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APR 25 2013

Q1: PotashCorp First-Quarter Earnings Increase to $0.63 per Share

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Apr 25 13

Forward-Looking Statements

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Key Highlights

  • First-quarter earnings of $0.63 per share1; gross margin of $0.9 billion second-highest for first quarter
  • Potash sales volumes increased 78 percent from first-quarter 2012 levels
  • Record first-quarter nitrogen gross margin of $271 million
  • Second-quarter earnings guidance estimated at $0.70-$0.85 per share
  • Full-year earnings guidance for 2013 maintained at $2.75-$3.25 per share

Saskatoon, Saskatchewan – Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported first-quarter earnings of $0.63 per share ($556 million), surpassing the $0.56 per share ($491 million) earned in the same period of 2012.

Fueled by improved global potash demand and record first-quarter nitrogen contributions, gross margin for the quarter totaled $0.9 billion, a 24 percent improvement over the $0.7 billion generated in the first three months last year. Earnings before finance costs, income taxes and depreciation and amortization2 (EBITDA) reached $1.0 billion and cash flow prior to working capital changes2 totaled $0.7 billion, with both amounts exceeding those in the comparable period of 2012.

Our offshore investments in Arab Potash Company (APC) in Jordan and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile contributed $77 million to earnings in the first quarter of 2013. The market value of our investments in these publicly traded companies, along with our positions in Israel Chemicals Ltd. (ICL) in Israel and Sinofert Holdings Limited (Sinofert) in China, equated to approximately $8.5 billion, or $10 per PotashCorp share at market close on April 24, 2013.

“With farmers around the world motivated to capitalize on the link between fertility and profitability, the first quarter gave us an opportunity to demonstrate our ability to deliver,” said PotashCorp President and Chief Executive Officer Bill Doyle. “We had significant growth in our potash performance as global buyers returned to the market in earnest after taking a brief pause late in 2012. This environment enabled us to deliver earnings near the top end of our guidance and laid the foundation for what we believe will be a successful year.”

Market Conditions

Potash shipments to all major markets accelerated during the first quarter. In North America, dealers began positioning product to meet farmers’ significant spring requirements. First-quarter domestic shipments from North American potash producers rose 56 percent above those of the same period last year and dealers’ need to secure additional product remained high as the quarter closed. Buyers in key offshore markets also turned their attention to securing new supply after limited activity in the final quarter of 2012. As a result, offshore shipments from North American producers were 74 percent above last year’s first quarter. With China’s early settlement of potash supply contracts and strong demand in Brazil, shipments accelerated during the quarter, culminating in a monthly export record in March. Indian customers returned to the potash market, although movement was limited as new contracts with major suppliers were not settled until mid-quarter. Following a weak market to close 2012, prices in all key regions reset late in the year, resulting in lower realizations during the first quarter of 2013.

In nitrogen, the slow start to the spring season in North America delayed demand during the quarter. While prices for nitrogen products – especially ammonia – remained at historically high levels, a significant rise in urea imports to the US ahead of the spring season led to weaker urea prices relative to other nitrogen products.

Phosphate markets continued to face challenges due to uncertainty surrounding the timing and extent of a return in demand from India, which in recent years accounted for more than 30 percent of global trade in solid phosphate fertilizers. While a rebound in North American demand and strong US producer exports to Latin America partially offset the absence of significant Indian demand, total US shipments trailed those of the previous year. This resulted in lower prices for phosphate fertilizer products compared to the first quarter of 2012.

Potash

Significantly higher sales volumes more than offset the impact of lower realized prices and resulted in first-quarter potash gross margin of $504 million, 54 percent above the $327 million generated in the same period last year.

Strong engagement in key markets pushed sales volumes to 2.2 million tonnes, significantly above the 1.2 million tonnes sold in first-quarter 2012. With limited dealer inventory carried into 2013 and strong agricultural fundamentals, North American sales volumes of 0.8 million tonnes nearly doubled the volumes sold in the same period last year. Offshore demand accelerated during the quarter, with sales volumes increasing 69 percent to 1.4 million tonnes from 0.8 million tonnes in last year’s opening quarter. Our New Brunswick facility sold record first-quarter volumes and Canpotex3 shipped 27 percent of its total sales volumes for the period to Latin America, including, in March, its highest one-month total ever to this market. China, which resumed seaborne deliveries in the quarter, represented 25 percent of Canpotex’s total volumes, with other Asian countries and India representing 39 percent and 3 percent, respectively.

Our average realized potash price of $363 per tonne trailed the $435 per tonne of the first quarter of 2012, reflecting lower pricing that took hold late in that year.

With increased demand, first-quarter production rose to 2 million tonnes from 1.6 million in the same quarter last year. The increase in operating rates and the absence of higher-cost tonnes from Esterhazy were the primary contributors to lower per-tonne cost of goods sold in the quarter.

