Potash Corp. of Saskatchewan sets new quarterly record

Record demand for potash and the sale of the Moab mine in Utah translated into an exceptional first quarter for Potash Corp. of Saskatchewan (POT-T).

Earnings in the three months ended March 31 topped $71.6 million (or $1.04 per share) — a new record for the quarter. Sales revenue was $590.6 million, compares with $549.3 million in the corresponding period of 1999, when $39.5 million (73 per share) was earned. Fueling the recent period was a one-time gain of $16.3 million from the sale of the potash operation and an early and favourable spring for fertilizer application.

PSC’s gross margin (net sales minus costs of goods sold) was 10% higher in the recent period, at $133.7 million. The potash division contributed 70% of that total; the phosphate division, 20%; and the nitrogen division, 10%. On a revenue basis, those respective sectors accounted for 31%, 35% and 34% of the period’s total.

Cash flow from operations was $129.4 million, or 29% more than a year ago.

Also noteworthy was a 25% decline in selling and administrative costs, owing primarily to lower amortization of goodwill and cost containment. Consequently, operating income was 44% higher quarter-over-quarter.

PCS now operates five potash mines in Saskatchewan and one in New Brunswick, and provides ore from one of its Saskatchewan deposits to a joint-venture with the Canadian arm of IMC Global (IGL-N). PCS is the largest publicly held miner of such material and ranks as the largest fertilizer enterprise. Three primary nutrients are produced: potash, nitrogen and phosphate.

During the recent period, the potash mines cranked out a record 2.2 million tonnes, or 28% more than a year ago. Production was buoyed by record shipments abroad, especially to China, and a 9% increase to North American customers.

In its phosphate business, PCS produced 523,701 tonnes of P205, compared with 535,059 tonnes a year ago. Also down were selling prices, which, in turn, resulted in a 40% decline in the sector’s gross margin. On a brighter note, units costs declined 5%.

Nitrogen-product sales were off 5% between the first quarters of 2000 and 1999, to 2.01 million tonnes. The reduction, particularly for ammonia, is attributed to temporary and permanent shutdowns of various plants in the second half of 1999. However, this did result in decreased supply to the market, which, combined with higher demand, raised nitrogen prices by 26%. Consequently, sector profits were up significantly.

During the quarter, PCS continued to re-orient its P2O5 into non-fertilizer products. Towards this end, the company has: purchased a phosphate feed plant in Brazil; received board approval for the construction of a new feed plant at Aurora to make it a low-cost producer of DFP (a feed supplement for poultry); and nabbed the remaining half of Albright & Wilson Co., since renamed PCS Purified Phosphates, which produces purified phosporhic acid for industrial use. The Albright deal, which included proprietary technology, cost $42 million to complete and is expected to generate another $12 million in annual earnings before interest, taxes, depreciation and amortization.

On March 31, PCS’s debt-to-capital ratio, exclusive of operating leases, was 31.7%, virtually unchanged since the year’s start. If operating leases are included, the ratio rises to 40.1%.