19:41:54 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



Potash Corp of Saskatchewan Inc
Symbol POT
Shares Issued 829,594,245
Close 2014-10-22 C$ 36.88
Market Cap C$ 30,595,435,756
Recent Sedar Documents

Potash Corp. earns $317-million (U.S.) in Q3 2014

2014-10-23 06:35 ET - News Release

Mr. Jochen Tilk reports

POTASHCORP REPORTS THIRD-QUARTER EARNINGS OF $0.38 PER SHARE

Potash Corp. of Saskatchewan Inc. had third-quarter earnings of 38 cents per share ($317-million), bringing the company's total for the first nine months of 2014 to $1.33 per share ($1.1-billion). (All currency amounts are in U.S. dollars, unless otherwise indicated.) Although potash and nitrogen performance improved over last year's third quarter, higher tax expenses and weaker contributions from offshore equity investments weighed on results. On a comparative basis, both the quarterly and nine-month amounts trailed last year's totals of 41 cents per share ($356-million) and $1.77 per share ($1.6-billion), respectively.

Key highlights:

  • Earnings of 38 cents per share for third quarter 2014; nine-month total of $1.33 per share;
  • Third-quarter cash provided by operating activities of $574-million;
  • Higher potash sales volumes for both the quarter and first nine months;
  • Improved potash realizations (up $18 per tonne from second quarter 2014);
  • Record nine-month nitrogen gross margin of $776-million;
  • Full-year guidance now $1.75 to $1.85 per share; previous range $1.70 to $1.90 per share.

Gross margin increased to $589-million, significantly exceeding the $484-million generated during third quarter 2013. For the first nine months, gross margin of $1.9-billion trailed the $2.3-billion earned in the same period last year -- largely the result of lower potash prices and weaker phosphate performance.

Cash from operating activities for both the quarter ($574-million) and first nine months ($1.9-billion) were below last year's comparative period amounts ($616-million and $2.6-billion). With declining capital expenditures, free cash flow for both periods surpassed 2013 totals.

Lower contributions from the company's offshore investments were the result of reduced potash earnings at these companies. The company's investments in Arab Potash Company in Jordan, Israel Chemicals Ltd. in Israel and Sociedad Quimica y Minera de Chile S.A. in Chile contributed $24-million to the company's third-quarter earnings and brought the nine-month total to $179-million. These amounts were well below the 2013 comparative period totals of $85-million and $251-million, respectively -- with the nine-month total including a dividend from Sinofert Holdings Ltd. in China. The market value of the company's investments in all four of these publicly traded companies equated to approximately $4-billion, or $5 per Potash share, at market close on Oct. 22, 2014.

"We continue to see encouraging signs in each of our major potash markets with a renewal of demand translating into higher sales volumes," said Potash president and chief executive officer Jochen Tilk. "Furthermore, we experienced another quarter of improved potash pricing trends, which strengthened our earnings. Combined with internal efforts to optimize our operations, these positive developments mark important steps toward a stronger performance for our company."

Market conditions

Unlike 2013, when global potash demand stalled due to market uncertainty, this year's third quarter saw all key markets engaged. This shift was most significant offshore, with greater demand in Asian and Latin American markets leading to higher shipments from North American producers. Purchasing activity in North America remained healthy as dealers worked to position product in advance of anticipated fall requirements.

Global potash shipments through the first nine months of 2014 were at all-time highs. During the third quarter, typical maintenance downtime further tightened market fundamentals and resulted in prices moving higher in all major spot markets.

In nitrogen, strong global demand and supply constraints in key exporting countries led to higher prices for ammonia. Improved fundamentals contributed to higher prices for urea and UAN products compared to the prior year, although greater supply availability in urea caused prices to show signs of seasonal softness as the quarter came to a close. Similarly, phosphate prices for third quarter 2014 were stronger relative to the previous year, given healthier demand and the influence of higher input and production costs.

Potash

Increased sales volumes raised the company's third-quarter potash gross margin to $295-million, above the $228-million earned in 2013's same period. Given that realized prices were higher through the first six months of 2013, the company's nine-month gross margin total of $990-million trailed the $1.3-billion earned during the comparative period last year.

The company's sales volumes continued to outpace prior-year levels, with total shipments of two million tonnes for the quarter and 6.8 million tonnes for the first nine months exceeding the comparative periods by 29 per cent and 8 per cent, respectively. For the quarter, the rebound was most pronounced offshore where sales volumes were up 45 per cent as the comparative period in 2013 saw significantly more volatility and uncertainty there than in the North American market. The majority of Canpotex shipments were to other Asian countries (38 per cent) and Latin America (32 per cent), while India and China accounted for 14 per cent and 9 per cent, respectively. In North America, sales volumes increased 9 per cent from last year's comparative period as customers took deliveries in anticipation of strong farmer demand to replenish crop nutrients following an expected record harvest.

