Potash Corp. paints bleak outlook for market

Full-year earnings down, profits dip 74% despite recovery in prices

After reporting a 74 per cent decline in annual profits last year as potash prices hover around a decade low, Potash Corporation of Saskatchewan Inc. warned investors that despite a rebound in potash prices, its bottom line will likely take longer to recover.

The Saskatoon-based company, which reports in U.S. dollars, reported preliminary full-year earnings of US$336 million, or 40 cents per share, down from US$1.3 billion or US$1.52 per share reported in 2015.

It forecast 2017 full-year earnings of between 35 and 55 cents per share, including costs of about five cents per share related to its proposed US$26 billion merger with Agrium Inc. PotashCorp expects to sell between 8.7-9.4 million tonnes, slightly higher than the 8.6 million tonnes it sold in 2016 and anticipates more balanced market fundamentals.

CEO Jochen Tilk said he believes a potash recovery is taking place and expects positive pricing trends in the market to continue into 2017. However, he is more cautious about the outlook for phosphate and nitrogen. He sees demand fundamentals improving in China, Latin America and India over the next year.

“Importantly, we have taken steps to optimize our world class potash assets maintain our market responsive approach and protect our balance sheet,” he told investors on a conference call. “We do this to ensure we can be both successful and opportunistic in any market conditions and most importantly best positioned for growth as demand for our products continues to rise.”

The world’s biggest fertilizer company’s full-year earnings outlook of between US40 and 60 cents per share is below analysts’ consensus estimate of about 62 U.S. cents per share, excluding the merger costs.

“Given the shares recent recovery we think some investors may be disappointed,” Citi analyst P.J. Juvekar wrote in a note. “We continue to see fertilizer markets as challenged in the coming year as new supply ramps up and farmers keep a tight lid on expenses.”

Potash prices have languished around US$200 per tonne for the past year — from their highs of US$900 around 2008 — amid excessive global supply, but have started to regain some ground.