Phosphate Holdings Inc. (PH), the sole shareholder of Mississippi Phosphates Inc., the Pascagoula phosphate producer, reported a 349 percent increase in net income for the second quarter ending June 30, 2008, to $35 million ($4.32 per diluted share) versus the year-ago $7.8 million ($1.02 per share). Net sales were up 192 percent, to $171.5 million versus the year-ago $58.8 million.
Operating income for the second quarter was up 351 percent, to $55 million from the year-ago $12.2 million. EBITDA was up 314 percent, to $57.9 million from the year-ago $14 million.
“We are delighted to report record results for our second quarter,” said Robert Jones, CEO. “As we move into our third quarter, DAP prices remain near historical highs; however, DAP prices have not yet responded to the sharp increases in the cost of phosphate rock, sulfur and ammonia that we saw at the outset of the quarter. We are optimistic that with the onset of increased seasonal demand, DAP prices will improve and absorb a portion of our higher input costs. For the near term, our carryover inventories of raw materials and finished products will temper the amplitude of margin erosion. In summary, we expect to post solid results for the second half of 2008.”
The average DAP sales price of the quarter was $1,049/st, a 183 percent increase over the year-ago $371/st. First-quarter 2008 prices averaged $593/st. DAP tons sold were 162,427 st in the second quarter, up from 103,917 st in the first quarter, when the company experienced significant plant downtime. Sales into the international market were strong during the quarter versus the wet-weather-impacted domestic market. As a result, netbacks on international tons were $110/st, with sales being weighted toward that market. The company is expecting the second half to see good demand, with expectations that India will need to buy 400-600,000 tons between now and November. The company noted that India saw a 51 percent DAP shortfall in domestic production in July due to restricted phosphoric acid imports. China’s extension of the 135 percent duty on DAP exports was also seen as a positive, as well as greater demand expectations for the U.S. and Brazil. The company noted the recent turnaround in corn prices to $6.00/bushel.
Second-quarter sulfuric acid production was 222,000 st versus the year-ago 143,000 st. DAP production was 168,000 st versus the year-ago 89,000 st.
Going into the third quarter, the company said inventories of DAP were at 30,000 tons and phosphate rock at 200,000 tons.
The number three sulfuric acid plant was down for routine maintenance May 25-June 8, and during this time a new heat exchanger was installed. One was installed in the number two plant in the first quarter. Leaks at both had been depleting efficiency. Each plant is now back at 1,500 st/d production. The company said there was a late June shortfall in sulfur supply due to the delay in the start-up of the adjacent Chevron refinery that supplies sulfur to the plant, with this problem continuing into July. As a result, July sulfuric acid production was 75,000 st and DAP was 57,000 st. However, both plants are running well now, and as of Aug. 24, 70,000 st of sulfuric acid and 51,000 st of DAP had been produced in August. Rates of acid are 2,900 st/d and 2,100 st/d for DAP.
Six-month net earnings were $42 million ($5.19 per share) on sales of $238.7 million, versus the year-ago $33.7 million ($4.40 per share) and $109.9 million, respectively. The average DAP sales price for the six months was $871/st, a 177 percent increase over the year-ago $315/st.
Six-month operating income was up 306 percent, to $66.2 million from the year-ago $16.3 million. EBITDA was up 25 percent to $71.9 million, up from the year-ago $57.6 million. Results for 2007 included $37.8 million in insurance payments from Hurricane Katrina.
As for higher raw material costs, PH told analysts that it is actively negotiating with OCP of Morocco for a new, multi-year phosphate rock agreement. It expects this to be concluded by the end of the year. On sulfur, PH noted that since the conclusion of higher third-quarter contracts that the international market has turned bearish; however, the company also indicated that some of this may have come from China being out of the sulfur market due to the Olympics. The question now appears to be whether China’s return to the market will once again increase world prices. On ammonia, the company noted a “perfect storm” that has served to raise international ammonia prices – annual turnarounds in Russia and Ukraine, the outage on Burrup Peninsula, and the delay of a new plant in Egypt. The start-up in August of Terra Industries Inc.’s Donaldsonville plant was seen as one bright spot. Terra confirmed last week that the plant is making ammonia and that it is “cautiously optimistic,” about the start-up.
PH said it has no net debt and no plans to rebuy stock. As a result, it is looking at various capital expenditures. One such expenditure that is approved to proceed is a new 15,000 st sulfuric acid tank, with an approximate cost of $3 million. The company is also evaluating a 40,000 st UAN tank, as well as a $125-$150 million investment in a new sulfuric acid plant.
PH has also been preparing its financial information to enhance liquidity and value, which could lead to a potential IPO in the future. PH retained KPMG LLP to perform a comprehensive review of 2006 and 2007 historical financial statements, which has resulted in a restatement of annual financial statements for 2005-2007. “The restatements primarily reflect adjustments to prior applications of accounting principles and are generally “non-cash” in nature,” said Jones. “While there are significant timing differences in income recognition and a reduction in aggregate net income over the three-year period, the adjustment to our primary metric, aggregate EBITDA, is not significant.”
Two major components of the restatement included valuation of the business after its emergence from bankruptcy in 2004. The reassessment resulted in a new value of the business of $10.6 million rather than $21.5 million. In addition, the company determined that a net gain of $37.8 million from insurers due to Hurricane Katrina damage should have all been recognized in 2007, rather than in 2006 and 2007.
PH Restated and Reported Results 2005-2007 |
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| Restated | Earlier Reported | |
| 2005 Net Sales | 100.7 | 110.6 |
| 2005 Net Income | 4.9 | .072 |
| 2006 Net Sales | 131.6 | 129.7 |
| 2006 Net Loss/Income | (1.7) | 33.1 |
| 2007 Net Sales | 222.4 | 215.8 |
| 2007 Net Income | 48.9 | 40.2 |
Figures in millions; source Phosphate Industries
For more details, see www.missphosphates.com.