Mixed 2Q for Potash Corp.

Potash Corporation of Saskatchewan Inc.’s ( POT - Analyst Report ) second-quarter 2012 adjusted (excluding one-time items) earnings of $1.01 per share missed the Zacks Consensus Estimate by a penny.

Including one-time items, earnings came in at 60 cents per share compared with 96 cents a year ago. The company recorded a charge of $341 million (or 39 cents a share) on its investment in Sinofert Holdings Limited and $29 million (or 2 cents a share) related to its phosphate segment, which brought down its earnings.

Sales in the quarter came in at $2,396 million, up 3.1% from $2,325 million a year ago, beating the Zacks Consensus Estimate of $2,378 million. The growth was aided by increased potash demand.

Segment Review

Potash: Sales volumes of 2.6 million tons in the quarter were up from 2.5 million tons in the year-ago quarter. Production costs increased in the quarter, but were offset by rising prices. This has led to a 1% rise in gross margin to $801 million in the quarter. Average realized potash price was $433 per ton, up 4% from the prior-year quarter.

Phosphate: Sales volumes declined 10% over the prior-year quarter to 0.9 million tons due to lower production and timing of vessel loadings. Weak sales in North America were offset by higher offshore sales coupled with strong feed and industrial volumes. Gross margins came down 42.2% to $96 million, due to lower sales volumes and prices for fertilizer products. Average realized phosphate price was $552 per ton, down 4.5% year over year.

Nitrogen:Sales volumes for the segment was almost flat versus the prior-year quarter at 1.3 million tons driven by higher realized prices. Gross margin increased significantly by 44.5% to $302 million in the reported quarter. Average realized prices for nitrogen products rose 9% to $436 per ton.

Financial

Cash and cash equivalent amounted to $491 million as of June 30, 2012, versus $430 million as of December 31, 2011. Long-term debt stood at $3,464 million as of June 30, 2012, compared with $3,705 million as of December 31, 2011.

Outlook

The company reduced its earnings forecast for 2012to $2.80 to $3.20 per share from its previous expectation of $3.20 to $3.60 per share to reflect the impact of an impairment charge that hurt its second quarter results. Potash expects third quarter earnings to be in the range of 70 cents to 90 cents a share.

The company expects gross profits from its potash business in 2012 to be in the range of $2.6 billion to $2.8 billion. The company expects production costs to be higher and realizations lower in the second half of 2012.

Potash expects phosphate margins to improve in the second half of 2012 driven by tight global supply and strong demand in the U.S. and Latin America. The company expects combined phosphate and nitrogen gross margin for 2012 to be in the range of $1.4 billion to $1.6 billion.

For 2012, Potash expects capital expenditures (excluding capitalized interest and major repairs and maintenance) to be $2.2 billion.

Potash Corp. competes with BASF SE ( BASFY ) and Mosaic Co. ( MOS - Snapshot Report ) . The company retains a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating. Currently, we have a long-term (more than 6 months) Neutral recommendation on the stock.