Potash Cuts Dividend and Lowers Full-Year Profit Forecast

  • Company to cut dividend to 10 cents a share from 25 cents
  • Fertilizer prices slid amid weak demand and increased output

Potash Corp., the world’s second-largest producer of its namesake fertilizer, cut its dividend for the second time this year and lowered its full-year profit forecast after crop-nutrient prices declined.

Quarterly payments to shareholders will drop to 10 cents a share from 25 cents, the company based in Saskatoon, Saskatchewan, Canada, said Thursday in a statement. Potash Corp. sees full-year earnings at 40 cents to 55 cents, down from an April forecast of 60 cents to 80 cents. The shares slid 7.2 percent.

The company has been beleaguered by a slump in agricultural commodities that lowered farmer spending and came at a time when production of potash was on the rise, keeping fertilizer prices depressed. Buyers in India and China also delayed signing contracts for supplies, damping demand. Recently settled contracts in Asia coupled with declining inventories will help demand to recover and create a more “constructive environment” in the second half of 2016, Potash Corp. said.

“We see a more constructive environment moving forward,” Chief Executive Officer Jochen Tilk said on an earnings call. “With China and India beginning to take deliveries, the uncertainty that weighed on the market sentiment is lifting and a recovery is beginning.”

Supply Cuts

The lowered dividend cut comes after a reduction in January, which was the first time the company cut its quarterly dividend since its 1989 initial public offering. Also that month, Potash Corp. idled one of its mines in response to the oversupply and announced it would curtail production at two facilities.

Potash Corp. tumbled 7.2 percent to close at $15.91 in New York. The stock has slumped 42 percent in the past 12 months.

For the second quarter, the company reported adjusted profit of 18 cents a share. The company said it expects third-quarter earnings at 5 cents to 10 cents, trailing the average analyst estimate of 15 cents.

The recovery process “requires patience,” Tilk said. Still, the company sees the potential for record demand in 2017 as lower prices encourage farmers to buy crop nutrients. Potash Corp. is poised to benefit from an improved environment next year and the company supports Canpotex Ltd.’s cautious approach to the Chinese and Indian markets, committing volumes only through the remainder of 2016, Tilk said. The Canadian joint venture represents export sales from Potash Corp., Mosaic Co. and Agrium Inc.

India Accord

Belarusian Potash Co. said last month it agreed to supply potash to India at a price that while was historically low, still exceeded previous estimates and indicated renewed demand for the crop nutrient. The contract may prompt further deals for other suppliers, RBC Capital Markets analyst Andrew Wong said in a report July 12. The more concentrated market structure could help prices from falling significantly below marginal cost and potash prices will probably improve in 2017, he said.

While Potash plans to lower its dividend to protect its balance sheet, improved fundamentals may lead to higher volumes and stable prices, S&P Global analyst Christopher Muir said in a note on Thursday.

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