Potash Corp. of Saskatchewan, Inc. (POT) posted earnings of 38 cents per share in the third quarter of 2014, down 7.3% from 41 cents per share earned a year ago. Earnings also missed the Zacks Consensus Estimate of 42 cents.
Higher taxes weighed on the bottom line. The company recorded $156 million in income tax expenses in the reported quarter versus $116 million logged a year ago. Reduced income from offshore investments also dented the results.
Revenues for the quarter increased roughly 8% year over year to $1,641 million, beating the Zacks Consensus Estimate of $1,494 million.
Gross margin rose 21.7% to $589 million in the quarter from $484 million recorded in the comparable prior-year period.
Segment Review
Potash: Sales volumes increased 29% year over year and came in at 2million tons in the reported quarter. Sales volumes in North America rose 9% year over year due to continued strength. In North America, demand at the farm level was very strong through the spring planting season. Offshore sales volumes were up 45% year over year. Average realized potash price was $281 per ton, down 8.5% from $307 per ton in the prior-year quarter due to lower offshore price.
Nitrogen: Sales volumes rose 8% to 1.5 million tons from third-quarter 2013, benefiting from improved production levels across all facilities which offset losses from gas curtailments in Trinidad. Higher sales volumes and strong price realizations led to gross margin of $233 million, up 30.9% year over year. Average realized prices for nitrogen products increased 6% to $356 per ton due to higher benchmark prices contributing to higher realizations for ammonia fertilizer products.
Phosphate: Sales volumes of 0.7 million tons was down 21% year over year owing to reduced production and increased costs. Lower sales pulled down the gross margin 21.8% to $61 million year over year. Average realized phosphate price, however, rose 10.7% year over year to $517 per ton as a large proportion of production was allocated to higher-netback feed and industrial products.
Financials
Potash Corp. exited the third quarter with cash and cash equivalents of $152 million, down 72.6% year over year. Long-term debt rose roughly 8.2% year over year to $3,212 million.
Cash flow from operating activities for the reported quarter was down 7% from the year ago quarter to $574 million.
Guidance
Potash Corp., which is among the prominent players in the fertilizer industry, along with Agrium Inc. (AGU), increased its annual gross margin estimates for potash for 2014 to $1.3–$1.4 billion (from $1.2–$1.4 billion) and annual sales volumes to 9.0–9.2 million tons (from 8.9–9.2 million tons).
The company also raised its 2014 global potash shipment expectations to 58-60 million tons from its earlier view of 56.5-58 million tons.
For nitrogen, the company expects nitrogen fundamentals to remain strong, especially for ammonia for the rest of 2014. Even with gas supply restrictions at the company’s Trinidad facility, Potash Corp. expects higher sales in nitrogen, leading to record gross margin in 2014.
For phosphate, the company expects stable markets keeping its sales volumes at lower levels in the fourth quarter compared to the year-ago quarter due to the closing of its Suwannee River chemical plant. The combined gross margin for nitrogen and phosphate is expected in the range of $1.2–$1.3 billion.
The company revised its income from offshore investments for 2014 to a range of $205-$215 million. For 2014, the company expects earnings to be in the range of $1.75 to $1.85 per share, which has been narrowed from $1.70-$1.90 per share expected earlier.
Potash Corp. is a Zacks Rank #2 (Buy) stock.
Some other stocks worth considering in the basic materials sector include Intrepid Potash, Inc. (IPI) and Globe Specialty Metals, Inc. (GSM), both carrying a Zacks Rank #2 (Buy).
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