The company's average realized potash price for the quarter was $281 per tonne, trailing the $307 per tonne realized in last year's third quarter. This decrease was the result of lower offshore prices as the sharp decline through the final half of 2013 had yet to be fully reflected in prior-period results. A greater proportion of sales to lower-priced offshore markets also had a negative impact.

Improved operational efficiencies from the company's work force realignment, as well as higher production levels and a weaker Canadian dollar, contributed to lower per-tonne cost of goods sold. While costs reflected the usual seasonal increase due to the company's maintenance turnarounds, they improved by $28 per tonne relative to the comparative period in 2013 and $16 per tonne through the first nine months of 2014.

Nitrogen

In nitrogen, higher sales volumes and strong price realizations raised gross margin for the quarter to $233-million. This surpassed the $178-million generated during the same period last year, raising the company's total for the first nine months of 2014 to $776-million -- the highest in the company's history.

Improved production levels across all nitrogen facilities more than offset losses from gas curtailments in Trinidad and raised third-quarter sales volumes to 1.5 million tonnes, 8 per cent above third quarter 2013. Nine-month totals reached 4.8 million tonnes, exceeding the comparable period last year by 10 per cent.

With key benchmark pricing at higher levels, the company's average realized price for this year's third quarter ($356 per tonne) increased 6 per cent relative to the same period in 2013.

Cost of goods sold for the quarter was $209 per tonne, relatively flat compared with the same period last year, as efficiencies from increased production more than offset higher natural gas costs.

Phosphate

In phosphate, third-quarter and nine-month gross margin totals of $61-million and $135-million trailed the $78-million and $260-million earned during the respective periods in 2013. Reduced production and increased costs (including approximately $20-million in notable charges during this year's third quarter) weighed on the company's results in this nutrient.

The closure in July of the company's Suwannee River chemical plant, combined with mechanical challenges at the company's White Springs facility, constrained the number of tonnes available for sale. The company's total third-quarter sales volumes were 700,000 tonnes, 21 per cent below the comparative period total in 2013, with production largely shifting away from certain lower-margin fertilizer products. For the first nine months, sales volumes of 2.3 million tonnes were below the 2.7 million tonnes sold in 2013.

The company's average realized phosphate price for third quarter 2014 was $517 per tonne, exceeding the $467 per tonne in last year's same period. This increase was largely due to a greater proportion of the company's production being allocated to higher-netback feed and industrial products, in addition to improved prices for the company's fertilizer products because of better market fundamentals.

Third-quarter cost of goods sold of $437 per tonne was higher than the $384 per tonne during 2013's same period. Lower production levels coupled with unfavourable adjustments to asset retirement obligations ($4-million), higher water treatment costs due to excessive rainfall ($8-million) and accelerated depreciation charges related to the closure of Suwannee River ($5-million) were the primary factors.

Financial

Provincial mining and other taxes for the quarter totalled $52-million, well above the $10-million recorded in third quarter 2013, which reflected significant adjustments to forecasted annual potash production tax accruals given the rapidly changing market environment.

With a higher effective tax rate related to different income weightings between jurisdictions and certain discrete tax adjustments, the $156-million income tax expense for the quarter significantly exceeded the $116-million recognized in 2013's comparable period.

Market outlook

Moving into the fourth quarter, the company continues to see strong customer engagement in all key potash markets. The company anticipates global shipments will surpass the upper end of the company's previous guidance, and now forecasts totals for 2014 to be in the range of 58 million to 60 million tonnes. While recent weakness in crop prices is expected to result in some reduction to global crop acreage, the company believes potash remains an affordable and necessary investment for growers as they look to offset lower prices by enhancing yields.

In North America, the fall application season is under way and product demand remains strong. Given what the company believes are especially low potash inventories throughout the North American supply chain, distributors are actively positioning product in advance of anticipated needs. Even though dealers are taking these steps, the company forecasts that sales volumes will slow through the fourth quarter, with the majority of Potash's shipments fulfilling previously committed summer-fill tonnes.

In Latin America, product for the key planting season is now largely in place and the company believes buyers have shifted their focus to Safrinha crop requirements. Although customers continue to secure potash tonnage, the company expects shipments to this region will begin to reflect the typical seasonal slowdown as the end of the year approaches. Even with this expected slowdown, the company believes annual Latin American demand will again establish a record.

In both China and India the company has seen encouraging potash consumption trends, including increased demand for compound fertilizers with higher potassium content. Canpotex continues to deliver product to both markets under previous commitments and the company anticipates shipments will remain strong during the final quarter of 2014.

