Potash Corp. of Saskatchewan Inc. reported a 71 percent drop in second-quarter earnings, to $121 million ($0.14 per diluted share) on sales of $1.05 billion, down from the year-ago $417 million ($0.50 per share) and $1.73 billion.
The company said it intends to cut its quarterly dividend by 60 percent, from $0.25 to $0.10 per share, when it declares its next dividend in September.
Full-year guidance has been lowered to $0.40-$0.55 per share, down from the earlier guidance of $0.60-$0.80 per share. Third-quarter guidance is $0.05-$0.10 per share. Full-year guidance for Potash gross margins has been adjusted down to $400-$600 million from the previous $500-$700 million, while Nitrogen/Phosphate margins are now seen as $400-$500 million, down from $600-$800 million.
Despite the downturn, the company said it believes potash prices have hit their low point. “Fertilizer markets have been under pressure through the first six months of 2016; however, we believe the uncertainty that weighed on potash market sentiment is now lifting and a recovery is beginning,” said PotashCorp President and CEO Jochen Tilk. “With key Asian contract prices settled by a number of producers – and buyer inventories at reduced levels – we are seeing improved engagement in all key markets.”
PotashCorp confirmed that Canpotex Ltd. has reached agreements with customers in India for shipments over the next three months at prevailing rates. Tilk said negotiations continue with China, and Canpotex expects to deliver tonnage to China in the second half. He said that traditionally when major Indian and Chinese contracts are reached late in the year, demand goes up. While the company has tweaked its guidance for full-year global annual potash shipments to 58-61 million mt, down from 59-61 million mt, it sees 2017 achieving 61-64 million mt.
Other notable items for the second quarter included a $0.02 per share, or $33 million cost, for the company’s share of the Canpotex exit from building the Prince Rupert terminal (GM June 24, p. 1), as well as an impairment of $0.01 per share on its investment in Sinofert Holdings Ltd. The company also had a $29 million charge for a phosphate inventory writedown.
Second-quarter Potash gross margins were $123 million on sales of $393 million, down from the year-ago $417 million and $748 million, respectively. North American volumes were up at 850,000 mt from 648,000 mt, while Offshore were down at 1.27 million mt from 1.86 million mt. Averaged realized North American prices dropped to $196/mt from $349/mt, and Offshore to $125/mt from $247/mt. Gross margins per ton were $63/mt, down from $168/mt.
Second-quarter Nitrogen gross margins were $130 million on sales of $383 million, down from $222 million and $559 million, respectively. Nitrogen sales volumes were 1.5 million mt, down from 1.63 million mt. The average realized nitrogen price was $244/mt, down from $334/mt, while the gross margin was $84/mt, down from $133/mt.
Second-quarter Phosphate margins were in the loss column at $10 million on sales of $277 million, down from a year-ago positive $72 million and $424 million. The company cited lower North American demand. Sales volumes were down at 512,000 mt from 679,000 mt, while average realized sales prices were $485/mt, down from $553/mt. Gross margin per mt was a negative $21, compared to a year-ago positive $103.
Six-month net income was $196 million ($0.23 per share) on sales of $2.3 billion, down from $787 million ($0.94 per share) and $3.4 billion, respectively.
Six-month Potash margins were $211 million on sales of $774 million, down from $845 million and $1.5 billion, respectively. North American sales were 1.63 million mt, up from 1.45 million mt, while Offshore dropped to 2.28 million mt, down from 3.41 million mt. The average North American price was $187/mt, down from $349/mt, while Offshore was $149/mt, down from $249/mt. Gross margin per mt was $57, down from $175.
Six-month Nitrogen margins were $237 million on sales of $811 million, down from $403 million and $1.04 billion. Nitrogen volumes were up at 3.17 million mt from 2.94 million mt, while the average price was $244/mt, down from $341/mt. The gross margin per mt was $72, down from $134/mt.
Six-month Phosphate margins were $29 million on sales of $677 million, down from $130 million and $869 million, respectively. Volumes were 1.23 million mt, down from 1.33 million mt, while average prices were down at $493/mt from $563/mt. Gross margin per mt was $22, down from $95.