Potash Corporation of Saskatchewan Inc. (NYSE:POT) earned 96 cents per share in the second quarter of 2011, outperforming the Zacks Consensus Estimate of 86 cents per share. Earnings increased 81% from last year’s 53 cents per share.

Quarterly sales shot up 61.8% to $2,305 million from $1,437 million in the second quarter of 2010 and outpaced the Zacks Consensus Estimate of $1,967 million.

Potash: The segment was the star performer in the second quarter, producing 45.6% ($1,051 million) of total revenue.

Total offshore shipments from North American producers were 23% higher than the year ago quarter. Despite a late planting season, domestic shipments from North American producers during the quarter rose 39% from the same period last year.

Sales volumes of 2.5 million tons increased 32% year over year. Average realized price increased by $107 per ton from the prior-year quarter to $416 per ton.

Higher prices and sales volumes increased the gross margin by almost double to $793 million from $411 million in the comparable year-ago quarter.

Phosphate: Segment revenues increased 76.5% to $593 million with sales volumes of 1.0 million tons, significantly up by 42.8% versus the same period last year. Strong agricultural fundamentals drove higher demand for fertilizer products, both liquids and solids resulting in larger sales volumes.

Average realized phosphate prices for the second quarter was $578 per ton, up 26% year over year.

Prices for liquid and solid fertilizers were up 42% and 29% respectively. Feed and Industrial prices also increased 16% and 15% respectively. Gross margins more than tripled to $166 million versus $49 million in the year ago quarter.

Nitrogen: Revenues in the segment jumped 33.3% to $549 million driven by higher prices across all products led by improved agricultural and industrial demand. Nitrogen, Ammonia and Urea prices escalated 39%, 42% and 33% respectively.

Nitrogen volumes were 1.3 million tons, relatively flat compared with the same quarter last year. Strong industrial and agricultural demand for ammonia resulted in a larger share of production being allocated to this higher-margin product, limiting production of other downstream products.

Nitrogen gross margin climbed to $209 million, an increase of 67% versus the prior year quarter of 2010. The company’s Trinidad operation contributed $104 million in gross margin, while its US operations delivered $105 million.

Cash and cash equivalent amounted to $408 million as of June 30, 2011 versus $412 million at the end of December 31, 2010. Long-term debt stood at $3.7 billion the same as on December 31, 2010.

Potash Corp. expects third-quarter net income per share to be in the range of $0.80 to $1.00 and raised its full-year 2011 earnings to the range of $3.40-$3.80 per share from $3.00 to $3.40 previously.

In North America, the company forecasts that robust potash demand will continue through the second half of 2011. Shipments to North American customers from all suppliers are expected to approximate 10-10.5 million tons for the full year.

Latin American distributors continue to move aggressively to secure potash supplies to meet strong farmer demand, with the majority of third-quarter sales volumes booked at a delivered price of $550 per ton. The company anticipates that total demand in this market will reach 10-10.5 million tons for 2011 (including 7-7.5 million tons of imports to Brazil), with record consumption expected to result in low distributor inventories after its primary planting season.

Potash Corp announced that tightening market conditions are pushing potash prices higher in most major markets, including China, which signed new supply commitments late in the second quarter. China’s second-half 2011 contract with Canpotex, which included a $70-per-ton price increase from previous contract levels, is expected to provide a steady flow of potash to the market.

The company anticipates China’s consumption to approximate 10.5 million tons in 2011, including imports of approximately 6-6.5 million tons. With limited product availability to satisfy its pent-up demand through the remainder of 2011, Potash Corp. expects this market will end the year with reduced inventories.

The company expects its 2011 potash segment gross margin to be in the range of $2.9 billion to $3.2 billion and total shipments within the range of 9.6-10 million tons.

Scheduled maintenance shutdowns and extended expansion-related downtime at the Allan facility will limit its supply of products in the second half of the year. Although the company experienced a longer-than-expected ramp-up at its new Cory mill in the first half of 2011, it expects to begin operating at improved rates during the third quarter.

Phosphate markets are expected to remain strong through 2011, given robust fertilizer demand, the expectation of reduced Chinese exports and higher prices for phosphate rock and phosphoric acid. The company anticipates improved margins for all downstream phosphate products although higher prices for input costs are expected to limit margin upside.

The company expects that strong agricultural and industrial demand will support higher prices of nitrogen through the remainder of 2011. Given these conditions, the company expects its combined phosphate and nitrogen gross margin for 2011 to be in the range of $1.4 billion to $1.6 billion.

The Potash Corporation of Saskatchewan Inc., a Canadian corporation based in Saskatoon, Saskatchewan, is the world’s largest fertilizer enterprise producing three primary plant nutrients – potash, phosphate and nitrogen.

The company competes with BASF (BASFY) and Mosaic Co. (NYSE:MOS).

We currently maintain a Zacks #1 Rank (short-term Strong Buy recommendation) on Potash and a long-term Neutral recommendation. Read More