Gross margin for the quarter of $268 million surpassed the $234 million generated in the first quarter of 2016, primarily due to lower cost of goods sold for all three nutrients and increased potash sales volumes more than offsetting weaker phosphate prices. Similarly, cash from operating activities of $223 million exceeded 2016's first-quarter amount of $188 million.
In regards to the Agrium/Potash merger, the company said, "We are also making good progress on our merger of equals with Agrium.3 We continue to work through the regulatory process in key jurisdictions and remain confident the transaction will close mid-2017. Our integration teams are working hard to position the combined company for growth -- including achievement of our synergy targets -- and to ensure we can create value for all our stakeholders."
Looking ahead, the company raised its full year 2017 earnings guidance to $0.50-0.70, excluding merger-related costs of $0.05 per share, which falls in-line with expectations, up from prior guidance of $0.40-0.60, excluding merger-related costs of $0.05 per share.
The company also raised the bottom end of its guidance ranges for potash sales volumes and gross margin to 8.9-9.4 million tonnes (up from $8.7-9.4 mln) and $600-$800 million (from $550-800 mln), respectively.
Potash prices, after firming some lately, now face headwinds due to expansion threats. For example, Turkmenistan and Belarus just launched a huge potash plant capable of producing 1.4 million tons of potash. Not what the market needs when there's plenty of supply.
However, Potash Corp. doesn't seem to be too concerned about this. Potash market fundamentals continued to improve in the first quarter, creating a supportive earnings environment. The company saw higher higher offshore sales volume and reduced per-tonne costs.
Strong demand is expected to continue through the remainder of the year, so the company maintained its global shipments estimate of 61-64 million tonnes for 2017, above the approximately 60 million tonnes shipped in 2016, and expect supportive market fundamentals through the balance of this year.
However, nitrogen gross margins weakened as weaker prices and slightly lower sales volumes more than offset reduced per-tonne costs.
In phosphate, weaker prices and sales volume also hit gross margins.
Unlike the potash market, the company expects that pressure from new US capacity in the nitrogen market will keep margins below those of the previous year. Similarly, the company forecasts phosphate profitability to be below 2016 levels as difficult market fundamentals are expected to weigh on realizations for its products.
Given these considerations, the company maintained its combined nitrogen and phosphate gross margin estimate of $150-$400 million in 2017.
Following the open, shares of POT are up 3%