Pot
Source: PotashCorp.

The world is a hungry place, and one thing investors can rely on is constant demand for food. For many, that spelled long-term opportunity for fertilizer giant Potash Corp. of Saskatchewan (NYSE:POT), which has substantial resources of valuable potash in the Canadian heartland. Yet conditions in the agricultural industry have deteriorated recently, with many crop prices falling, and that has put even more pressure on PotashCorp to find new ways to grow. Coming into its second-quarter earnings report on July 30, PotashCorp has proposed a big acquisition in a quest to build up its market presence, and investors want to know whether the potash specialist sees buyouts as a better avenue to long-term success than organic growth efforts. Let's take a closer look at PotashCorp and what to expect in its second-quarter report.

Stats on PotashCorp

Analyst EPS Estimate

$0.51

Change From Year-Ago EPS

(8.9%)

Revenue Estimate

$1.74 billion

Change From Year-Ago Revenue

0.1%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

How will PotashCorp earnings fare?
Investors have been on the defensive in their views on PotashCorp earnings, cutting their second-quarter projections by more than 10% and making substantial cuts to full-year 2015 and 2016 views as well. The stock hasn't shown any signs of optimism, with the share price falling another 13% since mid-April.

PotashCorp's first-quarter results helped set the stage for the stock's poor performance recently. Sales were roughly flat at $1.67 billion, but even though the company posted a 10% rise in earnings to $0.44 per share, it still fell short of the $0.50 per share that investors had wanted to see. Even worse, the fertilizer company cut its guidance for full-year earnings by $0.15 per share to a range of $1.75 to $2.05 per share. Weak potash prices, unfavorable tax changes, and poor demand from the farming sector all combined to weigh on PotashCorp's results.

Yet the biggest news for PotashCorp recently has been its newly proposed $8.7 billion buyout bid for German's K+S. Proponents of the deal point to the fact that PotashCorp has succeeded in producing potash at a much lower cost than K+S, opening the door to potential profit gains from a takeover. Moreover, K+S already has a major potash asset in Saskatchewan, while its relationships throughout Europe would give PotashCorp a competitive advantage over its rivals both in the Western Hemisphere and in parts of the former Soviet Union. So far, K+S has rejected PotashCorp's attempts at a merger, but some believe that a slightly higher bid might be enough to get a deal done.

Meanwhile, PotashCorp remains attractive from a fundamental long-term standpoint. The company has focused its growth on its lowest-cost mines, and that has helped it control its overall expenses even as potash prices have remained near their multiyear lows. PotashCorp's organic growth efforts have cost a considerable amount of money, curtailing the amount of capital available for dividends to shareholders. But as those expenses appear to be coming to an end, investors can hope for even larger payouts in the future.

PotashCorp's growth has also helped it gain even greater production capacity, and it now makes up more than half of the total for the marketing group Canpotex, which includes both PotashCorp and two of its potash-producing competitors. With Canpotex going up against global producers in Russia and Belarus, the marketing group's success is important to maximize its members' worldwide sales potential.

In the PotashCorp financial report, look closely for comments about the potential K+S deal, but also pay attention to comments about the company's long-term strategic vision. Regardless of whether an acquisition goes through, PotashCorp needs to keep finding new ways to bolster its growth if it wants to make it through this current tough patch in the industry and come out the other side looking stronger than ever.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.