Potash Warns on 2010; Hopes Crushed?
(Potash article updated to provide additional Potash analysis for closing stock prices.)
SASKATOON, Saskatchewan (
) --
Potash Corp.
(POT)
shares fell sharply Thursday after the company drastically scaled back financial expectations for 2010.
Before the opening bell, the big Canadian fertilizer concern said it expects to earn between $4 and $5 a share in the full-year 2010. Analysts were, on average, targeting a per-share profit of $5.89.
For the first three months of 2010, Potash said it would likely earn 70 cents to $1 a share. That's also less than the current Wall Street estimate of $1.10 a share, according to a survey of analysts by Thomson Reuters.
"We were talking to people who thought this was an eight-dollar-a-share company," said one analyst who wished to remain anonymous for fear of blow-back from Potash management. The analyst was referring to investors who had believed Potash could, in a relatively normal year, earn in the neighborhood of $8 a share.
Not anymore.
"They'll have to completely revisit that thesis," the analyst said.
Profit warnings are nothing new for Potash, which spent the better part of 2009 periodically ratcheting down guidance when it comes to profit -- as well as shipment volumes of its eponymous crop nutrient, of which it remains the biggest producer in North America. The latest chapter in this series would seem to represent a less-than-spectacular sign for
.
Investors reacted Thursday by ditching the stock, though its price clawed back some of its losses toward the end of the regular session. Potash shares closed Thursday at $104.49, down $5.03 or 4.6%. Intraday, the stock traded as low as $101. Volume reached nearly 13 million shares; the three-month daily average turnover is 7.1 million shares.
Why were expectations for the company's 2010 results so out of whack? The answer appears to be pricing, which has tanked since the recession began. During the boom years, a bubble developed in agricultural commodities -- along with everything else -- lifting prices for potash and other fertilizers to unprecedented levels. Potash, for example, was selling at one point for $1,000 a ton, as much as ten times what it had been selling for in normal years. Potash producers, therefore, were earning outsized returns.
But based on sanguine comments from Potash executives late last year, some investors and analysts had come to believe that prices for the nutrient would rebound nicely in 2010. Potash executives, for instance, said they wouldn't cave like their Russian brethren in negotiations with Chinese buyers. (In December, Russia's potash consortium agreed to sell its stuff to China for just $350 a ton, below the previous going rate by perhaps $100 a ton.)
Yet the 2010 price target for potash on Wall Street and in the investment banking offices of Toronto (many fertilizer companies are Canadian, of course) has hovered around $425 a ton. Until Thursday's disclosure by Potash, that is. Now, that number would appear to be unrealistic.
Though the market will move on, with the decks cleared and expectations recalibrated, other ominous winds have started to blow in, and they're coming from Australia.
Over the last few months,
BHP Billiton
(BHP) - Get Report
, the world's largest mining concern, has made it known that it will tap Saskatchewan for potash and bring its global might into the potash business, currently controlled by a cartel of 14 companies, including Potash,
Mosaic
(MOS) - Get Report
,
Agrium
(AGU)
and several big Russian outfits.
Just on Thursday, BHP announced the purchase of a junior Canadian potash mining outfit -- that is, a publicly traded entity that uses equity funding to prospect for mineral seams and develop mines. BHP paid $320 million in cash for the company, called
Alabathsca
.
Though BHP won't start producing and selling potash for several years -- at the absolutely earliest -- investors know that once it does, the pricing controls commanded by the 14-company oligopoly will likely evaporate.
As for Potash's fourth-quarter 2009 results, earnings came to $244 million, or 80 cents a share, beating the Wall Street target by two pennies. Revenue for the quarter was $1.1 billion, also about even with the consensus analyst estimate.
As expected, the year-over-year comparisons continued to paint a picture of an industry that has suffered near collapse since the bursting of the asset bubble and the start of the recession at the end of 2008. In the year-earlier fourth quarter, before it felt the full impact of that collapse, Potash earned $788 million, or $2.56 a share, on revenue of $1.87 billion.
Early in January, Potash rival Mosaic issued disappointing quarterly results but sounded optimistic notes about the coming year. Shares of Mosaic also lost ground Thursday, falling 4.3% to $55.56.
-- Written by Scott Eden in New York
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