Potash Corp. Cuts Profit Forecast Amid Weaker Fertilizer Demand

Besides speeding up the permanent closure of its Penobsquis mine in New Brunswick to the end of next month, the company says it plans three-week temporary shutdowns at three of its mines in Saskatchewan during the month of December. In my view, new lows are possible for potash prices. (POT,POT.TO) Thursday announced a drop in earnings for the third-quarter on weaker fertilizer environment and lower net sales.

In August, we closed the acquisition of our 9.5 percent stake in Brazil-based Fertilizantes Heringer S.A. and entered into a long-term potash supply agreement with the company.

Potash Corp. (NYSE: POT) shares have been under serious pressure due to the weak outlook for fertilizer prices.

Revenue from sales of potash, nitrogen and phosphates and related fertilizer products or services fell to US$1.53 billion from US$1.64 billion. In my recent article on Potash Corp. Prices for the former fell in the quarter while those for the latter rose. “Only then do we foresee the opportunity for a bottoming of price declines”. In its report, the company stated that it was “encouraged” by the consumptions trends in China and India. Average realized nitrogen price was $319 per ton in the third quarter, compared to $334 per ton in the second quarter. This is not great for Potash Corp.as potash’s gross margin is bigger than gross margin of nitrogen and phosphate segments combined.

Taking a step further, investors can take into consideration growth of the company’s earnings by looking at its PEG ratio, or the Price/Earnings Growth ratio.

In New Brunswick, the company says its newer Picadilly mine is still ramping up to full capacity. Previous earnings guidance was in a range of $1.75 to $1.95 per share. In phosphate, supportive market fundamentals and our higher-netback product mix are expected to support gross margin above 2014 levels.

Other annual guidance numbers – including those noted above – are outlined in the table below.