1ST QUARTER: POTASH CORP'S EARNINGS DOWN 23%
Apr. 24, 2014
Source: Potash Corp news release
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Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported earnings of $0.40 per share ($340 million) for the first quarter of 2014, a total that included a $69 million ($0.06 per share) special dividend from our investment in Israel Chemicals Ltd. (ICL) as well as a $38 million ($0.04 per share) non-cash impairment charge related to our investment in Sinofert Holdings Limited (Sinofert).
This result compares to the $0.63 per share ($556 million) earned in the same period last year.
Gross margin for the quarter totaled $565 million, below the $867 million generated during the first quarter of 2013. Despite an improving environment for both demand and pricing compared to the final quarter of 2013, realizations in all three nutrient segments lagged behind those of the first quarter last year and negatively impacted our earnings.
Adjusted earnings before finance costs, income taxes, depreciation and amortization and certain impairment charges2 (adjusted EBITDA) of $745 million and cash from operating activities of $539 million declined 23 percent and 27 percent, respectively from first-quarter 2013.
Contributions from dividends and our share of equity earnings from investments in Arab Potash Company (APC), ICL and Sociedad Quimica y Minera de Chile S.A. (SQM) totaled $100 million for this year's first quarter, including the ICL special dividend. The market value of our investments in these publicly traded companies, as well as Sinofert, was approximately $5.4 billion or $6 per PotashCorp share at market close on April 23, 2014.
"After an especially challenging environment in the second half of 2013, greater demand and stability emerged early in the year," said PotashCorp President and Chief Executive Officer Bill Doyle.
"We saw strong customer engagement ahead of the spring planting season, particularly in potash. Despite weather-related issues that impacted our results, especially in phosphate, we were able to deliver earnings above our quarterly guidance range."
Market Conditions Potash demand and spot market pricing strengthened throughout the first quarter. In North America, demand was robust as fertilizer distributors worked to position product ahead of the spring planting season. Even as shipments from domestic producers climbed 48 percent above those during the same period last year, ongoing rail constraints - precipitated by difficult winter conditions and a record grain harvest in Canada - kept dealer supplies tight.
Although demand from Brazil and Southeast Asian countries strengthened, North American producers' offshore shipments fell slightly below those of the same period last year as logistical challenges constrained their abilities to satisfy all demands for product.
Offshore sales were further impacted by delayed supply contracts with Chinese and Indian buyers relative to 2013. Amidst strengthening market fundamentals, potash prices in all spot markets increased from the beginning of 2014 - most notably for granular product - but remained well below those of the comparative period in 2013.
In nitrogen, first-quarter ammonia production in the US reached its highest level in more than a decade as additional capacity came online and producers responded to strong agricultural and industrial demand.
While ammonia prices trailed the historically high levels of 2013 - a period characterized by especially strong demand and supply challenges in key producing regions - they moved up sharply as the quarter came to a close. Demand for urea was also robust ahead of the North American spring planting season.
With imports lower than those of the previous year, North American supply tightened and urea prices strengthened over the course of the quarter, although key benchmarks remained below those of the same period in 2013. Production and logistical challenges also impacted global phosphate markets.
This was especially true in North America where a combination of supply disruptions and an improved demand environment caused prices for all phosphate fertilizer products to strengthen during the quarter. Despite this move upward, weak market fundamentals through the second half of 2013 kept pricing levels for the quarter below those of the comparative period last year.
First-quarter 2014 potash gross margin of $300 million was below the $504 million generated during the comparable period last year as the favorable impact of lower per-tonne costs and slightly higher sales volumes was more than offset by lower prices. Strong buyer engagement in key markets pushed our total sales volumes for the first quarter to 2.3 million tonnes, slightly above the 2.2 million tonnes sold during the first three months of 2013.
North American totals reached 1.0 million tonnes, 24 percent higher than the same period last year as we leveraged our extensive warehousing and distribution capabilities to meet strong demand.
Our offshore sales volumes of 1.3 million tonnes fell below 2013's first-quarter total of 1.4 million tonnes as delayed Chinese and Indian contracts and rail constraints limited shipments.
The majority of Canpotex3 sales for the quarter were to Other Asian countries (47 percent) and Latin America (27 percent), while China and India accounted for 16 percent and 3 percent, respectively.
Potash prices began to trend upward in key markets as the quarter progressed, but the sharp decline during the second half of 2013 weighed on realizations. As a result, our first-quarter average realized potash price of $250 per tonne was well below the $363 per tonne of the same period last year. With improved demand, potash production reached 2.4 million tonnes, exceeding the 2.0 million tonnes produced in 2013's first quarter.
Higher operating rates, savings from workforce changes, optimization of tonnage from our lower-cost facilities and a favorable impact from a weakened Canadian dollar improved our per-tonne costs by 13 percent compared to the same period last year.
In nitrogen, gross margin for the first quarter totaled $239 million compared to $271 million in the same period of 2013 as the positive impact of increased sales volumes was more than offset by weaker price realizations.
Our US operations generated $146 million of gross margin for the quarter, while our facility in Trinidad contributed $93 million. First-quarter sales volumes of 1.6 million tonnes exceeded the 1.5 million tonnes sold during the same period of 2013. Strong operating rates across all our nitrogen facilities and the benefit of a full quarter of production at our Geismar ammonia plant (which was restarted in late-February 2013) were the primary contributors.
Prices for all three nitrogen product categories declined as weaker market fundamentals kept benchmark prices (and our realizations) below those of first-quarter 2013. As a result, our average realized price of $344 per tonne in the first quarter was below the $436 per tonne earned last year.
The total average cost of natural gas used in production for the first quarter, including the impact of our hedge position, was $5.40 per MMBtu, an 11 percent decrease from the same period last year.
Our diversified production profile helped contribute to a 22 percent improvement in our per-tonne cost of goods sold compared to last year's first quarter as lower gas costs in Trinidad - the result of pricing linked largely to ammonia - helped offset higher spot prices in the US.
First-quarter phosphate gross margin totaled $26 million, generated almost entirely from our feed and industrial business. Beyond the market and operating headwinds we faced, other accounting items recognized in our costs of goods sold totaled $29 million, including those related to accelerated depreciation and asset retirement obligations. As a result, first-quarter gross margin was well below the $92 million earned in the comparable period last year.
Weather-related production issues reduced operating rates across all our facilities and constrained our sales for the quarter. Sales volumes totaled 0.8 million tonnes in this year's first quarter, below the 0.9 million tonnes sold during the comparative period in 2013.
Our average realized phosphate price for the quarter was $484 per tonne, down from the $549 per tonne realized in the same period last year. Weaker fertilizer market conditions through the second half of 2013 weighed on our first-quarter realizations and led to a 17 percent decline compared to last year, while our historically more stable feed and industrial products fell by 4 percent.
Per-tonne cost of goods sold remained relatively flat compared to the first quarter of last year as the favorable impact of lower input costs for sulfur and ammonia - as well as efficiencies achieved through our previously announced workforce and operational changes - were offset by lower production volumes and accelerated depreciation and asset retirement obligation adjustments noted above.