Shares of Potash Corporation of Saskatchewan Inc. POT hit a new 52-week low of $23.57 on Sep 21 and eventually closed modestly higher at $23.70. Year-to-date, Potash Corp's shares have recorded a negative return of around 30.54%.
Factors to Consider
Potash Corp.’s profit fell year over year in the second quarter of 2015, hurt by lower nitrogen prices. Earnings also trailed the Zacks Consensus Estimate. The company cut the top end of its earnings guidance range for 2015 factoring in pricing pressure and weak nitrogen market fundamentals.
Potash Corp. remains affected by macroeconomic uncertainties and is exposed to other issues such as price volatility and currency exchange fluctuation. Sluggishness across certain developing markets is affecting the global outlook. Moreover, expected reduction in planted acres for corn in North America coupled with depressed crop pricing has created uncertainty about potash consumption in 2015.
The company also remains exposed to a volatile pricing environment. Potash pricing is expected to remain under pressure moving ahead. Higher supply, reduced global energy prices and modestly softer agricultural fundamentals are also expected to contribute to a more tempered nitrogen pricing environment this year. Weak pricing is expected to lead to lower nitrogen margin in 2015. Moreover, nitrogen sales volumes are likely to remain under pressure due to curtailment of natural gas supplies by the Trinidad and Tobago government.
Furthermore, Potash Corp. faces earnings headwinds from tax changes. The amendments to potash taxation in conjunction with the government of Saskatchewan's 2015-16 provincial budget are expected to reduce the company's 2015 pre-tax earnings by C$75-$100 million (roughly $59-79 million). Changes in timing of deduction for expansion and maintenance spending in Saskatchewan will significantly impact earnings in 2015 and to a lesser extent in 2016 as the company winds down its capital expansion projects and incurs increased maintenance capital spending as a result of these expansions.
Potash Corp. and other fertilizers and agricultural chemicals makers face challenges following the exit of world's largest potash maker Uralkali Group from one of the biggest potash cartels – the Belarus Potash Company (BPC). Uralkali’s board decided to end export sales through BPC and direct all potash export through its Switzerland-based trade arm Uralkali Trading. BPC is one of the two largest cartels (along with North America’s Canpotex) that influence potash pricing by controlling production and supply. Uralkali’s game-changing move has put pressure on potash prices as well as on fertilizer makers.
Potash Corp. currently carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Some better-ranked companies in the fertilizer sector include CVR Partners, LP UAN, Rentech Nitrogen Partners, L.P. RNF and The Scotts Miracle-Gro Company SMG. While CVR Partners and Rentech Nitrogen Partners sport a Zacks Rank #1 (Strong Buy), Scotts Miracle-Gro carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report POTASH SASK (POT): Free Stock Analysis Report SCOTTS MIRCL-GR (SMG): Free Stock Analysis Report RENTECH NITROGN (RNF): Free Stock Analysis Report CVR PARTNERS LP (UAN): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research