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PotashCorp Q1 earnings hit by weak demand

Fertilizer giant PotashCorp of Saskatchewan (NYSE:POT)(TSE:POT) Thursday posted a 33 percent drop in earnings due to lower sales and production volumes.

The company also trimmed its view on global potash demand for 2012 and lowered forecasts on its own shipments and profit margins.

PotashCorp said first-quarter earnings fell to $491 million, or 56 cents per share, from $732 million, or 84 cents a share, a year earlier. Earnings failed to meet Wall Street's expectations of 63 cents per share, according to Thomson Reuters.

Revenue fell to $1.75 billion from $2.2 billion a year earlier.

"Fertilizer buyers continued to move cautiously at the beginning of the year, especially with potash purchases," PotashCorp chief executive Bill Doyle said.

"Although we anticipated that an increase in global fertilizer purchasing would not take hold until the latter half of the first quarter, it took longer than we expected for demand to emerge."

Doyle said he expected the acceleration in potash demand to continue through the rest of the year.

The company said that while potash prices had escaped the volatility seen in products made from other nutrients like phosphate and nitrogen, they had pulled back slightly on limited demand and increased competitive pressures during the quarter.

First-quarter sales volumes of 1.2 million tonnes fell below the record 2.8 million tonnes sold in the same quarter last year as the average realized potash price was up 19 percent at $435 per tonne.

Phosphate sales volumes totaled 0.9 million tonnes, up slightly from last year's first quarter with average realized phosphate prices climbing 9 percent to $607 per tonne.

For nitrogen, sales volumes of 1.3 million tonnes were slightly below the same period last year, largely as a result of reduced
production at Geismar. Average realized prices for nitrogen products rose to $383 per tonne, 4 percent above the same period last year.

In terms of market conditions, PotashCorp said buyers in all major potash markets were slow to commit to new purchases through most of the first quarter. Shipments from North American producers reflected this pause, declining 48 percent from the record level of last year's first quarter.

While underlying consumption at the farm level was expected to be strong globally, most dealers chose to defer major purchasing decisions rather than build inventory.

In North America, distributors felt little pressure to act quickly in light of elevated producer inventories and greater availability of offshore product. Offshore buyers slowed purchasing in the absence of new Chinese potash supply contracts and the deferral of shipments to India for previously contracted volumes with global suppliers.

PotashCorp now expects total global potash demand to be in the 53 million to 56 million tonne range in 2012, with its own sales volumes in the range of 8.8 million to 9.2 million tonnes. In January, it had forecast global sales of 55 million to 58 million tonnes, with its own shipments in the 9.2 million to 10 million tonne range.

The company also said it expects 2012 gross margins from its potash business to be $2.6 billion to $2.9 billion. It had previously expected gross margins to be in the $2.9 billion to $3.3 billion range.

Other players in the potash and fertilizer space include Mosaic (NYSE:MOS), Allana Potash (TSE:AAA) and Western Potash (TSE:WPX).