Nitrogen

Higher prices and increased volumes helped elevate nitrogen gross margin to a first-quarter record of $271 million, surpassing the $219 million earned in the same period of 2012. Our Trinidad operation generated $144 million in gross margin, and our US operations contributed $127 million.

Additional ammonia capacity at Geismar and Augusta, as well as reduced impact from natural gas curtailments in Trinidad led to an increase in saleable tonnes of downstream products. This resulted in first-quarter nitrogen sales volumes of 1.4 million tonnes compared to 1.3 million tonnes in the same period last year.

Our average realized nitrogen price reached $429 per tonne during the quarter, exceeding the $383 per tonne realized in the first three months of 2012. Ammonia accounted for the largest increase as a result of strong demand coupled with supply challenges in key producing regions.

Our total average natural gas cost for the first quarter, including the impact of our hedge position, was $6.10 per MMBtu, up from $4.75 per MMBtu in the same period last year. The increase was the result of higher Trinidad gas costs, which are indexed primarily to the price of Tampa ammonia, and a rise in US gas prices.

Phosphate

First-quarter phosphate gross margin of $92 million trailed the $152 million earned in the same period of 2012, primarily reflecting the impact of lower realized prices. While contributions in all product categories declined from previous-year levels, gross margins for our feed and industrial products ($44 million) proved more stable than those of solid and liquid fertilizers ($45 million).

Sales volumes of 0.9 million tonnes were relatively flat compared to the first quarter of 2012, although we benefited from allocation of a larger percentage of product to feed and industrial customers.

Our average realized phosphate price was $549 per tonne in the first quarter, down from the $607 per tonne realized in the same period last year, with fertilizer products experiencing the largest decline.

Per-tonne cost of goods sold remained relatively flat compared to the same period last year, as higher ammonia and rock input costs were offset by a decline in sulfur prices on a year-over-year basis.

Financial

Provincial mining and other taxes increased to $63 million from $28 million in the first quarter of 2012, due primarily to the timing of annual potash production tax accruals.

Higher earnings during the quarter contributed to income tax expense of $226 million, up from $160 million in the same quarter last year.

Capital-related cash expenditures for the quarter totaled $496 million, with the majority related to our remaining expansion projects at Rocanville and New Brunswick. 

Potash Market Outlook

Global agricultural markets are providing the necessary economic incentive for farmers to maximize yields and, ultimately, their financial returns. As they focus on soil fertility and crop nutrition, farmers’ demand for fertilizer is increasing. We anticipate that this will continue in 2013 and the years ahead, driven by the need to increase food production around the world.

Based on first-quarter shipments and the expectation of continuing strong demand, 2013 is shaping up as a recovery year for potash. Even as solid phosphate fertilizer and urea markets reflect uncertainty related to Chinese exports and the absence of significant Indian demand, potash fundamentals have shown improved strength. We expect the engagement and confidence we see in key potash markets to continue, and maintain our previous estimate for 2013 global demand in the range of 55-57 million tonnes.

In North America, customer engagement is expected to remain high as the planting season progresses and dealers respond to the needs of farmers. We anticipate that buyers will seek to limit inventories as they exit the spring season and farmers’ increased commitment to replenish nutrients in the soil will result in historically strong sales through the second half. For the full year, we forecast total shipments to this market of approximately 9.5 million tonnes.

The Latin American market, particularly Brazil, started the year at a record pace and we have a strong order book well into the second quarter. Buyers remain optimistic about strong global demand for crops grown in this region and are striving to spread large import volumes more evenly through the calendar year to help alleviate pressure on port and distribution infrastructure. For 2013, we forecast demand at or above record levels, with total shipments to Latin America anticipated to exceed 10 million tonnes.

While many global commodities have been affected by concerns about slower economic growth in China, food production is essential and demand for agricultural products remains robust. First-quarter potash shipments to China were strong and Canpotex’s existing contract commitments to this market are expected to be completed by the end of the second quarter. Discussions for the second half of the year are expected to begin in May and we anticipate a smooth transition to a new contract. China’s demand is expected to grow to approximately 11.5 million tonnes for the year, with total imports forecast between 6.5 million and 7 million tonnes.

Although India’s potash market continues to face uncertainty around subsidy levels, new contracts settled during the quarter – including those by Canpotex – are expected to provide an improved demand environment through the remaining three quarters of the year, relative to the same period in 2012. We now forecast 2013 shipments to this market of approximately 4 million tonnes.

In other Asian countries (outside of China and India), the first quarter brought a re-emergence of demand and we anticipate increased shipments in the coming quarters resulting from the strength of grower incentives and low inventory positions. We continue to forecast demand for 2013 to outpace the previous year and anticipate total shipments to this region could approach 8.5 million tonnes.

