Potash Corp.'s (POT) Q2 Earnings In Line, Revenues Lag

Potash Corp. (NYSE:POT) posted a profit of $121 million or 14 cents per share in second-quarter 2016, down roughly 71% from $417 million or 50 cents per share earned a year ago. Earnings as adjusted, excluding one-time items, came in at 18 cents per share and were on par with the Zacks Consensus Estimate.

Revenues for the quarter slumped 41.8% year over year to $935 million and lagged the Zacks Consensus Estimate of $1,137 million.

Segment Review

Potash: Potash gross margin was $123 million in the reported quarter, down from $417 million in the year-ago quarter due to considerably lower prices and offshore sales volumes. Sales volumes for the segment were 2.1 million tons, down 16% year over year. Average realized potash price was $154 per ton, down from $273 per ton in the year-ago quarter.

Nitrogen: Sales volumes for the quarter were 1.5 million tons, down 8% from the year-ago quarter due to weaker North-American industrial demand. Second-quarter gross margin was $130 million, 41% lower than the year-ago quarter. Average realized price for nitrogen products fell to $244 per ton from $334 per ton a year ago, owing to weaker benchmark pricing.

Phosphate: Sales volumes were 0.5 million, down 25% mainly due to weaker North-American demand. Gross margin was a negative $10 million, adversely affected by lower phosphate prices, charges of $29 million related to inventory write-downs and an unfavorable discount rate adjustment to asset retirement obligations

Average realized phosphate price for the quarter was $485 per ton, down from $553 per ton in the prior-year quarter as lower demand weighed on prices.

Financials

Potash Corp.’s cash and cash equivalents were $143 million as of Jun 30, 2016 compared with $449 million as of Jun 30, 2015. Long-term debt was $3,713 million as of Jun 30, 2016 compared with $3,710 million as of Jun 30, 2015.

Guidance

Potash Corp. – which is among the top players in the fertilizer industry along with Agrium (NYSE:AGU) , Mosaic (NYSE:MOS) and CF Industries (NYSE:CF) – reiterated its 2016 potash sales volumes guidance in the range of 8.3-8.8 million tons, though lower prices earlier in the year are expected to weigh on the results for the balance of 2016. The company now projects potash gross margin to be in the $400-$600 million range.

Potash Corp. forecasts a weaker price environment to hurt its nitrogen and phosphate segments through the remaining part of 2016. It has lowered the combined nitrogen and phosphate gross margin outlook for the year to the $400-$550 million range.

Lower earnings have brought down the company’s expected provincial mining and other taxes for 2016, now projected in the range of 23%-26% of potash gross margin (excluding $32 million of New Brunswick severance costs). The effective income tax rate is anticipated to be in a range of 16%-18% given lower earnings and a greater proportion of income from lower-tax jurisdictions.

As a result of these changes, the company lowered its 2016 earnings guidance to 40-55 cents per share, including notable charges through the first half of 11 cents per share. For the third quarter, the company expects earnings to be in the range of 5-10 cents per share.

The company also plans to reduce its quarterly dividend from 25 cents per share to10 cents per share commencing with the declaration of its next dividend in September.

POTASH SASK Price, Consensus and EPS Surprise

POTASH SASK Price, Consensus and EPS Surprise | POTASH SASK Quote

Potash Corp. is a Zacks Rank #5 (Strong Sell) stock.