PotashCorp triples earnings in 2008; 4Q was third-best quarter ever

PotashCorp continued to smash earnings records in 2008, even doing well in the fourth quarter, which bore the brunt of the global financial crisis. PotashCorp tripled earnings for the year 2008, which was the company’s fifth consecutive year of record earnings. The fourth quarter was PotashCorp’s third-best quarter ever.

As in the past, potash remained PotashCorp’s crown jewel. The company noted that while the global crisis led to slower demand for all three major nutrients and lower prices for phosphate and nitrogen, potash operations drove fourth-quarter gross margins to $873.1 million, 63 percent above the year-ago $535 million. All three major nutrients achieved annual gross margin performance records, with 2008 gross margins rising to $4.9 billion, a 161 percent increase over 2007’s $1.9 billion.

PotashCorp did post an $88.9 million inventory write-down, which reduced earnings by $.22 per share. However, the write-down was for nitrogen ($36 million) and phosphates ($52.9 million), not potash.

“The unprecedented global economic challenges of the fourth quarter were a sharp contrast to the positive operating environment of the first three quarters,” said PotashCorp President and CEO Bill Doyle. “Our success over the course of the year demonstrated the resilience and adaptability of our company, as well as the effectiveness of our strategies in rapidly changing conditions. Potash, our core nutrient, holds unique advantages that enable us to deliver strong performance, even in a very difficult economic climate.”

Fourth-quarter net income was $788 million ($2.56 per diluted share) on sales of $1.87 billion, versus the year-ago $376.8 million ($1.16 per share) and $1.43 billion, respectively. Full-year net income was $3.49 billion ($11.01 per share) on sales of $9.45 billion, versus the prior year $1.1 billion ($3.40 per share) and $5.23 billion, respectively.

Doyle told analysts that he expects 2009 to be the reverse of 2008 in that it will begin slowly and end strong. 2008 began strong and ended slow. PotashCorp is giving first-quarter guidance of $.70-$1.00 per share. Annual 2009 guidance of $10-$12.00 is heavily weighted toward the second half of the year and is flat with 2008’s $11.01 EPS.

Doyle expects heavy U.S. demand this spring, citing virtually no fall season this past year. He thinks U.S. farmers, with some $90 billion in net farm income in 2008, will be ready to plant. He said in today’s environment, farmers will still get $3 back for every $1 in fertilizer investment. Doyle said that internationally farmers are in good shape except for Brazil, which was hit hard by the global crisis and credit crunch. Overall, he expects international potash demand to be flat to slightly below, with some taking more – China at 7 million versus 5.5 million mt – and others taking less, citing Malaysia and Indonesia as examples. He expects India to be flat and was optimistic that even Brazil could be flat. He expects China to firm up its potash commitments early in the second quarter, with a price increase for both it and India.

As for current market conditions, Doyle said nitrogen has hit bottom, and that phosphates have either hit bottom or are close. He said that as DAP demand returns, so will anhydrous ammonia prices, and that PotashCorp’s Trinidad nitrogen plants would make money in the first quarter. Doyle said potash weathered the storm. “Fertilizer is just so fundamental,” added Doyle. “If they don’t put it down they will lose 40 percent of their crop.”

Doyle noted that its brownfield potash development projects are worth even more in today’s economic situation. He noted that greenfield plants will have even more trouble finding credit today and will require higher potash prices to move forward. By comparison, PotashCorp projects will be there to meet coming demand.

PotashCorp has announced a quarterly dividend of $.10 per share payable May 7, 2009, to shareholders of record April 9, 2009.