PotashCorp Reports Second-Quarter Earnings of USD 0.56 per Share
OREANDA-NEWS. Potash Corporation of Saskatchewan Inc. (PotashCorp) reported second-quarter earnings of USD 0.56 per share (USD 472 million), bringing earnings for first-half 2014 to USD 0.95 per share (USD 812 million). Totals for the quarter and first six months surpassed our earnings guidance on improving trends in each nutrient, but trailed the USD 0.73 per share (USD 643 million) and USD 1.37 per share (USD 1.2 billion) reported in the respective periods last year.
Gross margin for the quarter of USD 747 million fell short of the USD 979 million generated during the same period in 2013 due to weaker contributions from our potash and phosphate businesses. For the first six months, gross margin totaled USD 1.3 billion, below the USD 1.8 billion earned during the comparative period last year.
Adjusted earnings before finance costs, income taxes, depreciation and amortization and certain impairment charges2 (adjusted EBITDA) of USD 868 million for the quarter and USD 1.6 billion for the first half were below the respective period totals in 2013. Cash from operating activities for both the quarter and first six months of USD 788 million and USD 1.3 billion each trailed last year’s comparative period amounts, although declining capital expenditures resulted in strong free cash flow2
Our investments in Arab Potash Company (APC) in Jordan, Israel Chemicals Ltd. (ICL) in Israel and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile contributed USD 55 million to our quarterly earnings and brought first-half totals to USD 155 million. Similar market conditions impacted earnings for these companies as both amounts were below the 2013 comparative period totals of USD 89 million and USD 166 million, respectively. The market value of our investments in these publicly traded companies, as well as Sinofert Holdings Limited (Sinofert), equated to approximately USD 5 billion, or USD 6 per PotashCorp share at market close on July 23, 2014.
“Robust global fertilizer demand provided a supportive earnings environment during the quarter,” said PotashCorp President and Chief Executive Officer Jochen Tilk. “Performance in all three nutrient segments improved from the beginning of the year and resulted in our second-quarter earnings exceeding the upper end of our guidance range. Although results were below those of the same period last year, an improving price environment and – in the case of our potash and nitrogen businesses – cost efficiencies contributed to our bottom line.”
Market Conditions
With all key potash markets engaged, global shipments accelerated through the second quarter. Significant product demand, especially in granular markets, kept most producers’ operations and distribution networks running at or near full capability. In North America, demand at the farm level was very strong through the spring planting season. Second-quarter shipments from domestic producers exceeded those of the prior year by 28 percent, with shipments for the first six months of 2014 approaching record totals. Shipments by North American producers to offshore markets increased from the first quarter as rail constraints began to improve and customers in all key markets actively secured supply. Totals for both the quarter and year were relatively in line with prior period levels. Improving fundamentals – most notably for granular product – resulted in positive spot market pricing trends relative to the first quarter, although potash prices remained well below those of the comparative period in 2013.
In nitrogen, prices reflected typical seasonal patterns and moved lower as the quarter progressed. While offshore prices for ammonia and urea softened during the quarter relative to the same period last year, key North American benchmarks remained comparatively strong due to healthy demand and reduced imports.
After phosphate markets rebounded early in 2014, demand and pricing remained relatively stable through the second quarter. Continuing slow demand in India during first-half 2014 was largely offset by the strength of demand in other regions, in particular Brazil and North America. Increased availability of product from offshore competitors limited exports for US producers, but was offset by healthy domestic demand and lower output due to reported production challenges.
Potash
With lower prices, potash gross margin of USD 395 million for 2014’s second quarter and USD 695 million for the first six months trailed the 2013 contributions of USD 613 million for the quarter and USD 1.1 billion for the first half.
Strong customer engagement in all key potash markets and improving rail logistics supported increased shipments from earlier in the year. Our total sales volumes for the second quarter reached 2.5 million tonnes, bringing the total for the first six months to 4.8 million tonnes with both amounts relatively flat compared to the similarly strong periods of 2013. Continued strength in North America led to sales volumes significantly exceeding those of the comparative period in 2013 for both the quarter (up 13 percent) and first six months (up 19 percent). Although rail challenges began to abate, offshore sales volumes for the quarter (1.6 million tonnes) and first half (2.9 million tonnes) were impacted by backlogs and trailed 2013 comparative totals. The majority of Canpotex’s3 second-quarter shipments were to Other Asian countries (42 percent) and Latin America (29 percent), while China and India accounted for 13 percent and 10 percent, respectively.
Our average realized potash price for the quarter was USD 263 per tonne, down significantly from USD 356 per tonne in the same period last year due to price erosion during the second half of 2013. Improving market fundamentals through the first half – most notably in granular markets in North America and Brazil – resulted in our average realized price increasing USD 13 per tonne relative to first-quarter 2014.
The realignment of our workforce and operating capabilities in December 2013 helped deliver improved operational efficiencies. These changes, combined with the favorable impact from a weakened Canadian dollar and lower royalties, resulted in a reduction of per-tonne cost of goods sold of over 10 percent for both the quarter and first half of the year.
Nitrogen
Gross margin for the quarter totaled USD 304 million, surpassing the USD 276 million generated during the same period last year as higher sales volumes more than offset weaker price realizations. This result was the second-highest quarterly nitrogen gross margin total in our history and brought our six-month total to USD 543 million – nearly matching last year’s comparative period record. Our three US operations contributed USD 191 million of gross margin for the quarter while our operation in Trinidad contributed USD 113 million, compared to USD 186 million and USD 90 million respectively in 2013.
Improved production levels across all of our facilities helped push second-quarter nitrogen sales volumes to 1.7 million tonnes, above the 1.5 million tonnes sold during the same period last year. Total sales volumes for the first half of 2014 reached 3.3 million tonnes, 11 percent above the comparable period in 2013.
