Potash Corporation of Saskatchewan Inc. (POT) earned 84 cents per share in the first quarter of 2011, outperforming the Zacks Consensus Estimate of 80 cents per share. Earnings increased 71% from last year’s 49 cents per share.
Quarterly sales shot up 28.6% to $2,204 million from $1,714 million in the first quarter of 2010 and outpaced the Zacks Consensus Estimate of $1,981 million.
Segment Review:
Potash: The segment was the star performer in the first quarter, producing 50% ($1,109 million) of total revenue fueled by strong demand — particularly from Latin America and Asian countries outside of China and India.
Total offshore shipments from North American producers were a record of 3.0 million tons, 28% above the first quarter of 2010. Domestic shipments from North American producers remained robust at 2.4 million tons in the first quarter.
Sales volumes of 2.8 million tons were the second-highest quarterly total in the history of Potash and increased 13% year over year. Average realized price increased by $45 per ton from the prior-year quarter to $366 per tonne.
Higher prices and sales volumes increased the gross margin by 40% to $743 million.
Phosphate: Segment revenues increased 36.9% to $549 million with sales volumes of 0.9 million tons, almost flat compared to the same period last year. However, average realized phosphate prices for the first quarter was $559 per ton, up 33% year over year.
Prices for liquid and solid fertilizers were up 49% and 44% respectively. Feed and Industrial prices also increased 23% and 21% respectively. Gross margins more than doubled to $150 million versus $64 million in the year ago quarter.
Nitrogen: Revenues in the segment jumped 29.7% to $546 million driven by higher prices across all products led by improved agricultural and industrial demand. Nitrogen, Ammonia and Urea prices escalated 32%, 38% and 19% respectively. Sales volumes were high particularly for Nitrogen solutions with Ammonia volumes improving modestly.
Nitrogen volumes were 1.3 million tons, relatively flat compared with the same quarter last year. Ammonia volumes rose 20% as a greater percentage of the production was allocated to ammonia to meet strong industrial and agricultural demand, limiting production of downstream products. Urea experienced some softness on rising supplies, but demand and pricing began to firm by the end of the quarter.
Nitrogen gross margin climbed to $203 million an increase of 50% versus the prior year quarter of 2010. The company’s Trinidad operation contributed $118 million in gross margin, while its US operations delivered $85 million.
Financial
Cash and cash equivalent amounted to $473 million as of March 31, 2011 versus $412 million at the end of December 31, 2010. Long-term debt stood at $3.7 billion the same as on December 31, 2010.
Outlook
Potash Corp. expects second-quarter net income to be in the range of $0.70 to $0.90 per share, with full-year 2011 earnings in the range of $3.00 to $3.40 per share. The company anticipates selling and administration expenses to be slightly higher than 2010 levels and finance costs for 2011 to approximate $150-$160 million.
The demand for potash is on the rise due to increasing crop nutrient requirements and keeping this in mind Potash expects 2011 global potash demand of 55-60 million tons and expects potash segment gross margin to be between $2.7 billion and $2.9 billion and total shipments within the range of 9.6-10.0 million tons.
Strong agricultural demand and higher phosphate rock and phosphoric acid prices, markets for processed phosphate products are likely to remain strong throughout 2011, although rising ammonia and sulfur prices may limit upside margin potential. The company also forecasts strong sales volumes and prices for nitrogen products and expects combined 2011 gross margin for phosphate and nitrogen segments to be in the range of $1.1 billion to $1.3 billion.
In order to meet the rising demand for potash from fertilizer buyers, the company has been investing in new operational capability and very recently completed the construction of the first portion of a two-phase expansion at its Cory facility and is ramping up its new production.
Potash expects to complete major projects at New Brunswick and Allan in 2012 and its largest project, at Rocanville, by 2014, with new production from all its expansion projects by 2015. Cumulatively, these projects are expected to raise the operational capability to an estimated 17.1 million tonnes annually, an increase of more than 50% from 2011 levels.
The Potash Corporation of Saskatchewan Inc., a Canadian corporation based in Saskatoon, Saskatchewan, is the world’s largest fertilizer enterprise producing three primary plant nutrients – potash, phosphate andnitrogen.
The company competes with BASF (BASFY) and Mosaic Co. (MOS).
We currently maintain a Zacks #3 Rank (short-term Hold recommendation) on Potash and a long-term Neutral recommendation.
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POTASH SASK (POT): Free Stock Analysis Report
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