PotashCorp Q2 net income down 27% on weaker potash, phosphate prices

LONDON (ICIS)–PotashCorp’s second-quarter net income fell by 27% year on year to $472m on the back of weaker prices for its potash and phosphates operations, the Canada-based fertilizer producer said on Thursday.

Sales for the quarter were $1.89bn, beating the company’s own guidance and representing a strong improvement on recent quarters, but down 12% from the same period in 2013, the company said. PotashCorp’s net income for the first quarter 2014 and fourth quarter 2013 stood at $340m and $230m respectively.

Second-quarter adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) was $868m compared to $1.1bn during the same period the previous year. The company noted a $55m earnings contribution from its stakes in Arab Potash Company, Israel Chemicals Ltd and Sociedad Quimica y Minera de Chile during the quarter.

“Performance in all three nutrient segments improved from the beginning of the year and resulted in our second-quarter earnings exceeding the upper end of our guidance range,” said PotashCorp CEO Jochen Tilk.

“ Although results were below those of the same period last year, an improving price environment and – in the case of our potash and nitrogen businesses – cost efficiencies contributed to our bottom line,” he added.

The company noted that product demand during the quarter kept North American producers’ operations and distribution networks running near full capacity, and that improving market fundamentals helped to drive stronger spot pricing trends.

However, potash prices, although stronger than during their nadir towards the end of 2014, remained “well below” second quarter 2013 prices, the company said. Analyst Moody’s forecasts average potash prices of $320-350/tonne, while Russia’s Uralkali predicts 56-58m tonnes of global demand for the material in 2014.

The company’s potash division gross margin for the quarter was $395m compared to $613m in the second quarter of 2013, despite relatively stable sales volumes during both periods. Average realised potash prices stood at around $263/tonne during the quarter, compred to $356/tonne in the second quarter of 2013

Nitrogen division gross margins jumped 10% year on year to $304m, the second-highest total for the business in PotashCorp’s history, despite slightly lower selling prices. The company attributed the increase to improved production levels across all facilities helping to push sales volumes to 1.7m tonnes, and improved demand for product from its US and Trinidad operations.

The phosphate division struggled with lower prices, reduced production and increased costs, leading division gross margin to nearly halve year on year to $48m, with short-term issues relating to weather, mining conditions and mechanical challenges dogging the business.

The sequentially-improved performance led PotashCorp to increase its financial forecasts for the year, to earnings per share of $1.70-1.90.