk held out hopes of improvement, saying that "we are seeing signs of a shift in focus by distributors and farmers to 2016.

"We believe the need for increased global agricultural production – coupled with supportive crop prices – provides a compelling opportunity for farmers."

Short of Wall Street hopes

The group's revised earnings guidance put it on course to fall short of Wall Street expectations of a $1.73-a-share result.

PotashCorp also announced earnings for the July-to-September period which - in dropping 11% to $282m, or the equivalent of $0.34 per share - fell short of the $0.37 per share that investors had forecast.

Sales in latest quarter fell by 6.8% to $1.53bn.

The results represent the first since PotashCorp walked away from a bid for peer K+S, citing "challenging macroeconomic condition" and a "lack of engagement" by managers at its German-based target.

They also follow a series of setbacks in other markets, such as agrichemicals and machinery, which rely on farmer buying, which has been curtailed by the knock-on effects of lower crop prices.

PotashCorp shares stood 3.1% lower at $20.65 in morning deals in New York.

By Agrimoney.com

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