Potash Corp Earnings: 5 Shocking Numbers You Need

to Know

Image source: Potash Corp.

$1.52 vs $1.82

#1 Earnings per share

What happened

After three downward revisions, PotashCorp expected to earn between $1.55 and $1.65 per share in 2015. However, it missed its estimates and earned only $1.52 per share -- a 16.5% drop from 2014 levels.

Potash: Weak fall application season in the U.S., lower prices (PotashCorp’s averaged realized price was down 16% year over year in Q4)

Nitrogen: Weak demand from key markets U.S. and Brazil, increased supply as prices of key input (natural gas) declined

Phosphate: Record exports from China, falling demand from Brazil and India

Why earnings dropped

$132 vs $105

#2 Cost of goods sold for potash

What happened

Cost of goods sold for PotashCorp’s namesake nutrient jumped 26% year over year to $132 per tonne in Q4 despite the company shutting down its high-cost Penobsquis plant.

As a result, PotashCorp’s Q4 potash gross profit slumped 69% year over year, sending its total gross profits lower by nearly 12% for the full year.

Closure of its Penobsquis plant and inventory-related shutdowns at three other mines lowered production volumes and pushed cost per tonne higher.

Note that PotashCorp also unexpectedly suspended operations at its Picadilly potash mine last month.

It remains to be seen how the company will save its targeted $40 million-$50 million in cost of goods sold per year over the couple of years if lower demand compels it to curb production further.

Why it’s a concern

$1.5 billion-$2 billion

#3 Projected gross profit

The guidance

Nutrient segmentGross profit

Actual 2015 Projected 2016

Potash $1.3 billion $0.8-$1.1 billion

Nitrogen + phosphate $0.95 billion $0.7-$0.9 billion

PotashCorp expects lower gross profits this year as it projects profit from potash to decline “significantly” on weak prices

Data source: Company financials

Why is it a warning signal

Potash is the highest margin product for PotashCorp. Any further drop in the prices of the nutrient this year could hit the company’s bottom line harder

Source: Company presentation at the BAML Global Agriculture Conference, February 2015

$0.9 to $1.2

#4 Earnings per share guidance

The problem PotashCorp expects to earn only $0.9-$1.2 per share in 2016. At mid-point, that’s a

staggering 31% drop from 2015 and a 70% drop from 2011 levels

2008 2009 2010 2011 2012 2013 2014 2015 2016* 0

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2.5

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*mid-point estimate. Data source: Company financials. Chart by author

Sharp decline in potash prices in the second half of 2015 to weigh on PotashCorp’s realizations this year

Lower projected nitrogen prices as supply continues to exceed demand

Severance costs incurred on plant closures to dent profits in the first quarter

Why the dismal outlook

34%

#5 Dividend cut

In anticipation of significantly lower profits in 2016, and keeping in line with its goal to pay out nearly 100% of its net income as dividends, PotashCorp slashed its quarterly dividend by 34% last month

What happened

This is the first dividend cut in the company’s history

At current prices, a quarterly dividend of $0.25 per share yields 6.5% -- still high for an industry battling severe headwinds

If declining capex as PotashCorp winds up a multi-year expansion program frees up extra cash, the company will likely favor share buybacks, especially given the steep recent fall in the stock price

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