PotashCorp reports record 2Q earnings; N & P step up to offset K shortfall

Potash Corp. of Saskatchewan Inc. posted record second quarter earnings for the quarter ending June 30, 2006. Net income was $175.1 million ($1.65 per diluted share) on sales of $928.7 million, up from the year-ago $164.2 million ($1.46 per share) and $1.057.3 billion. Likewise, the first half also saw record earnings of $300.6 million ($2.84 per unit) on sales of $1.790.3 billion, versus the year-ago $295.5 million ($2.61 per unit) and $1.978.7 billion.

PotashCorp President and CEO Bill Doyle noted that while the company has a “potash first” strategy, it is not a “potash only” strategy, as strong positive results from other business segments offset a shortfall in potash volumes. Stepping up to boost results were the company’s nitrogen and phosphate businesses, as well as offshore investments and better tax rates in Canada. Nitrogen gross margin was the second highest in company history. Phosphates, led by the feed business, had its best second quarter since 1999. All of this also comes despite estimates of North American consumption being off 10-15 percent for the 2005-06 fertilizer year, and a move by buyers to finish the season without inventories.

Offshore potash sales volumes were down 33 percent during the quarter. Canpotex shipped only .24 million mt to its major markets, compared to the year-ago 1.3 million mt. Potash sales volumes to North America were off 24 percent. PotashCorp helped balance this offset, producing 1.9 million mt, 20 percent less than the year-ago 2.4 million mt. Potash inventories at the end of June were 1.35 million mt, up from year-ago 1.14 million mt.

As for the company’s outlook, Doyle said “We have a very sleek sailboat and the wind is blowing.” He was citing the long-awaited news of a settlement of potash prices with the Chinese. He said now that the business has been concluded, other buyers, including India, will step in to ink deals. There will be a push to fill up the pipeline, and negotiations for 2007 can begin this December. This short span will not allow buyers to significantly build inventories as they had this year. Doyle predicts the Chinese government will not interfere with negotiations for 2007. He also cited IFA figures projecting a 7 percent increase in potash demand for 2007.

PotashCorp believes that the consumption of all three major nutrients will return to average or better levels in 2006-07, which would mean an increase of 10-15 percent in 2007. Doyle continues to be a “corn bull,” noting higher forward corn and wheat prices and new ethanol and biodiesel plants. Doyle expects third quarter diluted EPS of $1.25-$1.50, with a full year range of $5.25-$6.25.