Potash cuts outlook,
Potash Corp. of Saskatchewan Inc. cut its full-year earnings outlook on Thursday due to increased Saskatchewan potash taxes and weaker-than-expected first quarter performance.
Nonetheless, chief executive Jochen Tilk tried to put a positive spin on the market conditions.
“Looking ahead, we are encouraged by the strength in global potash demand and see momentum accelerating through the second quarter, especially in offshore markets,” he said in a statement.
The 2015 guidance was reduced to between US$1.75 to US$2.05 a share, down from the prior level of US$1.90 to US$2.25. Potash Corp. said the recent tax increase announced by Premier Brad Wall’s government should cut profit by roughly seven cents a share this year, while lower prices, volumes, or shifts in the sales mix of its nutrient businesses should lower profit by an additional 10 cents.
The company’s first quarter earnings were US$370 million, or 44 cents a share. That was up nine per cent on the prior year’s result, but was well below the consensus analyst estimate of 55 cents.
Potash Corp., the world’s biggest fertilizer company, noted that potash demand eased slightly in the first quarter. A Chinese contract settlement took longer than expected, demand weakened in Brazil, and the spring planting season got off to a slow start in North America.
The company’s realized potash price in the first quarter was US$284 a tonne, far below the levels reached a couple of years ago. Prices have been stuck in a rut since mid-2013, when Russian producer OAO Uralkali dis- banded a cartel-like marketing group and sent the market into turmoil.
Nonetheless, Potash Corp. delivered a solid operating performance in its potash business, benefiting from higher production, higher realized prices and lower costs (largely due to the weakening Canadian dollar). Gross margin in the first quarter was US$428 million, up from US$300 million in the same period in 2014.
But the Saskatoon-based company had a rough quarter in its nitrogen unit, where it had some operational problems and faced weakening market conditions. Gross margin in that business dropped 24 per cent year over year to US$181 million.
The company expects potash fundamentals to improve in the second quarter now that the China contract is settled and spring planting is underway in the Northern Hemisphere. Potash Corp. said global potash shipments in 2015 should be at the upper end of its prior target of 58 to 60 million tonnes. The company also maintained its own production guidance of 9.2 to 9.7 million tonnes.
Potash Corp.’s provincial tax bill in Saskatchewan was US$95 million in the first quarter, a dramatic increase from US$54 million in the first quarter of 2014. In addition to the recent changes in Saskatchewan’s potash tax regime, a weaker Canadian dollar and stronger potash prices also affected the tax bill.
We see momentum accelerating
through the second quarter