Potash Corp's (POT) Q3 Earnings Miss, Narrows Guidance

Potash Corporation of Saskatchewan Inc. POT reported earnings of $53 million or 6 cents per share in third-quarter 2017, down from $81 million or 10 cents it earned a year ago. 

Barring one-time items, adjusted earnings were at 9 cents per share for the third quarter, which missed the Zacks Consensus Estimate of 12 cents.

Potash Corp.'s adjusted net sales were $1,062 million that beat the Zacks Consensus Estimate of $1,011 million.

Segment Review

Potash: Potash gross margin was $254 million in the reported quarter, up from $106 million in the year-ago period due to increased prices, higher offshore sales volumes and reduced per ton costs. Sales volumes for the segment were 2.9 million tons, up 16% year over year from 2.5 million tons. Average realized potash price was $179 per ton, up from the year-ago quarter figure of $150, reflecting improving prices in all markets.

Nitrogen: Gross margin was $21 million in the reported quarter, down from $69 million in the year-ago quarter due to weaker prices. Sales volumes for the quarter were 1.6 million tons, which almost remained flat compared to previous-year quarter. Average realized price of $168 per ton during the quarter was down from the year-ago quarter figure of $200. The decline was due to lower realizations for nitrogen and ammonia solutions.

Phosphate: Sales volumes rose 5% year over year to 0.8 million tons, while the company witnessed negative gross margin of $45 million for the quarter as against a gross margin of $15 million in the year-ago quarter. The results were affected by weak prices and non-cash impairment charges. Average realized phosphate price for the quarter was $365 per ton, down from $385 per ton recorded in the year-ago period owing to lower prices of feed and industrial products.

Financials

Potash Corp.’s cash and cash equivalents were $97 million as of Sep 30, 2017 compared with $143 million as of Sep 30, 2016. As of Sep 30, 2017, long-term debt was $3,709 million, slightly up from the year-ago figure of $3,707 million.

Guidance

Potash Corp. expects strong customer engagement in all key potash markets and strong demand to continue into 2018. For 2017, the company anticipates global shipment at 62-65 million tons, with total shipments in North America to approach higher end of 9.3-9.8 million tons range.   

Potash Corp. expects nutrient affordability to continue to drive strong consumption in China, while the demand environment in India is improving, supported by favorable monsoon, higher minimum support price and considerable agronomic need.     

The company expects nitrogen market to remain volatile in the fourth quarter and market fundamentals are likely to remain challenging for phosphates.

Potash Corp. has narrowed full-year 2017 earnings expectations to the range of 48-54 cents per share, which includes merger related charges of 8 cents per share. The company has revised total potash sales volume guidance and now expects sales in the range of 9.1-9.3 million tons (narrowed from 9-9.4 million tons) in 2017. It projects potash gross margin of $750-$800 million for the year.

Capital expenditures for the year are projected at roughly $600 million.

Potash Corp. expects combined gross margin for nitrogen and phosphate in the band of $140-$190 million for 2017.

Price Performance

Potash Corp.’s shares have moved up 8.5% in the last three months underperforming the 14.7% growth recorded by its industry.

 

 

Zacks Rank & Key Picks

Potash Corp.currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Huntsman Corporation HUN, FMC Corporation FMC and Westlake Chemical Corporation WLK. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Huntsman has an expected long-term earnings growth rate of 7%.

FMC has an expected long-term earnings growth rate of 11.3%.

Westlake Chemical has an expected long-term earnings growth rate of 8.3%.

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