PotashCorp/Saskatchewan (USA) Earnings: Will Tough Times Continue?

On Thursday, Potash Corp. of Saskatchewan (POT) will release its quarterly report, and investors are bracing for yet another difficult comparison that will show a huge drop in revenue and earnings from year-ago levels. Yet even though PotashCorp and peers Mosaic (MOS -1.07%) and Agrium (NYSE: AGU) face many similar challenges in dealing with the devastation in the potash market, PotashCorp arguably remains the most exposed to future prospects for potash fertilizers in the long run.

PotashCorp crashed last year after producers in Russian and Belarus broke up their alliance, leading to a plunge in potash prices that had ripple effects throughout the industry. Since then, potash prices have struggled for traction, and uncertainty about whether major players in potash production might once again unite to help control prices made it hard for investors to judge the likelihood that PotashCorp could rebound. With rumors of a potential takeover, will PotashCorp survive as an independent entity long enough to see better times? 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 report.

Source: PotashCorp.

Stats on PotashCorp

Source: Yahoo! Finance.

What's next for PotashCorp earnings?
In recent months, analysts have yet again cut their views on PotashCorp earnings, cutting their estimates for the most recent period by a quarter and reducing their full-year 2014 projections by $0.35 per share. The stock has stayed stuck in the mud, rising less than 2% since mid-January.

PotashCorp's fourth-quarter earnings showed just how hard the company has been hit by adverse conditions in the fertilizer market. Profits fell 46% from the year-ago quarter as realized potash prices fell to $280 per ton, and PotashCorp had to take drastic measures to cut costs, including cutting nearly a fifth of its workforce and cutting back on higher-cost production in order to keep margins as wide as possible. Yet given that PotashCorp relies much more heavily on potash than Mosaic and Agrium, even those measures weren't enough for PotashCorp to avoid having to cut its earnings guidance for the remainder of 2014, sending shares downward.

PotashCorp has had to deal with mixed news recently. On one hand, a Uralkali deal with China set potash prices at $305 per ton, which many hope will mark a floor for the entire industry for the near future. Yet in February, news that India's fertilizer ministry could cut potash subsidies by 20% threw cold water on bullish sentiment, as India has been a key partner with PotashCorp, Mosaic, and Agrium as members of the Canpotex marketing group.

Export terminal. Source: Canpotex.

One wildcard for PotashCorp comes from the conflict between Ukraine and Russia. If economic sanctions led to a disruption in supplies from Russia's Uralkali, then it could cause at least a short-term price spike for potash, to the benefit of PotashCorp and its peers. Yet the real concern is whether China, which is a key source of demand for potash, would actually comply with economic sanctions against Russia. Without China's compliance, the impact on world-market prices would be far less.

PotashCorp's future depends largely on what happens among suppliers. Some believe that Uralkali and Belaruskali could renew their previous agreement, which would presumably send potash prices back up. Others have pointed to a possible acquisition of PotashCorp by BHP Billiton, which unsuccessfully tried to buy PotashCorp several years ago.

In the PotashCorp earnings report, watch to see how the company is dealing with low potash prices. For the stock to fare well, PotashCorp has to keep working on reducing costs in order to make the most of a low-margin environment.

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