Potash Corp. cuts profit forecast
Potash Corp. of Saskatchewan Inc. slashed its dividend and its earnings guidance on Thursday as it continues to struggle with weak fertilizer prices.
Neither move came as a shock to investors given the poor market conditions. However, the cuts were very significant. The Saskatoon-based company reduced its 2016 earnings forecast to between 40 and 55 cents US a share, far below the prior level of 60 to 80 cents US. The quarterly dividend was cut a whopping 60 per cent, bringing it to 10 cents US a share.
The second-quarter earnings were also much weaker than expected. Potash Corp. reported a profit of $121 million US, or 10 cents US a share after stripping out one-time items. That is well below the consensus analyst estimate of 19 cents US.
The struggles were most notable in the potash business. The company said its realized potash selling price was a mere $154 US a tonne in the second quarter, down from $273 US in the same period a year ago. The potash market has faced heavy uncertainty this year due to delays in contract settlements with China and India, which were only recently settled.
Despite the rough market conditions, chief executive Jochen Tilk maintained that better days are ahead.
“Fertilizer markets have been under pressure through the first six months of 2016, however we believe the uncertainty that weighed on potash market sentiment is now lifting and a recovery is beginning,” he said in a statement.
“With key Asian contract prices settled by a number of producers — and buyer inventories at reduced levels — we are seeing improved engagement in all key markets.”
Tilk urged patience, pointing out that Potash Corp. has taken “meaningful” steps to reduce costs. Most notably, the company shuttered its New Brunswick operation earlier this year.
He also said Potash Corp. remains committed to paying a “competitive” dividend. Prior to Thursday’s announcement, the company had a relatively high payout ratio throughout 2016, as it was hopeful the potash market would recover more quickly than it did.
Potash Corp. is convinced the potash market has finally reached its “low point.” Despite the difficult conditions, the company expects global potash shipments of 58 to 61 million tonnes this year, which would be among the highest level ever. It thinks shipments could reach 61 to 64 million tonnes in 2017, which would be a record year. It was also dragged down by weak prices for nitrogen and phosphate, its other two key products.