UPDATE 2-Yara Q4 misses forecast, shares up on phosphate news

(Adds details, quotes, updates share price)

By Aasa Christine Stoltz

OSLO, Feb 14 (Reuters) - Norwegian fertiliser group Yara (YAR.OL) posted a smaller-than-expected rise in fourth-quarter operating profit on Thursday, but its shares rose after it said it would expand phosphate capacity at its new Finnish unit.

It also said its markets had improved, prices rose during the quarter and prospects for the company were strong.

"Prices have increased very much in the last quarter from last year, and there have been significant market improvements in all regions," Chief Executive Thorleif Enger told a news conference.

"If we look at the next 12 months, I think that the fundamentals are very, very strong."

Yara's shares initially fell, but then rose and were up 5.8 percent at 292 crowns by 1307 GMT, valuing the company at about $15.6 billion. The Oslo bourse benchmark index .OSEBX was up 2.4 percent.

Fondsfinans analyst Christian Must said Yara's shares were helped by news of the capacity expansion at its Finnish phosphate operation.

Operating profit rose to 1.49 billion Norwegian crowns ($271.1 million) in the three months to the end of December from 521 million in the same quarter a year earlier.

The average operating profit forecast of 10 analysts polled by Reuters was 1.74 billion crowns. Estimates ranged from 1.23 billion to 2.15 billion crowns. Analysts said the results miss could partly be due to price rises filtering through after a lag.

But higher-than-expected foreign exchange gains lifted net profit to 2.05 billion crowns, above an average forecast of 1.75 billion. Fourth-quarter figures also included non-recurring items and a gain of 795 million crowns from a new joint venture, Yara Praxair.

PHOSPHATE

Yara said it planned to increase annual capacity at its phosphate rock mine in Finland by about 35 percent.

Last autumn Yara completed the acquisition of Finnish phosphate fertiliser producer Kemira GrowHow, which was included in the fourth-quarter results.

It said the integration of GrowHow was going well, and it saw further synergies of 140 million crowns from GrowHow's UK unit. In November, Yara said it targeted synergies, excluding the UK venture, of 85-110 million euros ($160.7-$124.2 million).

It also said global fertiliser demand was supported by tight food markets and falling grain stocks, which had driven grain prices to historical highs. The market would remain tight for the next 12 months, it said.

Yara's report followed better-than-forecast earnings from Canadian rivals Agrium (AGU.TO) on Wednesday and Potash Corp (POT.TO) at the end of January, also boosted by strong prices.

Yara estimated energy costs for the first half would be about 1.2 billion crowns higher than last year, and about 1 billion crowns higher in the first quarter compared to the same quarter in 2007. But is said current fertiliser price levels would "more than compensate" for those higher costs.

Fertiliser production is energy intensive.

"They are guiding somewhat higher on energy costs than expected," analyst Christan Must at Fondsfinans said.

Yara said the supply-demand balance was strengthened by delays in starting up new fertiliser production capacity.

Ammonia, nitrate and phosphate prices continued to rise from the fourth quarter into the first quarter of 2008, it said. Urea prices weakened from the end of fourth quarter, but the ammonia price level was now supporting urea prices, Yara added.

(Additional reporting by Camilla Bergsli; Editing by David Holmes and Sue Thomas)