UPDATE 9-Potash rides wave of demand as food prices surge

Thu Jan 27, 2011 6:18pm EST

* Q4 EPS $1.61 vs year-earlier $0.79

* Q4 EPS includes $0.16/shr charge related to takeover bid

* Company ups FY2011 EPS view to between $8.40 and $9.60

* Sets 3-for-1 stock split, raises cash dividend

* Shares close up over 3 pct at $174.14 in New York (Updates link to graphic)

By Euan Rocha

TORONTO, Jan 27 (Reuters) - Potash Corp <POT.TO said on Thursday its profit more than doubled and its outlook for the coming year was even brighter, as record-high world food prices fuel a surge in demand for its fertilizer products.

Shares of the Canadian producer -- the target of a failed, $39 billion takeover bid last year -- rose as much as 6 percent on the bullish report. A three-for-one split of its common shares and a higher cash dividend, announced late on Wednesday, also helped drive the rally.

The robust outlook, combined with the stock split and increased payout, demonstrate the confidence the world's top fertilizer producer has in the market's long-term strength, based on the view that food price inflation will persist, analysts said.

"We all got what we wanted today, there's something for everyone: a stock split, a dividend increase, improved guidance ... All the stars have aligned for fertilizer producers," said Barry Schwartz, a portfolio manager at Baskin Financial, which owns about 40,000 Potash Corp shares.

Demand for fertilizers is the strongest in years as farmers rush to maximize yields after a surge in grain prices last year. Earlier this month, the United Nations food agency said food prices had risen to record highs in December and that some grains could climb even further. [ID:nLDE7041BM]

The price of corn alone has more than doubled over the last six months, while wheat, soybeans and other crops have also risen sharply.

While adverse weather patterns triggered the latest spurt, the jump also aggravated longer-term concerns about global food security as emerging economies compete for limited agricultural resources.

"I think you are looking at multiple years here of higher grain prices and higher ag commodity prices around the world," said Potash Corp Chief Executive Bill Doyle in an interview with Reuters. [ID:nN27258607] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Fertilizer/corn price graphic: r.reuters.com/fur67r Fertilizer sector comparison: link.reuters.com/huv67r For interview with CEO Bill Doyle: [ID:nN27258607] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Shares of Potash Corp topped a 28-month high of $174.31 in New York Thursday. And shares continue to trade well above the $130 a share offered last summer by BHP Billiton (BHP.AX), the Anglo-American mining giant whose hostile takeover bid was blocked by the Canadian government in November.

The stock-price gain, which Doyle had predicted during the takeover battle, reflects the bullish outlook for agricultural inputs in general and fertilizers in particular.

Shares of the company, which rose 6 percent early on Thursday, pared gains later in the session. The stock closed up 3.3 percent at $174.14 in New York and up 2.9 percent at C$172.26 in Toronto.

Some analysts and investors have cautioned that the stock might be slightly overvalued at this time.

"It's hard to justify the current price," said Schwartz. "The only way to justify the current price is if you believe in the long-term fundamentals of potash."

The 3-for-1 split announced late Wednesday effectively cuts the price of an individual Potash Corp share after a 70 percent increase over the past year. The move will help improve trading liquidity and encourage more retail investors to invest in the company, analysts say. [ID:nN26206497]

QUARTERLY RESULTS

Potash Corp's fourth-quarter net income rose to $482.3 million, or $1.61 a share, from $239.2 million, or 79 cents, a year earlier. The company said costs related to the takeover battle with BHP reduced profit by 16 cents a share.

Revenue rose 65 percent to $1.81 billion on the back of higher prices for its nitrogen, phosphate and potash products.

Analysts, on average, had forecast earnings of $1.65 a share, on revenue of $1.62 billion, according to Thomson Reuters I/B/E/S.

Gleacher & Co analyst Edlain Rodriguez said growth will now depend upon Potash Corp's ability to keep raising prices for its namesake crop nutrient, which comes from underground mines, mainly in its home province of Saskatchewan in Western Canada.

The company raised its 2011 earnings forecast to a range of $8.40 to $9.60 a share. In October, it forecast full-year 2011 earnings of $8 to $8.75 a share. The Wall Street consensus for 2011 earnings is currently at $8.89 a share.

Potash Corp also forecast first-quarter earnings of $2.10 to $2.70 a share. Analysts have been looking for earnings of $2.24 a share in the quarter.

After adjusting for the stock split, the company expects first-quarter earnings of 70 cents to 90 cents a share, with full-year 2011 earnings of between $2.80 and $3.20 a share.

The company has earmarked $2.0 billion for capital expenditures in 2011, with $1.4 billion going to potash expansion projects.

Potash Corp now expects 2011 potash shipments of 9.5 million to 10 million tonnes. It had earlier forecast sales shipments of 9.3 million tonnes.

The dividend will increase to 21 cents from 10 cents a share on a pre-split basis. On a post-split basis, the payout will equal 7 cents a share.

The company will pay out the stock split to shareholders in the form of a stock dividend, with each receiving two additional shares for each one owned on the record date of Feb. 16. The plan is subject to regulatory approval. ($1=$0.99 Canadian) (Editing by Frank McGurty)

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