Fertilizer giant Nutrien sticking to plan to boost production; potash sales slump

CALGARY — Nutrien Ltd. is sticking to its plan to increase potash production, even as the Saskatoon-based fertilizer giant cut its full-year guidance for 2022 due to slumping potash sales volumes in the second half of this year.

The company — which is the largest fertilizer producer in the world — saw its share price tumble Thursday after releasing its third-quarter financial results after the close of markets on Wednesday.

By mid-day Thursday, Nutrien's shares were down more than 13 per cent to $98.65 on the Toronto Stock Exchange. Investors appeared to be spooked by the company's announcement that it is lowering its full-year adjusted earnings forecast from the previously stated range of US$14 billion to US$15.5 billion, to a new range of US$12.2 billion to US$13.2 billion.

Nutrien also lowered its full-year guidance for 2022 potash sales to 12.5 to 12.9 billion tonnes, down from a previously announced range of 14.3 to 14.9 billion.

The poorer forecast came in spite of Nutrien's reported third-quarter adjusted earnings per share of US$2.5 billion, or US$2.51 per share, an 82 per cent increase from the the prior year's quarter.

Nutrien also saw its revenue increase by 36 per cent, thanks to higher selling prices for fertilizer and strong results from its farm retail network.

But the company saw its potash sales volumes decline in North America and Brazil during the third quarter, in part because farmers appear to be postponing fertilizer purchases in the face of high prices. A cool wet spring in North America also compressed the planting season and led to less fertilizer going into the ground, said Nutrien interim CEO Ken Seitz on a conference call Thursday.

Seitz said these challenges, while enough to result in a lowered guidance for the year, are "near-term" issues and don't change the company's previously announced plan to increase its annual potash production capability to 18 million tonnes by 2025.

The plan, which was announced earlier this year as the Russia-Ukraine war shook up global agricultural markets and reduced supplies of fertilizer from Eastern Europe, represents an increase of more than five million tonnes, or 40 percent, compared to 2020 production levels.

Nutrien has said it will achieve this by investing in expansions at its existing Saskatchewan mines, including the hiring of approximately 350 more people.

“The longer-term fundamentals for our business remain very strong and the challenge of feeding a growing world has not abated," Seitz said.

"We had a lull in demand here in the third quarter, but again, the backdrop of ag fundamentals remain strong. The supply side continues to be challenged — we see that continuing into 2023.”

Nutrien is forecasting potash supply from Eastern Europe to continue to be constrained in 2023, with shipments from Belarus projected to be down 40 to 60 percent and Russia down 15 to 30 percent compared to 2021 levels. The company is forecasting global potash shipments to be between 64 to 67 million tonnes in 2023, with projected Nutrien potash sales volumes of approximately 15 million tonnes.

In a research note, Raymond James analyst Matt Arnold said while he was slightly disappointed with Nutrien's weaker-than-expected third quarter and its revised guidance for the year, he still believes the company is well-positioned to benefit from long-term trends in agriculture.

“We think the overall backdrop for Nutrien remains favourable given high grain and fertilizer prices," Arnold said. "Also, continued supply disruptions from the Russia/Ukraine conflict are likely, which create market-share opportunities for the company. As a result, we think 2023 should be another strong year for the company.”

This report by The Canadian Press was first published Nov. 3, 2022.

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Amanda Stephenson, The Canadian Press