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Potash Harvest Profits
Thanks to a continued demand in food supply and strong grain prices, Potash Corp (NYSE:POT) finished the 2010 year on a sizzle. For the fourth quarter of 2010, Potash delivered fourth quarter earnings of $1.61 per share or $482.3 million, the highest quarterly total for 2010 and more than double the 79 cents per share earned in the same period last year. As a result, full-year earnings rose to $5.95 per share - the second-highest total in company history - and was nearly double the $3.23 per share earned in 2009.
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You Reap What You Sow
Ever since the economy sunk into a recession and fertilizer prices fell through the roof, Bill Doyle, the CEO of Potash, has been steadfast in his belief that fertilizer demand could not remain restricted for long. The need for fertilizer is paramount to crop production and farmers could only stay away for so long. Further, world food demand is not a discretionary statistic. A little over a year later, Doyle's comments are were 100% accurate. (For more, see Potash Continues To Surge.)
As the largest fertilizer company in the world, Potash is an enviable position. Along with Mosaic (NYSE:MOS), these two businesses play a pivotal role in global food production. Just a few short weeks earlier, Mosaic reported it's set of market beating results. Even more so, the outlook for the year ahead and beyond looks even better.
Sunny Days Ahead
According to the company, global potash shipments reached 52 million tons in 2010. For 2011, the company sees demand picking up to 55 to 60 million tons, depending on how quickly farmers work to replenish soils, and Potash expects to earn between $8.40 and $9.60 a share. Recently, the company announced it's intent to initiate a three-for-one stock split. The EPS forecast is pre-split. Post split, 2011 EPS is forecasted to be between $2.80 and $3.20 a share. (For related reading, see Cargill To Dispose Of Mosaic.)
The strong outlook for Potash will benefit an industry that also includes names like Agrium (NYSE:AGU), which also has a retail side to its fertilizer business. The Market Vectors Agribusiness ETF (NYSE:MOO) can give you exposure to all these names. But investors should be warned that the ETF also includes names like Monsanto (NYSE:MON) and Archer Daniels Midland (NYSE:ADM), two quality businesses that don't have the fertilizer exposure.
The Bottom Line
Potash Corp's strong earnings and even stronger outlook indicate a strong multi-year cycle ahead for the fertilizer business. Any opportunity to pick up shares on a dip should be considered very carefully. (For more, see 5 Things To Know About Potash.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 9 Simple Investing Ratios You Need To Know
You Reap What You Sow
Ever since the economy sunk into a recession and fertilizer prices fell through the roof, Bill Doyle, the CEO of Potash, has been steadfast in his belief that fertilizer demand could not remain restricted for long. The need for fertilizer is paramount to crop production and farmers could only stay away for so long. Further, world food demand is not a discretionary statistic. A little over a year later, Doyle's comments are were 100% accurate. (For more, see Potash Continues To Surge.)
As the largest fertilizer company in the world, Potash is an enviable position. Along with Mosaic (NYSE:MOS), these two businesses play a pivotal role in global food production. Just a few short weeks earlier, Mosaic reported it's set of market beating results. Even more so, the outlook for the year ahead and beyond looks even better.
According to the company, global potash shipments reached 52 million tons in 2010. For 2011, the company sees demand picking up to 55 to 60 million tons, depending on how quickly farmers work to replenish soils, and Potash expects to earn between $8.40 and $9.60 a share. Recently, the company announced it's intent to initiate a three-for-one stock split. The EPS forecast is pre-split. Post split, 2011 EPS is forecasted to be between $2.80 and $3.20 a share. (For related reading, see Cargill To Dispose Of Mosaic.)
The strong outlook for Potash will benefit an industry that also includes names like Agrium (NYSE:AGU), which also has a retail side to its fertilizer business. The Market Vectors Agribusiness ETF (NYSE:MOO) can give you exposure to all these names. But investors should be warned that the ETF also includes names like Monsanto (NYSE:MON) and Archer Daniels Midland (NYSE:ADM), two quality businesses that don't have the fertilizer exposure.
The Bottom Line
Potash Corp's strong earnings and even stronger outlook indicate a strong multi-year cycle ahead for the fertilizer business. Any opportunity to pick up shares on a dip should be considered very carefully. (For more, see 5 Things To Know About Potash.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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