PotashCorp ups 2014 earnings forecast

Potash Corp. of Saskatchewan (TSX: POT; NYSE: POT) has upped its full-year earnings guidance for the second time this year after a better-than-expected second-quarter profit of US$472 million.

Adjusted earnings per share were US56¢, beating analysts’ estimates of 46¢ and the company’s US40¢ to US45¢ forecast, but trailed the US73¢ per share earned in the same period last year.

“At [US]56¢ per share, our earnings for the quarter surpassed the upper end of our April guidance range. Most notably we had better than anticipated results in potash and nitrogen,” company CEO Jochen Tilk, who took over in July, said on a conference call.

Gross profits from the company’s three segments — potash, nitrogen and phosphate—totalled US$747 million, up from the previous quarter’s US$565 million, but down 24% from a year ago.

Of that total, US$395 million came from potash; US$304 million from nitrogen, which was the second-highest gross margin for nitrogen to date; and US$48 million from phosphate.

While the margin in each segment has fallen year-over-year, they are up from the first quarter.

The Saskatoon-based fertilizer giant reported improved fundamentals for potash, with demand and shipments picking up.

PotashCorp sold 2.5 million tonnes of potash, which is up from the previous quarter’s 2.3 million tonnes, but relatively flat compared to the year earlier.

The average realized potash price increased for the first quarter since early 2012, moving up US$13 per tonne to US$263.

The company says the boost owed to “improving market fundamentals through the first half — most notably in granular markets in North America and Brazil.”

BMO Nesbitt Burns analyst Joel Jackson writes that the second quarter was a “great” one for PotashCorp and the global fertilizer industry, “which restocked potash across [the first half] after a poor [second-half 2013], as prices remain $50 to $75 per tonne lower year-over-year.”

PotashCorp expects more restocking for the rest of 2014. It points to strong demand — particularly in North America and Brazil — and improvements in China and India.

PotashCorp says China would need 12 million tonnes this year. Canpotex, Agrium (TSX: AGU; NYSE: AGU) and Mosaic (NYSE: MOS) will ship 1.2 million tonnes this year to China’s Sinofert Holdings Ltd.

Total annual shipments to India should reach 3.5 million to 4 million tonnes, surpassing last year’s levels.

Given the improved outlook for the second half, PotashCorp has hiked up its 2014 potash shipment guidance to 8.9 million to 9.2 million tonnes, from 8.3 million to 8.7 million tonnes in April.

Commenting on the 500,000-tonne increase in shipment guidance, BMO’s Jackson believes 200,000 tonnes is attributable to China, 200,000 to Brazil and 100,000 to North America.

PotashCorp has hiked up its global guidance for all potash companies to 56.6 million to 58 million tonnes, from 55 million to 57 million tonnes.

The company forecasts third-quarter earnings of US35¢ to 45¢ and has bumped up its annual earnings forecast to US$1.70 to US$1.90, from $1.50 to $1.80 per share.

PotashCorp also brought down its potash cash costs to US$91 per tonne, in a 10% improvement from a year ago.

Jackson says the company appears on track to cut its per-tonne potash cash costs by US$15 to US$20 from US$112 per tonne in 2013. He says costs would average US$92 per tonne in the second half. 

During the quarter, PotashCorp wrapped up its US$2-billion share buyback program. It repurchased 43.3 million shares at an average price of US$34 per share.