Potash Corp doubles profit, raises forecast

TORONTO (Reuters) - Potash Corp, helped by rising demand for fertilizer as world food prices soar, has doubled its profit and issued far stronger forecasts for the year ahead, sending its shares 1.7 percent higher on Thursday.

The Canadian company, the target of a failed $39 billion hostile takeover bid last year, also announced a three-for-one split of its common shares and increased its cash dividend.

Analysts said those moves demonstrate the confidence that the world's largest fertilizer producer has in the market's long-term strength, based on the view that global food price inflation will persist.

"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.

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.

Shares of Potash Corp recently hit a 28-month high of $174.31 in New York. That was well above the $130 offered last summer by Anglo-Australian mining giant BHP Billiton, whose takeover bid was blocked by the Canadian government in November.

The stock-price gain, which Potash Corp Chief Executive Bill 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 more than 5 percent early on Thursday, pared gains by mid-morning. The shares were up 1.7 percent at $171.46 in New York and up 1.6 percent at C$170.08 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 (stock) 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.

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 February 16. The plan is subject to regulatory approval.

($1=$0.99 Canadian)

(Reporting by Euan Rocha. Editing by Frank McGurty and Peter Galloway)