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Analyst Blog

Potash Corporation of Saskatchewan Inc.’s (POT - Analyst Report) third-quarter 2012 earnings came in at 74 cents per share, surpassing the Zacks Consensus Estimate by a penny, but falling well short of the year ago earnings of 94 cents.

Sales in the quarter came in at $2,143 million, down 7.7% from $2,321 million registered a year ago, but beat Zacks Consensus Estimate of $2,026 million. The year over year decline was due to reduced offshore potash sales arising from the delay of new supply contracts with China and India.

Segment Review

Potash: Sales volumes of 2.1 million tons in the quarter were down from 2.2 million tons in the year-ago quarter. Demand for potash remained strong in North America and increased sales were offset by lower offshore sales volumes. Shipments in the quarter increased on a year-over-year basis in Latin America, but were offset by lower sales to India and China.

Average realized potash price was $429 per ton, down 5% from the prior-year quarter. Gross margin declined 20.9% to $554 million.

Phosphate: Sales volumes declined 18.2% year over year to 0.9 million tons, due to lower production as a result of the adverse impacts of tropical storm Debby, a turnaround at the company’s Geismar facility and challenging mining conditions in a new portion of its Aurora mine. Average realized phosphate price was $537 per ton, down 10.8% year over year. Gross margin came down 27.8% to $122 million.

Nitrogen: Sales volumes for the segment decreased 15.4% to 1.1 million tons due to gas interruptions in Trinidad and expansion-related downtime at the Augusta facility. Gross margin increased 4.6% to $251 million in the reported quarter, driven by higher prices. Average realized prices for nitrogen products rose 8% to $458 per ton.

Financial

Cash and cash equivalent amounted to $461 million as of September 30, 2012, versus $394 million as of September 30, 2011. Capital expenditure in the quarter amounted to $546 million.

Outlook

The company expects earnings for 2012 to be in the range of $2.40 to $2.60 per share, which includes the impacts of the 39 cents per share adjustment for a Sinofert impairment charge incurred in the second-quarter of 2012.

The company expects gross profits from its potash business to be in the range of $2.1 billion to $2.3 billion in 2012. It expects shipments to be in the range of 7.6-8.3 million tons. The combined phosphate and nitrogen gross margin for full-year 2012 has been forecast in the range of $1.3 billion to $1.5 billion.

Potash Corp., which competes with BASF SE (BASFY) and Mosaic Co. (MOS - Analyst Report), 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.

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