PotashCorp Earnings: An Early Look

With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to PotashCorp (POT). The fertilizer maker has benefited from a long-term surge in prosperity in the agriculture industry, but a major competitive disadvantage has prevented the company from taking maximum advantage of favorable conditions. 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 on Thursday.

Stats on PotashCorp

Source: Yahoo Finance.

Will analysts get PotashCorp right this quarter?
PotashCorp has completely befuddled analysts over the past year, missing estimates in all four quarters. With earnings-per-share calls having dropped by $0.15 over the past three months, analysts are setting the bar low. But investors are somewhat more optimistic, with the stock having risen about 8% since late October.

PotashCorp had an up-and-down year in 2012. On one hand, demand for fertilizers continued to be strong as farmers sought ways to produce higher crop yields. But with extremely low prices for natural gas, nitrogen-based fertilizers proved to be far more cost-effective for agriculture than potash-based fertilizer. Nitrogen specialists Rentech Nitrogen Partners (NYSE: RNF) and Terra Nitrogen (NYSE: TNH) both cashed in on those favorable conditions, with their partnership structure also leading to extremely high dividend yields that dwarfed PotashCorp's 2% rate.

But conditions in the industry may finally be looking up. Natural gas prices have recovered somewhat, and earlier this month, PotashCorp rival Mosaic (MOS -0.56%) announced earnings that came in well above expectations. With long-term demographic and economic trends pointing to further growth, PotashCorp will hopefully see some of the same tailwinds start to improve its results.

More importantly, PotashCorp teamed up with Mosaic and Agrium (NYSE: AGU) to do a big contract to sell potash to China's Sinofert Holdings. The deal came with at a substantial discount to past contracts, but if it helps the companies get rid of a troubling glut of potash inventory, it should help improve pricing for future years.

Competition in fertilizer has been fierce, so look for signs that PotashCorp is regaining its former dominance when it reports on Thursday. The raw numbers will be interesting, but long-term vision is the true key to prosperity in the fertilizer industry, and if PotashCorp can demonstrate such a vision, it should remain a promising long-term investment.

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