Potash Corp. of Saskatchewan (POT-T, POT-N) has more than doubled its third-quarter profits compared to one year earlier, on the back of rising demand for fertilizer products despite global economic concerns.
The fertilizer giant reported earnings of US94¢ per share, or US$826 million, compared to US38¢ per share, or US$343 million, earned in the same period last year.
This marks the second-highest third quarter for the company after 2008, noted PotashCorp’s president and CEO Bill Doyle on an Oct. 27 conference call. Demand for the company’s potash, phosphate and nitrogen products remained strong amidst troubling macroeconomic events.
“These are uncertain economic times. Debt issues in several European countries and questions about global growth rate have caused many investors to reassess risk. The impact was evident in commodity markets, as prices for a number of key global crops fluctuated during our third quarter,” Doyle says. “Despite this volatility, crop prices remained at historic high levels and farmers continued to strive for increased production to capitalize on economic opportunity in agriculture.”
In the face of rising prices, which reflect tight supply and demand fundamentals, demand for PotashCorp’s products grew. The company’s CEO explains that this is especially true of potash, with the company’s shipment increasing by 14% this quarter compared to the same period last year. September had record monthly volumes.
During the quarter, PotashCorp reported a gross margin of US$1.1 billion – US$700 million of which came from potash. The figure is double the amount generated a year ago.
Potash production also came in at a record 1.9 million tonnes for the quarter.
Doyle opines that the company will continue to deliver results based on long-term trends and population growth, riding out the economic valleys.
“It’s like watching the ocean: the waves breaking on the surface draw all the attention, but it’s the current beneath the water that determines the direction. We know that global population will continue to increase, especially in Asia and Latin America,” he says, adding this should bring in more demand for fertilizers.
He also says crop prices are not immune to the economic climate, but that agriculture commodities have held their value much better in recent times than other commodities, such as base metals.
In spite of the decent quarter, PotashCorp has kept its full-year earnings guidance at US$3.40 to US$3.80 per share. This implies that the fourth quarter may be “slightly weaker” than expected, Dahlman Rose analyst Charles Neivert said in a research note, predicting that some investors may be “disappointed” by this, given the better pricing environment.
Nievert also notes that the company cut its 2011 potash gross margin estimate by US$100 million to a range of US$2.8 to $US3.1 billion, while increasing its phosphate and nitrogen gross margin by US$100 million to a range of US$1.4 to US$1.7 billion.
On the third-quarter news, PotashCorp rose 2% to $50.85 a share, and in New York jumped 3.5% to US$51.31 apiece.
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