Update Potash of Saskatchewan (POT)
Potash of Saskatchewan (POT) has been telling investors for more than a month that it believes that demand is picking up and that prices for potash fertilizer would start to climb in the first quarter of 2010.
I guess the company really meant it.
Yesterday, March 11, after the close of trading Potash raised earnings guidance for the first quarter to a range of $1.30 to $1.50 a share. That is a huge leap from prior guidance of 70 cents to $1 a share set only on January 28. The Wall Street consensus had been for earnings of 94 cents a share. The company said it would make any revisions to guidance for the full year when it reported first quarter earnings on April 29.
The increase in guidance follows hard on the heels of news from Canpotex, the export arm of Canada’s fertilizer producers, that it was increasing export prices for potash. The price increase, effective immediately on all new sales, took prices to $415 a ton for standard and $430 a ton for granular grade.
In the January 28 guidance that accompanied fourth quarter earnings, the company had projected potash prices of just $365 a ton for 2010. At the time I called first quarter 2010 guidance laughably low. “The numbers don’t make a whole lot of sense except as a reaction by the company to seeing its guidance get smashed to the downside in quarter after quarter,” I wrote.
The jump to $415 to $430 a ton in March, however, is a bigger increase than I’d expected this early in the year.
Update Deere (DE)
Deere (DE) is both a stock and one of the most reliable indicators of the fortunes of the agricultural sector.
No matter whether you own Deere (the shares are a member of the Jubak Picks 50 long-term portfolio) or are waiting for a turn in the sector as a whole, you should be very happy with the earnings, revenue, and guidance that Deere reported this morning, February 17.
Update Yara International (YARIY.PK)
Norwegian fertilizer maker Yara International (YARIY.PK), already the biggest publicly-listed fertilizer maker in the world, just bought itself a big hunk of the North American market.
In an all-cash deal Yara agreed yesterday, February 15, to buy Terra Industries (TRA) for $4.1 billion. Terra had been the object of a hostile bid from CF Industry Holdings (CF) that had valued the company at $3.88 billion.
The price certainly can’t be called cheap–Yara is paying a 24% premium to the February 12 price for Terra–and there aren’t a lot of synergies in the deal—Yara has pegged cost savings post-acquisition at just $60 million in the first year.
But buying Terra will give Yara a 30% share in the North American market. And access to cheap U.S. natural gas. With natural gas, a major fertilizer feed stock, projected to stay cheaper in the United States than in Europe for at least the next few years, the deal gives Yara a big low-cost manufacturing base. In addition using company estimates and discounting for some inefficiencies in older and smaller Terra plants, it looks like Yara is adding capacity for about 20% less than it would cost to build new plants from scratch.
Yara management has set a goal of 10% global market share; this deal brings Yara to about 8%.
Whether the deal is good for Yara shareholders or not depends on your view of fertilizer demand.
Update Potash of Saskatchewan (POT)
Investors get gun shy. Make every attempt to buy into a market correction a big loser and most investors won’t put a dollar in even when there’s concrete evidence of a turnaround.
Companies do too. After seeing every projection for the price of potash fertilizer and for the company’s earnings turn out to be laughably high for the last year, management at Potash of Saskatchewan (POT) has finally come out with guidance that strikes me as laughably low.
On January 28, the company announced fourth quarter earnings of 80 cents a share. That was 2 cents a share above the Wall Street consensus but a huge drop from the $2.03 a share in the fourth quarter of 2008.
Sell Deere (DE)
Sometimes the words are worse than the numbers. And that’s the case with Deere’s (DE) November 25 guidance for fiscal 2010, which began on November 1, 2009.
The company said fiscal 2010 earnings would come in at $2.12 a share on a 1% decline in sales. First quarter fiscal 2010 sales will be down about 10%, the company projects.
That’s no big deal and I’d be inclined to sit those numbers out and wait for the turn in Deere’s business that everyone expects in fiscal 2010.
Except for the words that the company used in describing fiscal 2010 sales. Those words lead me to sell Deere out of my 12-18 month Jubak’s Picks portfolio. I’m keeping the stock in my long-term Jubak Picks 50, however.
