Reuters — Canada’s PotashCorp, set to merge with rival Agrium to withstand a fertilizer slump, reported a smaller-than-expected quarterly profit Thursday and narrowed its full-year forecast, pressuring its stock.
Prices of crop nutrient potash have leveled off this year after hitting eight-year lows late last year due to low crop prices and excessive production capacity.
The slump, which has extended to nitrogen and phosphate fertilizers, has led PotashCorp to seek consolidation and idle capacity.
Potash said the all-stock merger with Agrium, valued at $25 billion when it was announced last year, was on track for completion by the end of the year, forming a new company called Nutrien.
Pressure on Potash stock is likely to be short-lived as investors quickly turn their attention to the merger, combining PotashCorp’s fertilizer capacity with Agrium’s network of stores to sell fertilizer and seed to farmers, said Brian Madden, portfolio manager at Goodreid Investment Counsel, which owns PotashCorp shares.
“The bigger prize is the combination of the two businesses,” Madden said. Nutrien “is going to be bigger, and less volatile.”
The regulatory review and approval process for the Nutrien merger is still underway in the U.S., as well as in China.
India recently approved the merger, contingent on PotashCorp divesting stakes in fertilizer companies ICL Israel Chemicals, SQM and Arab Potash Co. Plc within 18 months of a clearance order from the Competition Commission of India.
PotashCorp should resist using those sale proceeds for further acquisitions in an oversupplied market, Madden said.
PotashCorp’s sales volumes exceeded expectations, but the opening of new mines owned by K+S AG and EuroChem will add competition early next year, said BMO analyst Joel Jackson.
The company’s third-quarter revenue rose 8.6 per cent to $1.23 billion, helped by higher sales volumes and average realized prices of potash.
However, the cost of goods sold rose five per cent in the quarter, resulting in a smaller profit.
Net income fell to $53 million, or six cents per share, from $81 million, or 10 cents per share, a year earlier.
PotashCorp tightened its full-year adjusted earnings to 48 cents to 54 cents per share from 45 cents to 65 cents. Excluding items, profit was nine cents a share, lower than the 12 cents analysts expected, according to Thomson Reuters I/B/E/S.
— Reporting for Reuters by Akshara P in Bangalore and Rod Nickel in Winnipeg. Includes files from AGCanada.com Network staff.