Potash Corp. POT posted a profit of $282 million or 34 cents per share in the third quarter of 2015, a roughly 11% fall from $317 million or 38 cents per share earned a year ago. Earnings per share missed the Zacks Consensus Estimate of 38 cents.
Revenues for the quarter (as adjusted) slipped 6.6% year over year to $1,401 million and missed the Zacks Consensus Estimate of $1,482 million.
Gross margin fell around 14.3% year over year to $505 million, in part, due to weaker contributions from the nitrogen business.
Potash Corporation Of Saskatchewan (POT) - Earnings Surprise | FindTheCompany
Segment Review
Potash: Potash gross margin was $294 million in the reported quarter, flat with the year-ago quarter. Net sales for the segment were $548 million, down 3.7% year over year. Shipments for the quarter were 2.2 million tons, driven mainly by offshore demand.
Average realized potash price was $250 per ton, down from $281 per ton from the year-ago quarter due to lower prices in North America and an increased percentage of sales volumes to lower-netback offshore markets. Cost of goods sold was $113 per ton in the third quarter, down 14% year over year, due to the positive impact of a weakened Canadian dollar and the deferral of annual maintenance at certain locations to fourth-quarter 2015.
Nitrogen: Net sales for the quarter were $462 million compared with $557 million in the year-ago quarter. Third-quarter gross margin was $161 million, 31% below the year-ago quarter due to weaker nitrogen prices and lower sales volumes. Lower demand, mechanical issues and a planned turnaround at the recently expanded Lima facility kept third-quarter sales volumes of 1.4 million tons, below the year-ago period.
Average realized prices for nitrogen products fell to $319 per ton from $356 per ton a year ago as lower energy prices and higher global supply hurt benchmark prices and realizations for all the company’s products.
Phosphate: Net sales were $416 million, up from $399 million in the year-ago quarter. Gross margin amounted to $50 million, lower from $61 million earned during the year-ago quarter as increased sales volumes and prices were more than offset by increased costs. Sales volumes of 0.8 million tons for the quarter were modestly above the year-ago period. Average realized phosphate price for the quarter was $538 per ton, up from $517 per ton realized in the year-ago quarter, mainly due to increased netbacks for liquid fertilizer products.
Financials
Potash Corp. ended the quarter with cash and cash equivalents of $73 million compared with $215 million as of Dec 31, 2014. Long-term debt was at $3,709 million as of Sep 30, 2015 compared with $3,216 million as of Dec 31, 2014. Cash from operating activities was $358 million in the third quarter compared with $574 million in the year-ago quarter.
Guidance
Potash Corp., which is among the top players in the fertilizer industry along with Agrium AGU, Mosaic MOS and CF Industries CF, said that it remains encouraged by the strong underlying consumption trends across most major potash markets. The company, however, cut its sales volume guidance to a range of 9-9.2 million tons and expects potash gross margin of $1.4-$1.5 billion, reflecting weaker volumes and pricing.
In order to match supply to demand, the company is accelerating the permanent closure date of its Penobsquis mine in New Brunswick to the end of Nov 2015. The move is expected to improve the company’s cost profile and help manage inventories.
The company also plans to take three-week inventory shutdowns at its Allan, Cory and Lanigan operations in Saskatchewan, starting in mid-Dec 2015. The combination of these shutdowns and the closure of Penobsquis are expected to reduce production by about 500,000 tons in the fourth quarter and lead to modestly higher per-ton cost of goods sold. The company, however, does not expect any impact on its employment levels at these locations.
Potash Corp. also lowered the top end of its earlier provided combined nitrogen and phosphate gross margin guidance range and now expects to generate the same in the band of $1- $1.1 billion.
In nitrogen, Potash Corp. expects total gross margin below last year's record as higher global supply is expected to keep prices for most products below year-ago levels. Moreover, weaker demand in North America, lower production due to mechanical challenges and an expansion-related turnaround at Lima are expected to keep sales volumes below 2014 levels.
In phosphate, supportive market fundamentals and the company’s higher-netback product mix are expected to keep gross margin above year-ago levels.
The company increased its estimate for provincial mining and other taxes to a range of 21%-23% of potash gross margin due to a weaker Canadian dollar and reduced deductible costs.
Potash Corp. lowered its expectations for income from offshore equity investments to $165-$175 million due to a weaker-than-expected potash earnings environment. It has increased its estimate for selling and administrative expenses to a range of $245-$250 million.
Factoring in the above changes, the company reduced its full-year 2015 earnings guidance to the range of $1.55-$1.65 per share from $1.75-$1.95 per share expected earlier.
Potash Corp. is a Zacks Rank #5 (Strong Sell) stock.
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Click to get this free report POTASH SASK (POT): Free Stock Analysis Report CF INDUS HLDGS (CF): Free Stock Analysis Report AGRIUM INC (AGU): Free Stock Analysis Report MOSAIC CO/THE (MOS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research