PotashCorp continues to break records, 3Q net income of $1.24 B was better than all of ’07

PotashCorp continues to break earnings records, posting net income of $1.24 billion ($3.93 per diluted share) for the third quarter ending Sept. 30, 2008, five-times the year-ago $243.1 million ($.75 per share). These results exceeded the $1.1 billion ($3.40 per share) in the full-year 2007. Record gross margins were achieved by all three nutrient segments. Third-quarter sales were $3.06 billion, up from the year-ago $1.295 billion.

“The fundamentals of our business remained robust in the third quarter and continued to support demand and prices for our products, especially potash,” said Bill Doyle, PotashCorp president and CEO. “Despite the recent onset of a global economic downturn, the need for food is not abating. That enabled us to utilize our unique strengths in each nutrient to achieve the best quarterly performance in our history, producing record cash flow and gross margin while also preparing our company for the expected growth in potash demand.

“The good news is that the very nature of what we do provides a unique shelter,” Doyle told analysts. “Consumers might choose to park their car or spend less on discretionary goods, but food will remain a priority. As I’ve said before, it is not a luxury item.

“This market correction painted most businesses and commodities with the same brush, as though fundamentals don’t matter any more,” Doyle continued. “Any rational examination of the fertilizer industry makes it clear that the essential nature of our products and the long-term need to protect the world’s food supply present ongoing opportunities for growth.”

Going forward, PotashCorp sees potash as tight and the strongest of the three nutrients. The company expects full-year 2008 potash gross margins to exceed the 2007 level by 250 percent. Doyle said strong demand from China and India should help offset any declines in 2009 from Brazil, Southeast Asia, and the U.S. Depending on corn prices, the company estimates that U.S. potash consumption in 2009 could be off 5-10 percent, from an estimated 5.2 million tons this year to 4.8 million. However, PotashCorp estimates that Chinese inventories are down to 3 million mt and the country will continue to use potash at an annual rate increase of 7 percent per year. In addition, Doyle expects the Russians will have to keep more potash at home to serve domestic demand.

As for the current strike at three Saskatchewan mines, Doyle said the company would have likely cut back that much production anyway. The company said the outage has likely had the impact of helping to keep prices firm. The company expects to increase production at the Allan mine in the fourth quarter. The mine is one of the three in strike mode, but is in operation by existing and other personnel.

The company expects minimal impact on phosphate profitability due to falling raw material prices – sulfur and ammonia. Doyle applauded industry reductions in production, and said PotashCorp is also producing less DAP and is channeling P205 into other phosphate products. The phosphate 2008 projection for gross margins is expected to be higher than forecast, exceeding 2007 by over 250 percent.

PotashCorp said nitrogen is the weakest of the nutrients due to major buyers sitting on the sidelines as prices have dropped. While the 2008 forecast for these margins is now lower, the company still expects them to still exceed 2007 by 60 percent.

Nine-month net income was $2.7 billion ($8.45 per share) on sales of $7.57 billion, versus the year-ago $726.8 million ($2.25 per share) and $3.8 billion.