PotashCorp profit disappoints as merger looms

Share prices are dropping but the merger is expected to eventually bring them up

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(Reuters) —PotashCorp, which is set to merge with Agrium Inc. to withstand a fertilizer slump, has reported a smaller-than-expected quarterly profit and narrowed its full-year forecast, pressuring its stock.


Potash prices have levelled off this year after hitting eight-year lows late last year because of low crop prices and excessive production capacity.


The slump, which has extended to nitrogen and phosphate fertilizers, has led PotashCorp to seek consolidation and idle capacity.


It said the all-stock merger with Agrium, valued at $25 billion when it was announced last year, was on track for completion by the end of the year, forming a new company called Nutrien.


New York-listed shares of Potash dipped 1.7 percent last week to $19.34.


Pressure on PotashCorp stock is likely to be short-lived as investors quickly turn their attention to the merger, combining the company’s fertilizer capacity with Agrium’s network of stores to sell fertilizer and seed to farmers, said Brian Madden, portfolio manager at Goodreid Investment Counsel, which owns PotashCorp shares.


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“The bigger prize is the combination of the two businesses,” Madden said. 


“(Nutrien) is going to be bigger and less volatile.”


India last month approved the merger, contingent on PotashCorp. divesting stakes in fertilizer companies ICL Israel Chemicals , SQM and Arab Potash Co Plc.


PotashCorp should resist using the proceeds for further acquisitions in an oversupplied market, Madden said.


PotashCorp’s sales volumes exceeded expectations, but the opening of new mines owned by K+S AG in Saskatchewan and EuroChem in Russia will add competition early next year, said BMO analyst Joel Jackson.


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The company’s third-quarter revenue rose 8.6 percent to $1.23 billion, helped by higher sales volumes and average realized prices of potash.


However, the cost of goods sold rose five percent in the quarter, resulting in a smaller profit.


Net income fell to $53 million, or six cents per share, from $81 million, or 10 cents per share, a year earlier.


PotashCorp tightened its full-year adjusted earnings to 48 cents to 54 cents per share from 45 cents to 65 cents.


Excluding items, profit was nine cents a share, lower than the 12 cents analysts expected, according to Thomson Reuters.

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