Financial Outlook

In this environment, we maintain our previous full-year 2013 estimates of potash gross margin in the range of $1.9-$2.4 billion and shipments between 8.5 million and 9.2 million tonnes.

While additional market-related downtime will be likely during 2013, improved operating rates and our ability to replace higher-cost tonnes from Esterhazy with our own production are expected to reduce our cost of goods sold on a per-tonne basis compared to 2012.

In nitrogen, sales volumes are expected to surpass 2012 levels as we increase our production of downstream products following the restart of ammonia capacity at our Geismar facility and expect fewer gas-related curtailments at our Trinidad plants. A decline in prices for nitrogen-based products – primarily urea – is expected to result in lower margins than previously estimated, but the potential remains for record nitrogen gross margin in 2013.

In phosphate, global markets continue to be adversely impacted by uncertainty related to the timing and extent of India’s engagement. Improved demand in North America and Latin America is expected to partially offset a weaker Indian market, but we anticipate that pricing may lag that of 2012. Demand for feed and industrial products is forecast to remain relatively strong and we anticipate gross margins in these product categories to be near those of 2012.

Given these conditions, we now forecast full-year 2013 combined nitrogen and phosphate gross margin of between $1.4 billion and $1.7 billion, but near-term uncertainty could produce results toward the low end of our range.

With the exception of our guidance for income from offshore investments, which we now expect to be in the range of $370-$400 million, all other previously released guidance estimates for 2013 are unchanged: selling and administrative expenses ($240-$260 million), finance costs ($100-$130 million), capital expenditures ($1.5 billion), annual effective tax rate (25-27 percent) and provincial mining and other taxes (11-13 percent of total potash gross margin). 

Based on these factors, PotashCorp maintains its full-year 2013 net income guidance at $2.75-$3.25 per share, including second-quarter earnings in the range of $0.70-$0.85 per share.

At PotashCorp, we always take a long-term approach to managing our business and exercise patience in the execution of our strategy. This approach has led to strong financial performance that enables us to build enduring value for our shareholders, customers, employees, communities and business partners. Over recent months, we have been exploring the possibility of expanding our ownership interests in ICL. While we continue to believe that such a transaction would be of tremendous benefit to stakeholders of both companies and the State of Israel, there must be receptivity to foreign investment and certainty in the rules that govern such investment. We have therefore concluded that now is not the time to pursue this opportunity and will focus our energies on other options to maximize shareholder value.

Conclusion

“All three nutrients are essential for food production, but the anticipation of growth in potash demand represents a unique opportunity to showcase the strength of our company,” said Doyle. “We have nearly completed the investment in our expansion projects and are ready to meet the increasing needs of potash buyers around the world. We believe this creates a tremendous opportunity to generate stronger cash flows to enhance returns for our shareholders and add value for all those who depend upon us.”

Notes

1. All references to per-share amounts pertain to diluted net income per share.
2. See reconciliation and description of non-IFRS measures in the attached section titled “Selected Non-IFRS Financial Measures and Reconciliations.”
3. Canpotex Limited (Canpotex), the offshore marketing company for Saskatchewan potash producers.

PotashCorp is the world’s largest crop nutrient company and plays an integral role in global food production. The company produces the three essential nutrients required to help farmers grow healthier, more abundant crops. With global population rising and diets improving in developing countries, these nutrients offer a responsible and practical solution to meeting the long-term demand for food. PotashCorp is the largest producer, by capacity, of potash and third largest producer of nitrogen and phosphate. While agriculture is its primary market, the company also produces products for animal nutrition and industrial uses. Common shares of Potash Corporation of Saskatchewan Inc. are listed on the Toronto Stock Exchange and the New York Stock Exchange.

For further information please contact:

Investors Media
Denita Stann
Vice President, Investor and Public Relations
Phone: (306) 933-8521
Fax: (306) 933-8844
E-mail Denita
Bill Johnson
Senior Director, Public Affairs
Phone: (306) 933-8849
Fax: (306) 933-8844
E-mail Bill

This release contains forward-looking statements or forward-looking information (forward-looking statements). These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements are based on certain factors and assumptions including with respect to: foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Several factors could cause actual results or events to differ materially from those expressed in the forward-looking statements, including, but not limited to the following: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; changes in competitive pressures, including pricing pressures; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations within major markets; economic and political uncertainty around the world; timing and impact of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets; unexpected or adverse weather conditions; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflows; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; strikes or other forms of work stoppage or slowdowns; rates of return on and the risks associated with our investments; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; and earnings, exchange rates and the decisions of taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2012 under the captions “Forward-Looking Statements” and “Item 1A – Risk Factors” and in our other filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


Webcast Details

Apr 25 13

Forward-Looking Statements

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Slideshow

Transcript

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