PotashCorp fourth-quarter profit drops, outlook falls short of estimates

SASKATOON – Potash Corp. of Saskatchewan (TSX:POT) says its fourth-quarter profit dropped to US$230 million — down 45 per cent from a year earlier as it took hits from lower fertilizer prices and downsizing.

The profit amounted to 26 cents per diluted share, including a US$60-million charge, or about five cents per share, for costs related to job cuts announced in December.

The Saskatoon-based company — which is one of the world’s largest producers of potash — announced in December that it would cut its workforce by about 18 per cent, affecting 1,045 people.

The results for the company, which keeps its books in U.S. dollars, compared with a profit of US$421 million or 48 cents per diluted share a year ago.

Overall sales revenue fell to US$1.54 billion from $1.64 billion in the fourth quarter of 2012, but was above the consensus estimate of $1.4 billion.

The company’s earnings were below analyst estimates of 31 cents per share, according to Thomson Reuters data.

The company’s guidance for the first quarter of 2014 was for a profit between 30 and 35 cents U.S. per share, also well below estimates.

“This past quarter was a difficult one,” PotashCorp CEO Bill Doyle said in a statement Thursday.

“Pricing headwinds — most notably in potash — weighed on our performance, although there were signs as the quarter came to a close that the uncertainty in global markets was beginning to abate.”

“Our focus remained on those things we can influence and we took important steps to enhance our competitive position across all three nutrients and prepare the company to deliver better performance.”

The company said Thursday that sales volumes were higher in the fourth quarter than in comparable periods, but that prices were lower for the potash, nitrogen and phosphate it sold.

BMO Capital Markets analyst Joel Jackson said the earnings results should put pressure on the company’s stock.

“We have been concerned that the 2014 consensus potash price/volume mix and earnings expectations have been overly optimistic and that the market has been overpaying for trough earnings,” Jackson wrote in a note to clients.

BMO rated PotashCorp a “market perform” with a US$30 price target on the stock.

PotashCorp shares closed down 69 cents at C$34.89 on the Toronto Stock Exchange on Thursday.

PotashCorp said in December it would cut 440 job cuts in Saskatchewan, 130 jobs in New Brunswick and more than 435 in the United States, particularly in Florida, to reduce costs.

It said in Thursday that the company is positioned to reduce its potash production costs by $15-20 per tonne from 2013 levels.

But it anticipates a $16-million increase in non-cash costs due to depreciation of its Penobsquis mine in New Brunswick and $54 million related to ramping up its Picadilly and Rocanville operations.

It’s outlook also foresees lower nitrogen profit margins while the phosphate business will likely keep margins at about 2013 levels.

“While the closure of one of our chemical plants at White Springs (in Florida) during the second half of 2014 will lower production slightly, the timing of the curtailment is unlikely to result in significant lost sales volumes for the year.”

“Our non-cash costs will be elevated in 2014 (estimated at $43 million) as we accelerate depreciation on assets impacted by our previously announced operational changes.”

Last week, Canpotex, the export partnership including PotashCorp, Agrium (TSX:AGU) and Mosiac, announced a deal for the supply of 700,000 metric tonnes of potash to Chinese company Sinochem Fertilizer Macao Commercial Offshore Ltd.

Financial terms of the sale were not available.