By Rod Nickel
(Reuters) - Potash Corp of Saskatchewan Inc, the world's biggest fertilizer producer, reported a lower-than-expected quarterly profit on Thursday and cut its outlook as prices of its crop nutrients fell.
The Canadian miner's U.S.-listed shares dropped as much as 5.2 percent to their lowest in nearly three years earlier in the day. But by the afternoon, the stock had pared its losses in New York to a drop of 1.8 percent to $37.24 and down 2.2 percent to C$38.30 in Toronto.
Producers of crop nutrients potash and phosphate have struggled to stop a slide in prices amid ample supplies and soft demand in key importer India because of reduced government subsidies and a weakening rupee.
Unfavorable subsidy conditions, which favor nitrogen over potash and phosphate, might not improve for up to a year until after India's spring election, said Chief Executive Officer Bill Doyle, echoing earlier comments by rival Mosaic Co.
But "it depends on how urgent it gets," Doyle said in an interview with Reuters. "If the crop comes off very poorly, they may have an emergency situation they have to address before the election."
Poor crops this year would likely pressure the Indian government to boost fertilizer subsidies to help farmers maximize output in the following cycle and avoid a food shortage.
Doyle added that, while India's soft demand is a "drag" on Potash Corp, it is a bigger problem for nearby fertilizer producers such as ICL Israel Chemicals Ltd and Arab Potash Co Plc.
The decline in potash prices has prompted several major companies, including Vale SA and Mosaic Co, to delay plans for new or expanded mines.
North American potash stocks have also piled up in the past year, sitting 14 percent above the five-year average in June.
Potash said on Thursday that it would run two of its mines at reduced rates for the rest of the year, adding to earlier curtailments announced by the company and Mosaic. [ID:nL2N0F20Q3] [ID:nL1N0FM0A9] The result will be lower company stockpiles than normal at the year-end, Doyle said.
The company's production curtailments are no surprise considering the ample supplies and soft prices, said Cowen Securities analyst Charles Neivert.
"You don't keep producing when things stink," he added.
The Saskatoon, Saskatchewan-based company, the world's largest potash producer by capacity, expected 2013 earnings of $2.45 to $2.70 per share, down from a prior forecast of $2.75 to $3.25. Analysts on average had forecast $2.89, according to Thomson Reuters I/B/E/S.
For the third quarter, Potash forecast profit of 45 cents to 60 cents per share, far short of Wall Street expectations of 73 cents.
The company's potash sales fell slightly to 2.5 million metric tons in the second quarter from a year earlier, while the average realized price dropped 18 percent to $356 per metric ton (1.1023 tons). However, with prices dropping, demand is strong.
Potash Corp expected global 2013 potash shipments of nearly 56 million metric tons, matching a two-year record and at the midpoint of its previous forecast of 55 million to 57 million metric tons. It maintained its forecast for its own 2013 potash shipments at between 8.5 million and 9.2 million metric tons.
Achieving those levels depends in large part on a second-half supply contract with Chinese buyers. Canpotex Ltd, the offshore sales agency for Potash Corp, Mosaic and Agrium Inc, is in talks with China's Sinofert Holdings Ltd
Doyle expected a deal by the end of the third quarter, once China works through its ample inventory.
The company sold roughly the same volume of phosphate as a year earlier, 900,000 metric tons, and 8 percent more nitrogen at 1.4 million metric tons, but prices of both nutrients fell. Potash's average realized price per metric ton dropped 6 percent to $517 for phosphate and fell 7 percent to $406 for nitrogen.
Net earnings in the second quarter rose to $643 million, or 73 cents per share, from $522 million, or 60 cents per share, a year earlier, when the company took a large impairment charge on one of its investments.
Earnings per share in the latest quarter fell into the lower end of the company's forecast range and missed analysts' estimates of 81 cents.
Sales fell about 11 percent to $2.14 billion, while analysts were expecting $2.2 billion.
Last week, Mosaic reported a 4 percent decline in quarterly earnings and forecast further drops in potash and phosphate prices.
Potash said after markets closed on Wednesday that it would buy back $2 billion worth, or 5 percent, of its common shares over a one year period.
(Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Lisa Von Ahn and Andre Grenon)