PotashCorp sees an even more difficult 2014

PotashCorp (TSE:POT) – the world's largest crop nutrient company – certainly didn't have an easy year in 2013, but based on its latest earnings guidance, the company might be bracing for an even more difficult 2014.

The Potash Corporation of Saskatchewan's earnings guidance for 2014 is between $1.40 and $1.80 per share – well below the $2.04 earned in 2013 and $2.37 the year before. Analysts surveyed by Bloomberg were expecting a guidance of around $2.

The company's share price shed nearly 2% on the Toronto Exchange following the news on Thursday. By mid-afternoon shares were trading at $34.93 apiece.

The Saskatoon-based miner says "challenging fertilizer market conditions" impacted its performance.

"This past quarter was a difficult one," CEO Bill Doyle said in a statement. "Pricing headwinds – most notably in potash – weighed on our performance, although there were signs as the quarter came to a close that the uncertainty in global markets was beginning to abate. Our focus remained on those things we can influence and we took important steps to enhance our competitive position across all three nutrients and prepare the company to deliver better performance."

After a dismal summer, potash demand improved during the fourth quarter of 2013, most notably in North America, PotashCorp noted. In fact, shipments from North American producers rose by 30% compared with the same quarter the year before. However, shipments to key contract markets were limited.

"Increased supply capability combined with relatively constrained demand resulted in continued price erosion through the last three months of 2013," the company wrote.

Global potash prices sunk after Russia's Uralkali and Belarus' Belaruskali parted ways. Together, the two controlled roughly 43% of global exports, giving them enormous control over prices.

The miner sold potash for an average of $282 per tonne in the fourth quarter – 27% lower than in Q4 2012 – and for $332 on average throughout the year.

Lower prices didn't just affect profits: The company laid off about 18% of its workforce during the past year.

Outlook

The fertilizer giant says potash market fundamentals are intact: Record crop production in 2013 will continue to drive demand for soil nutrients. Indeed, Canada produced record levels of both canola and wheat during the past year.

"We expect farmers, especially those in more developed agricultural economies, will strive to increase their soil productivity in order to maximize returns from each planted acre," PotashCorp wrote.

Dolye noted that "there remains a tremendous nutrient requirement in soils around the world and farmer economics continue to be supportive to addressing this need."

The company also believes that the uncertainty of the past six months is subsiding and expects global demand to improve. As a result, PotashCorp expects global shipments for the year to rise by about 5% on 2013 levels.

But while demand is expected to pick up, the company doesn't see this translating into immediate financial gains, hence the disappointing earnings guidance.