Potash Corp cuts 2016 profit forecast, dividend seen at risk

By Rod Nickel and Arathy S Nair

(Reuters) - Canada's Potash Corp of Saskatchewan (Toronto:POT.TO - News), the world's biggest fertilizer company by capacity, cut its full-year profit forecast due to weak demand and lower prices on Thursday, raising concerns of another dividend cut.

The company in January cut its dividend by 34 percent to $1 on an annual basis. BMO analyst Joel Jackson said the dividend looked at risk of further reduction as it represents 143 percent of forecast profit this year.

U.S.-listed shares of Potash (NYSE:POT - News) fell 2 percent to $17.87 after the company posted an 80 percent plunge in first-quarter profit.

Near term, cutting the dividend may be the best option, although Potash should weigh alternatives, such as selling stakes in other fertilizer companies, said Ryan Bushell, portfolio manager at Leon Frazer & Associates, which owns shares.

"Long-term, we're not fans of companies that cut dividends to appease pressure," he said. "We're fans of companies that stick to their discipline."

Potash owns stakes in China’s Sinofert Holdings Ltd (HKSE:0297.HK - News), Israel Chemicals (Tel Aviv:ICL.TA - News), Arab Potash Co PLC (:APOT.AM) and Chile’s SQM (SQMa.SN), worth a combined $4 billion. The company's cash flow may increase next year after finishing expansion of a Saskatchewan mine.

Despite bleak current conditions, improving economic factors such as expected Chinese stimulus spending bodes well for a commodity rebound, Bushell said, adding that Potash is "weathering the storm" well by cutting production.

Potash prices have plunged over the past year due to overcapacity and weak currencies in major consumers such as India and Brazil.

The company cut its 2016 earnings forecast to a range of 60 to 80 cents per share from 90 cents to $1.20.

Analysts expected 90 cents per share, according to Thomson Reuters I/B/E/S.

"The guidance cut is deeper than anticipated, with the lower-half of the range meshing in our view with uber bear expectations," Jackson said.

The company forecast second-quarter profit of 15 to 25 cents per share, below the average estimate of 27 cents.

"Lower prices for all nutrients weighed on our performance for the quarter and contributed to a more subdued outlook for the year," Chief Executive Jochen Tilk said in a statement.

Weak demand and increasing competition pressured potash prices in North America while a lack of new contracts in China and India limited global deliveries, the company said.

Net earnings fell to $75 million, or 9 cents per share in the quarter from $370 million, or 44 cents per share, a year earlier.

Revenue fell 27.4 percent to $1.21 billion.

(Reporting by Rod Nickel in Winnipeg, Manitoba and Arathy S Nair in Bengaluru; Editing by Maju Samuel, Shounak Dasgupta and W Simon)