PotashCorp reports back-to-back record earnings

Potash Corp. of Saskatchewan Inc. reported its highest quarterly earnings in history, topping the record just posted during the prior quarter. Net income for the first quarter ending March 31, 2007, was $198.0 million ($1.85 per diluted share) on sales of $1.15 billion, compared to the year-ago $125.5 million ($1.19 per share) and $861.6 million, which was posted during a period when potash shipments to China had slowed due to contract negotiations.

“Back-to-back record quarters illustrate the pattern of growth for our company and the rising value of our products,” said PotashCorp President and CEO Bill Doyle. “Our world-class assets and strategies are well-suited to this environment and our ability to execute led to excellent first-quarter results.”

“We believe we are at the front end of a period of significant consumption growth and strong prices for all our products,” said Doyle. “While nitrogen and phosphate have already made considerable gains, potash is only beginning to climb. With our plan to increase our potash capacity to 15.7 million mt by 2015, we have significant gross margin potential. This makes us very positive about the outlook for our company and our ability to deliver strong returns for our shareholders.”

PotashCorp said many of the conditions that drive growth in the fertilizer industry are becoming entrenched, including the increasing demand for crops used in food, animal feed, fiber, and fuels. PotashCorp noted the strong performance in all three major nutrients. It now expects world potash demand to increase by 12-16 percent in 2007. Volumes to Brazil may approach the record use of 6.4 million mt in 2004, it says, and China, India, and the rest of Asia are likewise expecting strong usage. Doyle told analysts that he expects India will close on new contract prices for potash in early June after the late May IFA meeting.

PotashCorp noted that offshore potash volumes were up 74 percent for the quarter (1.27 million mt from 732,000 mt), while North America volumes were up 69 percent (892,000 mt from 527,000 mt). Still, some 200,000 mt of potash was delayed into future quarters due to cold weather and strike-related delays.

Nitrogen is also expected to be strong, with PotashCorp noting that high construction costs have caused the delay or abandonment of greenfield nitrogen plants.

The industry is seeing a huge recovery in the phosphate industry, which has lagged for the past eight years. PotashCorp expects phosphate gross margins to be up at least $100 million from previous forecasts. Doyle told analysts that the positive phosphate cycle may be longer than expected, as delays will likely cause new Saudi Arabia phosphate production to not have meaningful production until 2012.

Doyle said India has signed off on a new contract for phosphoric acid, up $105/mt over the previous contract. He said this will add another $60/mt onto Indian DAP production costs, and he predicted that the country will still have to import 2 million mt of DAP.

Doyle was not too concerned about complaints about wet weather in the Cornbelt. He said with current corn prices and hybrid seed, a lot of corn can be planted between now into June. He said the acreage may not get to the USDA’s 90.5 million projection, but may fall within the 88-90 million range. Regardless, he said, there will be no fertilizer left in the bin at the end of the season.

PotashCorp has raised its earnings guidance on a per share basis for 2007 from $6.25-$7.25 to $7.50-$8.50. Second quarter guidance is $2.00-$2.50.