Image source: PotashCorp.

Agriculture is a cyclical industry, and fertilizer company Potash Corp. of Saskatchewan (NYSE:POT) has seen the impact of massive fluctuations in prices of farm products and other commodities. Like industry peer Mosaic (NYSE:MOS), PotashCorp has had to deal with falling revenue stemming from reduced demand and weaker prices for its fertilizers, and coming into Thursday's third-quarter financial report, PotashCorp investors had braced themselves for slight declines in the company's main financial metrics. Still, PotashCorp's actual results were worse than investors had been prepared to see, and future guidance raised even more concerns about the timeline for its long-awaited recovery.

Let's take a closer look at what PotashCorp told investors and whether a turnaround is still in the cards for the fertilizer giant.

PotashCorp keeps sinking
PotashCorp's third-quarter results didn't look particularly healthy. Sales fell 7% to $1.53 billion, although that was better than the $1.43 billion figure that many investors had expected. Even worse, net income fell at a steeper 11% rate to $282 million, and that worked out to earnings of $0.34 per share, falling $0.03 short of the consensus earnings forecast among those following the stock.

A closer look at PotashCorp's three main segments once again showed how each fertilizer market behaves differently. The potash market saw increased offshore demand, with PotashCorp shipping 2.2 million tonnes overall and seeing gross margins stay flat compared to year-earlier levels. Offshore shipments amounts to 1.5 million tonnes, with Latin America, China, India, and other Asian markets being the primary destinations for shipments through the Canpotex marketing group, of which PotashCorp is a member. Potash prices fell to $250 per tonne, down more than $30, but lower costs helped to offset some of the pricing decline.

The nitrogen and phosphate markets didn't fare as well. Nitrogen gross margins fell more than 30%, as weak demand and facilities issues held sales volumes down. Pricing declines reflected increased supply in the nitrogen fertilizer market. For phosphates, gross margins fell 18% despite slight rises in sales volumes and prices, as maintenance costs and other expense increases boosted costs of goods sold to a large enough extent to wipe out positive revenue factors. Those results are fairly consistent with the trends that Mosaic has seen, with its greater emphasis on phosphate fertilizers giving Mosaic more exposure to that segment.

CEO Jochen Tilk acknowledged the tough conditions in the industry. "Broader emerging market concerns have weighed on customer sentiment," he said, "contributing to a weaker fertilizer environment in the second half of 2015." Yet Tilk still believes that long-run prospects for the company remain favorable as the need for rising production isn't going away anytime soon.

What's ahead for PotashCorp?
Tilk maintained a positive tone for the future. "Despite challenges over recent months, we are seeing signs of a shift in focus by distributors and farmers to 2016," Tilk said. Strong underlying consumption trends remain encouraging in PotashCorp's view.

Yet PotashCorp once again made downward revisions to some of its guidance. The company no longer believes that global potash shipments industrywide will hit 60 million tonnes, expecting levels further away from the top end of its 58 million to 60 million tonne range. It also cut its own sales guidance, now expecting 9 million to 9.2 million tonnes of potash for the full year, with gross margins in the $1.4 billion to $1.5 billion range due to weaker volume and prices. Nitrogen and phosphate guidance also took a hit, with PotashCorp narrowing its gross margin range to $1 billion to $1.1 billion based largely on the nitrogen segment's poor fundamental prospects.

The net impact of all of these moves was to cut earnings guidance to a range of $1.55 to $1.65 per share. That was down from its previous range of $1.75 to $1.95 per share, which had already reflected previous negative moves in the more distant past.

PotashCorp also took the dramatic step of accelerating the closure of its New Brunswick Penobsquis mine. Doing so will cut expenses even though it will present a near-term challenge to production capacity. Temporary inventory shutdowns at three of its Saskatchewan locations will contribute to about a half-million tonne drop in production for the fourth quarter. That's similar to steps Mosaic has taken, with a recent decision to cut 8% of Mosaic's workforce at its Colonsay mine in Saskatchewan.

PotashCorp didn't respond favorably to the news, falling 3% to 4% in early trading following the announcement. As exciting as long-term trends might be, PotashCorp investors might have to wait longer than they thought in order to see industry conditions return to more favorable levels.