Shares of Potash Corp. POT slipped to a 52-week low of $18.82 last Friday, before closing the day modestly higher at $18.94. The fertilizer maker has seen its shares decimate roughly 42% so far this year. The stock is also down around 10% over a month.
What's Weighing on POT?
Potash Corp.’s profit fell in the third quarter of 2015, hurt by lower potash and nitrogen prices. Earnings missed the Zacks Consensus Estimate. Sales also fell year over year and trailed expectations. The company slashed its earnings guidance for 2015 and also lowered its full-year sales volume forecast for potash. The company also trimmed its expectations for income from offshore equity investments due to a weaker-than-expected potash earnings environment.
Potash Corp., in its third-quarter call, also disclosed its plans to take three-week inventory shutdowns at its Allan, Cory and Lanigan operations in Saskatchewan, starting in mid-Dec 2015. The combination of these shutdowns and the closure of Penobsquis are expected to reduce production by about 500,000 tons in the fourth quarter and lead to modestly higher per-ton cost of goods sold.
Potash Corp. is faced with macroeconomic uncertainties and other issues such as price volatility and currency exchange fluctuation. Softness across certain developing markets is affecting the global outlook. Depressed crop pricing has created an uncertainty on potash consumption. Moreover, a challenging currency environment coupled with economic weakness has contributed to a sluggish demand environment for potash across certain emerging markets.
The company also remains exposed to a volatile pricing environment. Potash pricing is expected to remain under pressure in the near term. Higher supply, reduced global energy prices and modestly softer agricultural fundamentals have contributed to a more tempered nitrogen pricing environment this year. Weak pricing is expected to lead to lower nitrogen margin in 2015.
Moreover, nitrogen sales volumes are expected to be lower this year on a year-over-year basis due to weaker demand in North America, lower production as a result of mechanical challenges and an expansion-related turnaround.
Potash Corp. also faces earnings headwinds from tax changes. The amendments to potash taxation in conjunction with the government of Saskatchewan's 2015-16 provincial budget are expected to reduce the company's 2015 pre-tax earnings.
Potash Corp. is a Zacks Rank #4 (Sell).
Stocks to Consider
Better-ranked companies in the basic materials sector include Innospec Inc. IOSP, Celanese Corporation CE and The Dow Chemical Company DOW. While Innospec and Celanese hold a Zacks Rank #1 (Strong Buy), Dow retains a Zacks Rank #2 (Buy).
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