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Potash Earnings Could Lift Ag Stocks (POT, MON, MOS, SYT, AGU)


Agricultural stock and fertilizer maker Potash Corp. (POT) reported a 46% hike in earnings today, from EPS of $1.01 in the first quarter of 2009 to $1.47 in the first quarter of 2010. The POT earnings spike was mainly due to sales of potash, which generated 72% of the company’s total first-quarter gross margin. Agri-business companies Monsanto Corp. (MON), Mosaic Corp. (MOS), and Sygenta AG (SYT) have already reported first quarter results that were mixed at best. Another large manufacturer, Agrium Inc. (AGU) does not report earnings until next week.

The fertilizer industry has been working through stockpiles, and that appears to have been working as Potash Corp. as prices of potash have stabilized and buyers around the world are stocking up again. Demand in the first quarter drove potash stockpiles to levels nearly 40% lower than at the beginning of the quarter.

In the latest POT earnings, Potash Corp. reported that compared with last year the company sold 5X the amount of potash in the first quarter of this year, with the North American market soaking up a record 1.3 million metric tons. Prices were about 40% lower than last year, and production of potash rose 88% compared the year-ago period.

Phosphate margins grew almost 9X compared with the first quarter of 2009, again due to improved demand. Margins on nitrogen more than doubled and sales grew 5% over the first quarter of 2009.

Potash Corp. believes that this is only the beginning of a “strong fertilizer demand in coming years.” Rising demand for food will drive demand for all three of the company’s nutrients, especially potash. In Potash earnings for the first quarter, the company said it expects full-year gross margins to be in the range of $1.5-$1.8 billion and believes it will sell 7.4-8 million metric tons of potash. Combined gross margins for phosphate and nitrogen are expected to reach $500-$700 million.

For the full fiscal year, Potash Corp. expects to EPS of $4.50-$5.25, and EPS of $1.00-$1.30 for the current quarter. That seems pretty cautious, given the company’s EPS of $1.47 in the first quarter and all the analysis it provides on future shipments.

But Potash Corp.’s outlook is a lot brighter than what we’ve seen already from Monsanto, Mosaic, and Sygenta. The Market Vectors Agribusiness ETF (MOO) holds roughly equal stakes in all these companies except Agrium. The ETF is up more than 1% today, almost as much as the 1.5% or so that Potash Corp. is up.

Even though Potash Corp. was removed from the ‘Conviction Buy’ list at Goldman Sachs, the fertilizer maker posted strong enough numbers to pick up the whole sector. This could, in fact, be the start of something good.

Article printed from InvestorPlace Media,

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