Our average realized price of USD 393 per tonne during the quarter declined from the USD 410 per tonne in the same period last year. This was primarily the result of slightly weaker benchmark prices contributing to lower realizations for our ammonia fertilizer products.
Cost of goods sold for the quarter averaged USD 213 per tonne, slightly lower than the same period in 2013 as efficiencies from increased production more than offset higher natural gas costs.
Phosphate
Lower prices, reduced production levels and increased costs weighed on our performance in phosphate. Second-quarter and half-year 2014 gross margin totals of USD 48 million and USD 74 million were well below the USD 90 million and USD 182 million earned during the respective periods last year.
Short-term issues relating to weather, mining conditions and mechanical challenges created difficulties in sustaining the supply of ore feed to our facilities and resulted in reduced quarterly and first-half production. Sales volumes for the quarter of 0.8 million tonnes and first six months of 1.6 million tonnes trailed comparative periods in 2013 by 9 percent and 11 percent, respectively.
Our average realized phosphate price for the quarter was USD 509 per tonne, down slightly from the USD 517 per tonne in the same period last year. Although market fundamentals remained largely unchanged, the decline in prices was mainly related to industrial contracts, which tend to lag current market conditions.
Per-tonne costs of goods sold for the second quarter were elevated compared to the same period in 2013. The favorable impact of lower ammonia and sulfur prices was more than offset by decreased production levels and the recognition of accelerated non-cash depreciation charges of USD 28 million related to the closure of our Suwannee River chemical plant at White Springs.
Financial
Provincial mining and other taxes totaled USD 69 million for the second quarter, below the USD 81 million during the same period last year primarily due to lower average realized potash prices. Lower total earnings resulted in income tax expense declining to USD 166 million, down from USD 245 million during 2013’s comparable period.
Capital-related cash expenditures totaled USD 199 million during the quarter, well below the USD 354 million in 2013’s second quarter as our multi-year potash expansion program nears completion.
We repurchased a total of 17.5 million common shares during the second quarter and successfully completed our share buyback program announced in July 2013 (5 percent of outstanding common shares totaling 43.3 million shares).
Market Outlook
We move into the second half of 2014 with an improved outlook for the balance of the year.
In potash, we have raised our 2014 global shipment expectations to 56.5-58 million tonnes on the strength of record first-half demand and an improved second-half outlook. We begin the second half with a strong domestic order book and Canpotex fully committed in offshore markets through the third quarter. Producer inventories in North America ended the first half at their lowest level since 2011, and are projected to remain tight as scheduled maintenance downtime is expected to limit production for most producers in a period of relatively robust demand.
In North America, a successful summer-fill program has given us better visibility on demand through the remainder of the year. Shipments are expected to be strong during the third quarter as dealers work to position product in advance of what is anticipated to be an active fall application season. For full-year 2014, we now expect potash shipments to this market could exceed 10 million tonnes.
Potash demand in Latin America is expected to remain strong ahead of its key planting season. We anticipate shipments to this market will remain elevated through the third quarter although total deliveries could slow relative to those of the comparative period last year. We maintain our view that Latin American demand could reach record levels in 2014 of approximately 10.5 million tonnes.
In China, we now expect potash demand to approximate 12 million tonnes, exceeding our earlier estimates. With first-half contract deliveries complete, increased seaborne import needs through the second half are expected to be met through the execution of optional tonnage arrangements. For the full year, Canpotex will ship approximately 1.2 million tonnes under terms contained in the January 2014 contract with Sinofert.
Shipments against contracts signed with India early in April began to move during the second quarter and are expected to accelerate through the balance of 2014. Although weaker-than-normal monsoon rains and a continued imbalance in fertilizer subsidies will remain headwinds for significant near-term potash demand growth, total annual shipments to India are expected to exceed 2013 and reach 3.5-4 million tonnes.
In Other Asian countries (outside of China and India), potash demand and imports continue to outpace the previous year although increased competitive pressure in this region has weighed on the near-term pricing momentum. We expect shipments to Other Asian countries to remain relatively strong through the balance of the year, and maintain our full-year forecast for this region of approximately 8.2 million tonnes.
Financial Outlook
With an improved global demand environment, we have increased our estimate for potash gross margin to approximately USD 1.2-USD 1.4 billion and annual potash sales volumes to 8.9-9.2 million tonnes. Stronger demand, particularly for granular product, has resulted in the decision to continue operating our Penobsquis mine in New Brunswick and to increase our production at Lanigan. Included in our estimates is the impact of a successful Canpotex run at our Allan facility increasing our allocation to approximately 54 percent effective July 1, 2014. We remain on track to achieve our 2014 target of reducing per-tonne cash costs by USD 15-USD 20 (from 2013’s levels), although the third quarter will reflect its normal seasonal increase as we complete our required maintenance downtime.
In nitrogen, we have increased our expectation for gross margin through the balance of 2014 and now see the potential for our full-year results to approach record levels. Sales volumes are expected to outpace previous-year levels and act as a continued tailwind through the second half. While gas supply restrictions at our facility in Trinidad are anticipated to reduce our production in the third quarter, these curtailments are expected to remain below previous year levels.
We see phosphate markets staying relatively firm through the second half, assuming the emergence of more robust Indian import demand. The expected closure at Suwannee River in the third quarter is likely to keep our sales volumes at lower levels through the balance of the year, although reduced accelerated depreciation charges are expected to result in improved per-tonne cost of goods sold and enhanced margins.
We have revised our annual estimate of selling and administrative expenses and finance costs to a range of USD 235-USD 245 million and USD 175-USD 185 million, respectively.
Комментарии