Potash Falls as Forecast Trails Analysts’ Estimates

Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, fell the most in two months after a profit forecast trailed analysts’ estimates and it announced additional output cuts.

Potash Corp. declined 1.9 percent to C$42.37 at the close in Toronto, the most since Nov. 13.

First-quarter earnings will be 50 cents to 65 cents a share, the Saskatoon, Saskatchewan-based company said today in a statement. The average of 17 estimates compiled by Bloomberg was for 69 cents. The company said taxes will be higher in 2013 because of reduced capital spending. Fourth-quarter earnings and revenue also disappointed.

Potash Corp. announced in October and November the temporary idling of four mines amid faltering export volumes as China and India continued to hold off from signing new sales contracts. While China agreed to a new accord at the end of December, India has yet to agree on terms.

Potash Corp.’s “role as the key global swing producer often results in the company bearing a disproportionate amount of the burden when reduced global demand necessitates supply curtailments,” Don Carson, an analyst at Susquehanna International Group LLP in New York, said in a Jan. 28 note.

Photographer: Geoff Howe/Bloomberg

Sales of potash, a nutrient that helps strengthen plant roots and improve resistance to drought, generated 64 percent of the company’s gross profit in 2011, according to data compiled by Bloomberg. Close

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Photographer: Geoff Howe/Bloomberg

Sales of potash, a nutrient that helps strengthen plant roots and improve resistance to drought, generated 64 percent of the company’s gross profit in 2011, according to data compiled by Bloomberg.

Fourth-quarter net income dropped to $421 million, or 48 cents a share, from $683 million, or 78 cents, a year earlier. Profit excluding a provision for legal costs was 52 cents a share, missing the 57-cent average of 27 estimates.

Price Decline

Revenue fell to $1.64 billion from $1.87 billion, less than the $1.79 billion average of 18 estimates.

The fourth-quarter results and 2013 guidance are “fairly negative,” Adam Schatzker, a Toronto-based analyst at RBC Capital Markets, said in a note. “We expect global potash production will have to remain in check in order to maintain current prices.”

Potash helps strengthen plant roots and improve resistance to drought. Potash Corp. sold 1.3 million metric tons of the commodity in the last quarter, matching the average of three estimates. The average realized sales price of $387 a metric ton was lower than the $439 average of three estimates.

Potash sales volumes outside North America fell 37 percent while onshore sales rose 39 percent.

“Offshore volumes were worse than feared and North American sales were positive, but not as good as expected,” Spencer Churchill, a Toronto-based analyst at Paradigm Capital Inc., said today by telephone.

Global Forecast

Potash Corp. and its two biggest North American competitors, Mosaic Co. (MOS) and Agrium Inc. (AGU), said last month they agreed to sell 1 million tons of potash to China. They will sell the commodity for $70 a ton less than their previous accord with China, which ended June 30. Their last contract with India expired at the end of the first quarter of 2012.

Potash Corp. said today it expects global potash shipments of between 55 million and 57 million tons, up from 51 million tons in 2012.

While the commodity accounts for most of Potash Corp.’s earnings, the company also produces phosphate- and nitrogen- based fertilizers. Fourth-quarter earnings were hurt by weak export demand for phosphates, especially in India, which undermined prices. “Challenging mining conditions” at the company’s open-pit phosphate mine in Aurora, North Carolina, reduced output, Potash Corp. said.

“In phosphates, the expectation of strong demand for fertilizer products in the North American market is likely to be offset by the continued depression in Indian requirements and result in weaker fertilizer margins,” Potash Corp. said in the statement. Animal “feed and industrial demand is forecast to remain relatively strong.”

The company said yesterday it increased its quarterly dividend by 33 percent to 28 cents a share from 21 cents.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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