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PotashCorp Q1 earnings rise as it lifts outlook on improving crop nutrient fundamentals

27th April 2017

By: Henry Lazenby

Creamer Media Deputy Editor: North America

     

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VANCOUVER (miningweekly.com) – The world’s largest crop nutrient company Potash Corporation of Saskatchewan surprised investors with a bigger-than-expected first-quarter profit Thursday and increased its full-year earnings guidance, underpinned by increased sales and lower costs.

PotashCorp Potash reported earnings of $149-million, or $0.18 a share, nearly double that $75-million, or $0.09 a share reported for the comparable period of 2016, and beating average Wall Street analyst forecasts calling for earnings of $0.11 a share.

Gross margin for the quarter was $268-million, improving upon the $234-million generated in the first quarter of 2016, mainly owing to lower cost of goods sold for all three main crop nutrients and increased potash sales volumes that more than offset weaker phosphate prices. Similarly, cash from operating activities of $223-million exceeded 2016’s first-quarter amount of $188-million.

“Potash market fundamentals continued to improve in the first quarter, creating a supportive earnings environment. We expect improved consumption trends and nutrient affordability in key markets to support potash demand and our results through the remainder of 2017,” president and CEO Jochen Tilk stated.

Despite revenues being down 8% year-over-year at $1.12-billion, PotashCorp stated that nutrient affordability and lower inventories led to consistent buyer engagement in potash during the first quarter. Deliveries increased to most major markets and contributed to modest increases in global spot prices from fourth-quarter 2016 levels.

First-quarter potash sales volumes of 2.2-million tonnes were well above the 1.8-million tonnes sold in the same period last year. While North American volumes were 10% higher, offshore shipments increased by 31% on the back of stronger demand in all key markets. Most Canpotex’s volumes for the quarter were sold to other Asian markets outside of China and India (36%) and Latin America (24%), while China and India accounted for 20% and 11%, respectively.

Despite a continued recovery in global spot prices during the first quarter, PotashCorp’s average realised potash price of $166/t was below the $178/t realised in 2016’s first quarter, as weaker prices in standard-grade markets more than offset higher prices in North America.

Increased output from PotashCorp’s lower-cost mines – including Rocanville – resulted in average manufactured cost of goods sold for the quarter of $90/t, down from $128/t in the same period last year, when the company incurred suspension-related costs at Picadilly.

The miner reported the ramp-up of the Rocanville expansion is well underway and on track to reduce company-wide potash cost of goods sold further by about $10/t this year.

Strong demand is expected to continue through the remainder of the year and PotashCorp maintained its global shipments estimate of 61-million to 64-million tonnes for 2017, above the about 60-million tonnes shipped in 2016, and expect supportive market fundamentals through the balance of this year.

PotashCorp has raised the bottom end of its guidance ranges for potash sales volumes and gross margin to 8.9-million to 9.4-million tonnes and $600-million to $800-million, respectively.

As a result, the company further increased the full-year 2017 earnings guidance to a range of $0.45 and $0.65 a share, including merger-related costs of $0.05 a share.

Meanwhile, the company reported that lower urea exports from China were offset by increased supply from other regions and limited demand from India, leading to a softer pricing environment, especially late in the quarter. Urea prices in the US were further pressured by large offshore imports during the quarter. Ammonia was more resilient as supply issues in key exporting regions supported a more constructive pricing environment.

Phosphate markets were supported by strong demand in much of the Western Hemisphere, supply constraints in key producing regions and rising costs for key inputs. Spot prices for most phosphate fertilizer products strengthened from those realized late in 2016, but remained well below that year’s first quarter. Prices for feed and industrial products continued to trend lower in the first quarter and remained below prior-year levels, due primarily to increased supply from offshore producers.

Further, PotasCorp said it was making good progress on its “merger of equals” with Agrium Inc that will see the creation of a new $36-billion entity. Tilk stated that the companies continue to work through the regulatory process in key jurisdictions and remain confident the transaction will close mid-2017.

“Our integration teams are working hard to position the combined company for growth – including achievement of our synergy targets – and to ensure we can create value for all our stakeholders,” said Tilk.

Edited by Creamer Media Reporter

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