PotashCorp reports record 3Q earnings

Potash Corp. of Saskatchewan Inc. reported its best ever third quarter earnings last week. Earnings were $243.1 million ($.75 per diluted share) on sales of $1.295 billion, versus the year-ago $145.2 million ($.46 per share) and $953.5 million. PotashCorp said they were the second highest quarter in history and would have exceeded the best quarter – second quarter 2007 – if not for the net negative impacts of a stronger Canadian dollar and an increase in the company’s consolidated tax rate.

Potash gross margin rose to $221.3 million from the year-ago $153.6 million and was the second highest quarterly total in company history. The improvement was mainly due to higher prices, but volumes were up slightly. Higher freight rates have been a problem, but the demand is so high that product was on allocation to all customers. PotashCorp expects still higher prices once the Chinese come back to the bargaining table, noting that new prices to Brazil to take effect Dec. 1 will be $355/mt, up $175/mt in 2007.

PotashCorp reported its best year for phosphates, spurred on by higher prices and strong demand. Third-quarter gross margins were $129.9 million, up from the year-ago $29.8 million. While prices and demand continue to be up, costs are as well, with phosphate rock and sulfur prices higher in particular. Sulfur prices were up 8 percent in the third quarter from the year-ago quarter, and product is expected to be tight through 2008.

Third-quarter nitrogen gross margins of $123.9 million were almost double the $62.4 million in the year-ago quarter. Realized prices for ammonia and urea were up 11 and 37 percent, respectively, compared to the year-ago period, while prices for UAN jumped 51 percent. Strong demand limited the size and duration of a seasonal pricing decline in the third quarter.

Nine-month net income was $726.8 million ($2.25 per share) on sales of $3.8 billion, versus the year-ago $445.8 million ($1.40 per share) and $2.74 billion, respectively.

PotashCorp said demand driven growth in the fertilizer industry is expected to continue, as strong economies in Asia and Latin America are creating greater demand for better food. And despite a slight pause in the biofuel industry to address logistical and infrastructure issues, PotashCorp said the biofuel production is expected to consume about 1 billion additional bushels of corn in 2008.

“While we faced a number of challenges in the third quarter, including record ocean freights and a stronger Canadian dollar, we see increasing margins as we go forward,” said Bill Doyle, PotashCorp president and CEO. “Our growth in potash this year will be largely volume related, but 2008 should be a strong margin year. With potash in tight supply, price increases seem all but certain, and these increases will now flow through to the bottom line.”