Potash Corp of Saskatchewan Inc.’s (POT) earnings of 73 cents per share in the second quarter of 2013 missed the Zacks Consensus Estimate of 82 cents, but was up from 60 cents reported in the second quarter of 2012. The company posted a profit of $643 million in the reported quarter, up roughly 23% from $522 million recorded a year ago.
Sales came in at $2,144 million in the quarter, down 10.5% from $2,396 million registered a year ago and missed the Zacks Consensus Estimate of $2,230 million. Highly competitive markets impacted the results during the quarter.
Gross margin for the quarter declined 24% to $1 billion due to weak performance by all the three nutrients.
Segment Review
Potash: Sales volumes of 2.5 million tons in the reported quarter were down 2.3% from 2.6 million tons in the year-ago quarter. Demand for potash remained strong in North America, while offshore demand decreased during the quarter. Production declined by 5% to 2.7 million tons as the company operated its Lanigan facility at reduced rates to match production to demand.
Average realized potash price was $356 per ton, down 17.8% from the prior-year quarter due to competitive pressures moving contract and weaker pot market pricing.
Nitrogen: Sales volumes of 1.4 million tons were ahead of the year-ago sales volume of 1.3 million tons. Restart of ammonia capacity at Geismar led to the increased sales which were partially offset by lower production at Trinidad due to natural gas curtailments. Average realized prices for nitrogen products decreased 6.9% to $406 per ton due to sharp decline in urea prices.
Phosphate: Sales volumes of 0.9 million tons were flat year-over-year. Average realized phosphate price was $517 per ton, down 6.3% year over year, attributed to decline in prices for fertilizer products. Lower costs for sulfur, a primary material in the production of phosphate products, further improved the results, partly offset by higher ammonia costs.
Financial Condition
Cash and cash equivalents amounted to $630 million as of Jun 30, 2013, compared with $491 million as of Jun 30, 2012. Long-term debt was $2,968 million versus $3,464 million a year ago.
Dividend
During the second quarter, Potash Corp. announced an increase in the company's quarterly cash dividend from 28 cents per share to 35 cents per share. The company remains committed to enhancing returns for its shareholders.
Outlook
Potash Corp., which is among the prominent players in the fertilizer industry along with CF Industries Holdings, Inc. (CF), CVR Partners, LP (UAN) and Agrium Inc. (AGU), expects earnings for the third quarter and full-year 2013 in the range of 45 cents to 60 cents per share and $2.45 to $2.70 per share, respectively.
Potash Corp. expects gross profits from its potash business in the range of $1.8 billion to $2.1 billion in 2013. The company reiterated its expectation for shipments in the range of 8.5-9.2 million tons in 2013.
Potash Corp. expects the gross margin for nitrogen segment to reach record levels in 2013 due to favorable cost variances that will offset lower prices. Despite weakness in global phosphate fertilizer prices, the company expects gross margin to remain relatively stable through the balance of 2013. Potash Corp. expects nitrogen and phosphate business to contribute combined gross margin of $1.3-$1.5 billion for 2013.
Capital expenditures for the year are anticipated to be about $1.5 billion and income from offshore investments is expected to be in the range of $320-$340 million.
Potash Corp. currently retains a Zacks Rank #5 (Strong Sell).
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