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Potash Corp. (POT) Q4 Earnings Preview: Volume And Price Forecasts Hold The Key

 January 30, 2013 03:26 PM

(By Rich Bieglmeier) Potash Corp. of Saskatchewan, Inc. (POT) will release its 2012 Q4 & Year-End earnings on Thursday, January 31 at 6 am ET.  PotashCorp's quarterly conference call takes place the same day at 1pm ET. Wall Street anticipates that POT will earn $0.58 for the quarter. iStock agrees and expects the Agricultural Chemicals company (sounds just delicious – no?) to report earnings that will meet Wall Street's consensus number. The iEstimate is $0.58, too.

Potash Corporation of Saskatchewan Inc., together with its subsidiaries, produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. The company mines and produces potash, which is used as fertilizer. It also offers solid and liquid phosphate fertilizers; animal feed supplements; and industrial acids that are used in food products and industrial processes. In addition, the company produces nitrogen fertilizers and nitrogen feed, as well as industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate, and nitric acid.

[Related -Potash Corp./Saskatchewan (USA) (POT): Potash Options Look For Shares To Rebound]

According to POT's Q3 10-Q, "Earnings in the third quarter of 2012 were lower than the third quarter of 2011 due mostly to fewer offshore potash sales volumes and lower potash prices." 

Agriculture.com says, "With the exception of ammonia, Midwest wholesale prices for nitrogen, phosphate, and potash are solidly lower than a year ago, but Asbridge thinks fertilizer producers may use the spring application season to see if some nominal price increases might stick."

[Related -Behind The Blowout In Commodities]

Potash sales accounted for 41.2% of POT's earnings in Q3. According to an article in FT.com, margins could shrink as global competition heats up, despite a 10% dip in price during 2012. The story says many dealers are discounting their prices to enter strong markets in the US and Brazil.  Scotia Capital's Ben Isaacson says aggressiveness is "worrying the global players."

Along with Potash, Nitrogen (24.4% Q3 sales) and Phosphate (23.5% Q3 sales) prices are down year-over-year; however, pricing might be stabilizing.  AGFAX.com writes, "Retail fertilizer prices once again remained steady the third week of January 2013, according to data tracked by DTN. This marks the 11th straight week prices remained nearly unmoved." Pricing may not be as harmful in Q4 as it was in Q3.

While pricing might be as worrisome as some might fret, iStock does see a potential red flag in Potash's account receivables (AR). Despite sales falling 8.24% for the first nine months ended September 30, 2012 versus the same timeframe in 2011, AR's were up 13.8% and now stand at 21.6% of revenue versus 17.4% a year-ago; delinquent customers, not good.

Overall, iStock expects Potash Corp. of Saskatchewan, Inc.'s (POT) results to be close to the mark. More importantly, forward guidance will play a pivotal role in Wall Street's reaction. China has been playing hard ball with prices, India cut government subsidies for fertilizers, and POT is ramping up expansion for production. Investors will want to know if the combination of demand and costs will work in Potash's favor in 2013, or will it be more of the same concerns, perhaps to a lesser degree.



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