Potash demand in other Asian countries (outside of China and India) remains healthy. Stronger demand for standard product through the second half of 2014 has translated into higher transacted prices in recent tenders and is expected to be reflected in the company's realized prices in early 2015.

Financial outlook

As a result of these market conditions, the company has increased its estimate for potash annual sales volumes to nine million to 9.2 million tonnes. Fourth-quarter shipments are expected to be heavily weighted toward offshore contract markets and to result in lower average realizations. The company now anticipates potash gross margin will approximate $1.3-billion to $1.4-billion.

The company expects robust nitrogen fundamentals, especially for ammonia, will continue through the balance of the year. While gas supply restrictions at the company's Trinidad facility are now anticipated to exceed the company's previous estimates, sales volumes are expected to outpace previous-year levels and result in record nitrogen gross margin in 2014. In phosphate, the company anticipates relatively stable markets through the balance of the year. The company's sales volumes are expected to remain below those of fourth-quarter 2013 with the closure of the company's Suwannee River chemical plant. Given these considerations, the company now forecasts its 2014 combined nitrogen and phosphate gross margin will be in the range of $1.2-billion to $1.3-billion.

The company has revised its annual estimate for income from offshore investments to a range of $205-million to $215-million to better align with projected earnings and associated tax changes in Chile and Israel. The Chilean tax change is also expected to impact the company's annual effective tax rate, which is now anticipated to be in the range of 27 to 29 per cent.

Based on these factors, the company now expects its annual earnings range to be $1.75 to $1.85 per share. Other guidance numbers remain unchanged.

                       2014 ANNUAL GUIDANCE

Potash sales volumes               9.0 million to 9.2 million tonnes
Potash gross margin                     $1.3-billion to $1.4-billion   
Nitrogen and phosphate gross margin     $1.2-billion to $1.3-billion   
Capital expenditures                                    $1.1-billion     
Effective tax rate                                 27 to 29 per cent     
Provincial mining and other taxes*                 16 to 18 per cent     
Selling and administrative expenses     $235-million to $245-million   
Finance costs                           $175-million to $185-million   
Income from offshore investments**      $205-million to $215-million   
Earnings per share                                    $1.75 to $1.85      

* As a percentage of potash gross margin
** Includes income from dividends and share of equity earnings

Conclusion

"The potash market has exhibited strong growth this year, challenging global supply and logistics," said Mr. Tilk. "We are working to ensure we have the flexibility to respond to potash demand in 2015 -- which we expect to be another strong year. As we look ahead, our management team is focused on enhancing the position and potential of Potash Corp. for the many stakeholders depending on our ongoing success."

Potash will host a conference call on Thursday, Oct. 23, 2014, at 1 p.m. Eastern Time.

Telephone conference

Dial-in numbers

From Canada and the United States:  1-877-881-1303

From elsewhere:  1-412-902-6719

Live webcast:  visit the company's website

Webcast participants can submit questions to management on-line from their audio player pop-up window.

                              CONDENSED CONSOLIDATED STATEMENTS OF INCOME                               
                         (in millions of U.S. dollars except per share amounts)                     

                                                            Three months ended         Nine months ended    
                                                                      Sept. 30,                 Sept. 30,       
                                                             2014         2013         2014         2013    
                                                                                                        
Sales                                                 $     1,641  $     1,520  $     5,213  $     5,764
Freight, transportation and distribution                     (141)        (139)        (465)        (435)
Cost of goods sold                                           (911)        (897)      (2,847)      (2,999)
                                                      ------------ ------------ ------------ ------------
Gross margin                                                  589          484        1,901        2,330
Selling and administrative expenses                           (49)         (48)        (172)        (165)
Provincial mining and other taxes                             (52)         (10)        (175)        (154)
Share of earnings of equity-accounted investees                20           57           85          174
Dividend income                                                 7           31          100           85
Impairment of available-for-sale investment                     -            -          (38)           -
Other income (expenses)                                         5           (9)          36          (21)
                                                      ------------ ------------ ------------ ------------
Operating income                                              520          505        1,737        2,249
Finance costs                                                 (47)         (33)        (142)        (107)
                                                      ------------ ------------ ------------ ------------
Income before income taxes                                    473          472        1,595        2,142
Income taxes                                                 (156)        (116)        (466)        (587)
                                                      ------------ ------------ ------------ ------------
Net income                                            $       317  $       356  $     1,129  $     1,555
                                                      ============ ============ ============ ============
Net income per share                                                                                    
Basic                                                 $      0.38  $      0.41  $      1.34  $      1.80
Diluted                                                      0.38         0.41         1.33         1.77
Dividends declared per share                                 0.35         0.35         1.05         0.98

We seek Safe Harbor.

© 2024 Canjex Publishing Ltd. All rights reserved.