Potash’s Second Quarter Earnings Spur Optimism

- August 4th, 2010

The second-half results of the major potash producers have been streaming in over the past few weeks. An important signpost to the health of the sector, all companies reported that sales volumes increased rapidly in this half, especially when compared to the second half of 2009.

By Leia Michele Toovey- Exclusive to Potash Investing News

Life The second- half results of the major potash producers have been streaming in over the past few weeks.  An important signpost to the health of the sector, all companies reported that sales volumes increased rapidly in this half, especially when compared to the second half of 2009.  Despite stellar sales volumes, potash prices are lagging, with many analysts still questioning the overall health of the potash market.

The world’s largest potash producer, Potash Corp. of Saskatchewan (NYSE:POT) boosted guidance for 2010 earnings after a continuing recovery in fertilizer demand allowed it to more than double second-quarter profits. The potash producer earned $472 million or $1.55 a share in the second quarter, better than the company’s forecast for $1 to $1.30 a share and well ahead of analysts’ estimates of $1.19 a share. In the midst of the recession in the same period last year,  Potash’s earnings totaled $186 million or 61 cents a share.  For this half, sales jumped to $1.44 billion from $856 million. Analysts were expecting $1.4 billion. Company management boosted guidance, and is now expecting earnings of $5.00 to $5.50 for the year and Q3 EPS of $0.80 to $1.20 a share.  Previous guidance was $4.50 to $5.25 for the year.

Mosaic Company  (NYSE:MOS) has reported that net income more than doubled, and can be directly correlated with higher sales volumes. “Prospects for the agricultural sector are positive,” President Jim Prokopanko said in a statement. Potash sales hit $696.5 million, whereas phosphate sales were unchanged at $1.2 billion. Mosaic reported net income of $396.1 million, or 89 cents per share, for the three months ended May 31. That’s up from $146.9 million, or 33 cents per share, in the same period last year. Revenue rose 17 percent to $1.86 billion.

The most recent results were posted by Agrium Inc. (NYSE: AGU) just this past Wednesday. In the second quarter, potash sales volumes surged over eight times from last year, while second-quarter net earnings increased to $506 million from $370 million in the same quarter. On a per share basis, earnings topped from $2.35. Net sales exceeded expectations, increasing to $4.367 billion from last year’s $4.090 billion. They were expected to be $4.18 billion. Commenting on the results, Agrium’s President & CEO Mike Wilson said, “Agrium delivered excellent second quarter results, the second highest in our history. This was particularly impressive given the record level of unseeded acreage in Western Canada and excessive moisture conditions in the U.S. Corn Belt in late spring. Looking ahead, Agrium said strong agricultural fundamentals should support the outlook for all crop inputs in the second half of 2010. The company expects North American crop nutrient demand to be strong in the second half at both the grower and retail level, due to firming crop prices as well as weather induced constraints on nutrient application.

We have been hearing the potash producers talk all year about how potash is a “sure thing” because the world “has to eat” and that we are running out of arable land.  Despite all of this evidence, the price of the mineral has failed to make a strong recovery; especially, when you compare it to the other recession hit commodities, such as copper.

So, what is in store for the potash sector?  In a statement on their website, Potash Corp’s Director of Agronomy Kim Polizotto commented, “With improved economics, fertilizer use looks to be returning to near normal rates for the 2010 crop year.” At the same time, Mr. Polizotto admitted that he did not have the answers to the market’s long term outlook.  Last week, Goldman Sachs issued their projections of a near term recovery, and then a retreat around 2013-2014 when new supply is set to come online.

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