2nd UPDATE: K+S 4Q Adjusted Profit Soars, Shares Slip On Bleak '09 View
March 12 2009 - 8:25AM
Dow Jones News
German fertilizer and salt supplier K+S AG (SDF.XE) Thursday
unveiled a sharp rise in fourth-quarter adjusted after-tax earnings
on higher fertilizer prices but said a volume decline that began in
that quarter will lead to "significantly" lower sales and earnings
in 2009, news that sent its shares sharply lower.
In 2009, a significant drop in sales will offset high prices for
potash and magnesium products, leading both operating earnings and
after-tax profit to be considerably lower than the peak seen in
2008 but above 2007 levels, said Chief Executive Norbert
Steiner.
K+S shares fell sharply after the news to a 2009 low of
EUR30.38. At 1239 GMT shares were trading down 7.6% at EUR31.44,
underperforming the German market, with the DAX down 1.5%.
K+S has scaled back potash fertilizer production and introduced
shorter working hours in the first half of 2009, due to a sharp
drop in demand among both agricultural customers and producers of
complex fertilizers.
For 2010 K+S said it is "highly probable" that volumes in the
potash and magnesium products segment will grow again, leading to a
marked increase in revenues and operating earnings.
Fourth-quarter after-tax profit adjusted for the effect of
market value changes in hedging transactions and tax effects, was
EUR227.5 million, soaring from EUR22.9 million in the same period
of 2007 and beating an average forecast of EUR224 million in a Dow
Jones poll of 15 analysts.
Operating earnings came in at EUR287.8 million from EUR33.6
million in the previous fourth quarter, and below analysts'
estimate of EUR338 million.
Revenues in the quarter were up year-on-year by 6.9% to EUR955.5
million from EUR893.7 million, falling short of analysts' average
forecast of EUR1.21 billion.
Commerzbank analyst Stephan Kippe said fourth-quarter sales and
earnings were below expectations, mainly due to a significant
potash volume slowdown. Given that management expects tangibly
higher potash prices in 2009, talk of significant declines in sales
and earnings "indicates volume expectations are far below market
projections," he said.
Sentiment should be damaged by the fact that K+S failed to meet
its fourth-quarter sales guidance of just under EUR1.4 billion,
since top-line visibility is important for earnings projections
considering K+S' high operational leverage, Kippe said, adding he
will review his buy rating and EUR60 target price for the
company.
At the results press conference, CEO Steiner said K+S hasn't yet
reached the limits of its potential in the salt business and would
closely examine all opportunities arising on the market, including
Compass Minerals International Inc. (CMP).
Steiner declined to comment on speculation of a potential
acquisition of Compass Minerals or the fertilizer division of Dutch
chemicals company Koninklijke DSM NV (DSM.AE).
A report in the U.K. newspaper Daily Telegraph last week said
K+S would decide Sunday on a possible $2.4 billion cash bid for
Compass Minerals.
BASF SE (BAS.XE) holds a stake of around 10% in the fertilizer
company, according to the K+S web site.
The German fertilizer producer competes with Agrium Inc. (AGU),
The Mosaic Co. (MOS), Potash Corp. of Saskatchewan Inc. (POT) and
Yara International ASA (YAR.OS).
K+S shares joined the DAX index last September and have lost
around 23% of their value in the last 12 months and around 64%
since their peak last June.
Company Web site: www.k-plus-s.com
-By Erin Fines, Dow Jones Newswires, +49 69 29 725 511;
erin.fines@dowjones.com (Heide Oberhauser-Aslan contributed to this
report)