PotashCorp 2Q earnings up 220 percent

PotashCorp reported record second-quarter earnings of $905.1 million ($2.82 per diluted share) for the quarter ending June 30, 2008, up 220 percent from the year-ago quarter. They are the highest quarterly earnings in company history and are 62 percent above the record $566 million set in first quarter 2008.

“This quarter established a new standard of performance for our company,” said PotashCorp President and CEO Bill Doyle. “We are experiencing strong growth in demand and are capturing the value of higher prices in all three nutrients, especially in potash. With farmers around the world striving to maximize yields and placing a priority on fertilization, this quarter provided a glimpse of the future potential of our company.”

Second-quarter sales were $2.62 billion. Year-ago earnings and sales were $285.7 million ($.88 per share) and $1.35 billion, respectively.

Six-month earnings were $1.47 billion ($4.54 per share) on sales of $4.51 billion, versus the year-ago $483.7 million ($1.50 per share) and $2.51 billion.

PotashCorp noted that second-quarter results reflect rising global fertilizer demand and the impact of significantly higher prices for potash, nitrogen, and phosphates. It noted that corn prices in the quarter were up 60 percent from year-ago levels, and soybeans were almost double. Despite some concerns of a weakening in corn prices in recent weeks, the company said a collapse in commodity prices is improbable. The company gave an example of $1,000/st potash, $1,200/st DAP, $1,000/st urea, and $5.50 bushel per corn farmgate, in which a farmer would still generate approximately $435 per acre over and above variable costs.

Doyle told analysts he certainly doesn’t see corn prices going back to the $2.00 per bushel level; that if they do, all bets are off. Instead, he said there is an enormous pressure on farmers to produce record crops to meet record demand.

Doyle said he sees no signs of demand destruction in potash. Instead, he said there is an opposite problem – there is so much demand that demand exceeds supply.

The company said there is an estimated 3-4 million mt of annual global potash demand today that remains unmet. The company said China’s 2008 potash imports are expected to be less than 70 percent of 2007 levels, which should significantly reduce its inventories by the end of the year. Doyle expects China to be back in the market by the end of the year for 2009. He told analysts that Brazil would likely consume 7 million mt of potash this year, and would use 7.5 million mt if they could get it.

PotashCorp noted that North America producer inventories were 41 percent below the previous five-year average at the end of June, a very low level going into the summer maintenance season.

In the meantime, Canpotex and PotashCorp continue to have a sold-out volume position and will continue to ship on an allocation basis, both offshore and to North America. PotashCorp sees an annual growth rate of 3 percent for potash. It is also expects a strong fall season for nitrogen and phosphates, and is suggesting a 93 million acre corn crop for 2009.

As for China’s export tariff, PotashCorp told analysts that even if it is lifted after Sept. 30, it expects any Chinese phosphate and urea exports to be light due to the country’s own needs.

Potash gross margins were $886.4 million on sales of $1.19 billion for the second quarter, up from the year-ago $260.4 million and $510.2 million, respectively. Six-month margins were $1.4 billion on sales of $1.99 billion, versus the year-ago $434.6 million and $890.7 million.

Nitrogen margins were $210 million on sales of $644.5 million for the second quarter, up from the year-ago $144.2 million and $481.2 million, respectively. Six-month margins were $395.4 million on sales of $1.22 billion, up from $275.5 million and $900.8 million, respectively.

Phosphate margins were $340.9 million on sales of $782.0 million for the second quarter, up from the year-ago $96.8 million and $361.7 million. Six-month margins were $496.9 million on sales of $1.29 billion, up from the year-ago $161 million and $716.3 million.

PotashCorp is raising full-year net income guidance from $9.50-$10.50 per share to $12.00-$13.00 per share. Third-quarter guidance is $3.25-$3.75 per share.

* Volumes are in thousands, prices are average US$ mt