PotashCorp sales, profit slip in fourth quarter, miss analyst estimates

Slowdown in demand worse than usual.

Potash Corp. profits fell by 38 per cent in the fourth quarter, missing analyst expectations, as some international customers waited for sales contracts with China and India to be worked out before making a move.

The Saskatoon-based fertilizer giant’s net income was US$421 million, or 48 cents per share, in the last three months of 2012. Analysts surveyed by Thomson Reuters were, on average, expecting PotashCorp to post earnings of 57 cents per share.

During the same quarter of 2011, the Saskatoon-based company (TSX:POT) posted earnings of $683 million, or 78 cents per share.

“The deferral of new potash contracts with China and India resulted in fewer tonnes being shipped to those countries,” CEO Bill Doyle told analysts on a conference call Thursday.

“This delay affected the psychology of buyers in other offshore markets, with many waiting for greater visibility rather than re-engaging and securing supply in the absence of immediate need.”

Canpotex, which markets potash abroad on behalf of the major Saskatchewan producers, finally reached a deal with a major Chinese customer about a month ago to sell one million tonnes of the nutrient at a reduced price in 2013.

That should act as a “catalyst” for other Asian countries to come to the table, Doyle said.

But India remains an “enigma,” Doyle said, as the country desperately needs more fertilizers to help grow food for its huge population, but has not been in a hurry to snap up supply.

“Although we anticipate new contracts could be settled during the first quarter, the political challenges that affected demand during 2012 are unlikely improve significantly this year,” said Doyle.

India has been cutting fertilizer subsidies, making important nutrients less affordable for farmers there — a policy that appeared to anger Doyle on the call.

“When you look at the situation facing that country, India has 25 per cent of all the undernourished people in the world, it has one-third of all the undernourished children in the world. Their own Prime Minister (Manmohan) Singh has said it is a matter of national disgrace,” Doyle said.

“It really literally is penny-wise and pound foolish, when you think about all the children in need of nourishment in that country. They really need to address their food production issue. This is a very serious issue.”

Shipments to offshore markets declined by 43 per cent in the fourth quarter compared with a year earlier. However, domestic shipments in North America rose by 38 per cent.

The company expects global potash shipments in 2013 to be between 55 million and 57 million tonnes — well ahead of the 51 million tonnes it shipped last year.

“It’s hard not to like the stock here,” said Jeffrey Nelson, an analyst with Edward Jones in St. Louis, Mo.

The North American market is strengthening, the China contract could help bring India to the table and the company recently raised its quarterly dividend by a third, Nelson said.

“I think the longer-term outlook for the potash markets is pretty bright. I think we’re certainly going to bounce off of 2012 levels,” he said.

“The quarter was obviously a little bit weaker. You can argue that that’s backward looking.”

Revenue for the quarter was $1.64 billion, down from $1.86 billion a year earlier.

Also Thursday, the company provided earnings estimates for the first quarter of 2013 and the full year, calling for between 50 and 65 cents per share in the three months ending March 31 and between $2.75 and$3.25 per share for the full year.

The consensus estimate has been for 64 cents per share of earnings in the first quarter and $3.27 per share of net earnings for all of 2013.

Potash was also one of three companies — along with Calgary-based Agrium (TSX:AGU) and Minnesota-based Mosaic Co. (NYSE:MOS) to settle U.S. antitrust suits filed in 2008.

Potash and Mosaic each agreed to pay $43.75 million and Agrium agreed to pay $10 million.

The three fertilizer companies deny any wrongdoing and say they decided to settle to avoid the cost and distraction of a protracted legal fight.

Potash’s results included a $41 million, or four-cent per share, provision for the settlement in the fourth-quarter results.

Potash shares were down 68 cents, or 1.57 per cent, at $42.51 in late afternoon trading Thursday on the Toronto Stock Exchange.