Potash Corp. Says Dividend Cut Allows Potential Deals, Buybacks

  • CEO Jochen Tilk says adding new projects also possible
  • Interest in K+S is now `history' as `markets have changed'

Potash Corp. of Saskatchewan Inc.’s decision to cut its dividend for the first time in 26 years gives the world’s largest fertilizer producer by market value more flexibility to pursue acquisitions and other options including share buybacks, Chief Executive Officer Jochen Tilk said.

The company announced the 34 percent reduction in its quarterly payout on Thursday as it posted weaker-than-expected earnings following a slide in crop-nutrient prices. The smaller dividend is more sustainable in the current economic environment and protects Potash Corp.’s investment-grade credit rating, Tilk said.

"We looked at it from a point of remaining flexible enough that we can contemplate other opportunities," he said on a conference call with analysts.

One of those opportunities could also include adding a new project that would generate a “great return," Tilk said in an interview. The company continues to evaluate its minority stakes in rival producers including Israel Chemicals Ltd. and Sociedad Quimica & Minera de Chile SA, but it has ended its pursuit of German rival K+S AG, he said. Potash Corp. abandoned its attempt to buy K+S for $8.8 billion in October, citing a lack of engagement from the company and weak commodity and equity markets.

"It’s history," Tilk said by phone Thursday. "Things have changed, the markets have changed and we have moved on to different things."

Earnings Disappoint

Potash Corp. investors will now get a quarterly dividend of 25 cents a share, the Saskatoon, Saskatchewan-based company said Thursday in a statement. Fourth-quarter net income fell to 24 cents a share from 49 cents a year earlier, missing the 30-cent average of 20 estimates compiled by Bloomberg. Sales dropped 29 percent to $1.35 billion, trailing the $1.39 billion average projection.

For 2016, it forecast earnings of 90 cents to $1.20 per share, including $35 million of first-quarter costs related to the closing of its Picadilly mine in New Brunswick. The average of analysts’ estimates was for profit of $1.32 a share. The shares closed 1.8 percent higher at $15.47 in New York Tuesday.

Potash prices on the U.S. spot market have tumbled 32 percent over the past 12 months, hitting an eight-year low. Increased production has combined with low corn and soybean prices, which have curbed farmer spending.

Spot prices for urea, a nitrogen-based fertilizer, have also declined following a drop in the price of natural gas, a raw material used to make the crop nutrient. Potash Corp. said its realized price for nitrogen fertilizer slid 29 percent in the fourth quarter, while potash prices declined 16 percent.

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