Potash Corp Harvests Healthy Profits

By Sham Gad | October 31, 2011 AAA

Potash Corp (NYSE:POT), the world's largest fertilizer company, continued to gain profits in the midst of a strong agricultural cycle. Despite the sell-off in agricultural commodities like corn and wheat, demand for fertilizer remained very healthy. For the 2011 third quarter, Potash earned 94 cents per share, up 147% from third quarter of 2010. Sales jumped to $2.3 billion up from $1.5 billion from the same quarter.

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Confident Farmers
Fertilizer buyers continued to purchase products as demand for food remained robust. Indeed, the fertilizer business, as evidenced by Potash's numbers, reveal a very robust environment. Sales of the company's namesake soil fertilizer, potash, jumped to over $1 billion up from $637 billion in the year ago quarter. This was due to a combination of greater volume and sales price. Potash realized an average price of $451 per ton of potash in the 2011 third quarter up from $306 a year ago. The company's other two nutrients, phosphate and nitrogen, also benefited from stronger pricing year over year, with the former nutrient's price being pushed up due to increased input costs for sulfur and ammonia. For the 2011 year, Potash confirmed its full-year earnings guidance of $3.40 to $3.80 although that number could prove to be conservative as the fundamental strength of the industry looks strong in the fourth quarter. (For more on farming investments, read Grow Your Finance In The Grain Markets.)

The Big Three
Despite the market rally in October, fertilizer stocks are still short of their highs reached earlier in the year even though the names like Potash are firing on all cylinders. In addition to Potash, CF Industries (NYSE:CF) and Mosaic (NYSE:MOS) constitute a big portion the industry. CF focuses on nitrogen while Mosaic dominates the phosphate segment with a growing presence in the potash market. CF Industries is expected to announce its third quarter earnings on November 1 and analysts are expecting earnings to surge by over 300%. CF shares trade for about $170 after making a nice comeback during the market rally. Mosaic shares look very compelling trading at around $60 a share, off from $89 earlier this year. The company has no debt and trades for 10 times earnings.

The Bottom Line
Absent another global recession, the environment for fertilizer companies look to remain robust for the foreseeable future. Even a temporary economic downturn does not change the long-term fact that the world will require more food and thus more fertilizer. The agricultural industry as a whole will benefit from this trend and the Market Vectors Agribusiness ETF (NYSE:MOO) is a way for investors seeking exposure without company specific exposure.

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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

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