Earnings Recap Cheat Sheet: Potash (POT) Doubles Profits, Rises 7%

Earnings: Q2 profits of $1.38 (excluding a special dividend of $0.17) vs. $1.19 consensus and $0.62 in Q2 last year.

Revenue: Up 68% YoY to $1.44 billion vs. estimates of $1.4 billion.

During the conference call, management noted that, “demand for food continued to rise in the quarter and grain inventories [are] expected to tighten, creating an environment that supported the ongoing rebound in fertilizer demand and operating rates.”

Comment: Potash Corp. (NYSE: POT) beat on the numbers and boosted 2010 guidance as the continuing recovery in fertilizer demand allowed it to more than double second-quarter profits when it reported its quarterly results this past Thursday before the bell.  Q2 GMs more than tripled to $584 million and EBITDA more than doubled to $769 million.  The company said that significantly improved potash sales volumes, totaling 1.9 million metric tons for the Q, generated potash-specific GMs of $397 million.  However, realized potash prices were down about 35% YoY as new pricing was established in all major markets in the wake of the global economic downturn.

Management boosted guidance again and is now expecting earnings of $5-$5.50 for the year and Q3 EPS of $0.80-$1.20 a share.  Previous guidance sought $4.50-$5.25 for the year.   Consensus FY2010 EPS estimates now stand at $5.31.

After surging to highs of $241.62 in the summer of ’08, shares of the Saskatoon based potash producer fell all the way to $47.54, an 80% dip.  Since then, there has been a degree of stabilization, as shares have bounced around between $100-$120 for most of the past year before finally breaking downward during the July lows.  POT has rallied nicely since then and was knocking on the door of it’s former range heading into Thursday’s earnings release, trading at $97.71.  Following the strong report, shares were lifted back above $100, finishing up the week at $104.87.

Given POT’s recent strength on high volume, shares have firmly re-taken their prior range.  As such, a move back into the 115-120 area is likely to occur if we get a strong market over the next month or so.  POT is about as tied to the global ag boom as a company can be, and as such, shares are highly correlated to global macro news.  If you’re a believer in the recovery, this is definitely the type of name you want to be in.

Disclosure: No holdings in POT.