Why PotashCorp Earnings Aren't Growing

PotashCorp (NYSE: POT  ) will release its quarterly report on Thursday, and given the increasing importance of fertilizers to produce enough food to feed the world's growing population, you'd expect that the company would have strong financial results. Yet the stock has been in the doldrums for years now, and PotashCorp earnings look poised to post another substantial year-over-year decline that will prove frustrating for bulls on the stock.

During the commodity boom from 2004 to early 2008, PotashCorp and its peers became household names among investors, with amazing growth prospects as they sought to help boost farm productivity across the world. But a combination of the financial crisis and the entrance of rival fertilizer companies into the agricultural space helped reverse PotashCorp's fortunes. Can the potash maker fight back? Let's take an early look at what's been happening with PotashCorp over the past quarter and what we're likely to see in its quarterly report.

Stats on PotashCorp

Analyst EPS Estimate

$0.81

Change From Year-Ago EPS

(20%)

Revenue Estimate

$2.19 billion

Change From Year-Ago Revenue

(3.7%)

Earnings Beats in Past Four Quarters

1

Source: Yahoo! Finance.

Will PotashCorp earnings keep withering in the sun?
Analysts still don't have much faith in PotashCorp earnings, having pruned their June-quarter estimates for the fertilizer company by $0.08 per share and knocking a full dime from full-year 2013 figures. The stock has continued its lackadaisical behavior, rising less than 2% since mid-April.

Early in the quarter, it seemed as though PotashCorp would finally make a turn higher. Even though potash prices fell from more than $455 per ton last year to $390 at the end of March, PotashCorp managed to post 13% higher profits during the first quarter than in the year-ago period, with a 78% jump in potash sales volumes as the company managed to work down some of its inventory. The company followed up its earnings report a couple weeks later with a 25% dividend hike, showing its confidence in the sustainability of its profit growth.

Part of the reason for the turnaround is the reversal of fortune in the fertilizer markets. Both PotashCorp and fellow potash and phosphate fertilizer producer Mosaic (NYSE: MOS  ) benefited from solid contracts with overseas buyers in hot areas like China and India, leading to a big improvement over last year's strained relationships with emerging-market buyers. By contrast, rivals CF Industries (NYSE: CF  ) and Agrium (NYSE: AGU  ) , which benefited last year from relative strength in the North American market, have seen their prospect shrivel up due to cold, wet weather this spring.

PotashCorp has also done a good job of making the most of its opportunities. Unlike Mosaic, PotashCorp has tapped the feed and industrial market to a much greater extent, therefore benefiting from the higher profit margins available from that market over pure phosphate-fertilizer sales. PotashCorp's cost structure is also quite favorable, allowing it to survive through tough conditions that some of its competitors can't endure.

In the PotashCorp earnings report, see if the company can avoid the same fate that hurt Mosaic's results last week. Falling prices and weak demand in India were problematic for Mosaic, and given that both Mosaic and PotashCorp are all affected by the expiration of a supply contract with a major Chinese buyer, PotashCorp could see the same sales pressure hurt its results as well.

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