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Potash Corp Earnings: 5 Shocking Numbers You Need to Know

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PotashCorp's latest earnings report signals trouble ahead

Published in: Economy & Finance
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Potash Corp Earnings: 5 Shocking Numbers You Need to Know

  1. 1. Potash Corp Earnings: 5 Shocking Numbers You Need to Know Image source: Potash Corp.
  2. 2. $1.52 vs $1.82 #1 Earnings per share
  3. 3. 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.
  4. 4. 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
  5. 5. $132 vs $105 #2 Cost of goods sold for potash
  6. 6. 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.
  7. 7. 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
  8. 8. $1.5 billion-$2 billion #3 Projected gross profit
  9. 9. The guidance Nutrient segment Gross 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
  10. 10. 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
  11. 11. $0.9 to $1.2 #4 Earnings per share guidance
  12. 12. The problem PotashCorp expects to earn only $0.9-$1.2 per share in 2016. At mid-point, that’s a staggering 31% drop from 2015 and a 70% drop from 2011 levels 0 0.5 1 1.5 2 2.5 3 3.5 4 2008 2009 2010 2011 2012 2013 2014 2015 2016* Earningspersharein$ *mid-point estimate. Data source: Company financials. Chart by author
  13. 13. 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
  14. 14. 34% #5 Dividend cut
  15. 15. 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
  16. 16. 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 What that means
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