Nutrien (TSX:NTR) was one of those companies we thought was made for greatness only about a year and a half ago. Nutrien stock climbed as the potash producer saw a major demand for its product. The invasion of Ukraine by Russia created sanctions that led to climbing potash prices — prices we thought couldn’t possibly fall dramatically.
Yet fall they did, as did the production in potash for Nutrien stock. So, with shares down 22% year to date, what should investors consider now?
Striking out
Quarter after quarter, Nutrien stock has missed earnings estimates by analysts. This has continued even as the company tries with all its might to push out further potash production. During the summer, Nutrien stock announced that it would have to curtail its production at its Cory potash mine. This came as the company expected a loss of export through Canpotex’s Neptune terminal thanks to a strike at the Port of Vancouver.
Nutrien stock announced that this would have a major effect on its full-year 2023 potash adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). In fact, Nutrien said that EBITDA would fall below the bottom end of its previous guidance range. Not only was the strike hurting the company, but lower global potash prices also hurt the company as a whole.
“The disruption at the Port of Vancouver has resulted in the curtailment of production at our Cory potash mine and if prolonged could also impact production at our other potash mines in Saskatchewan. We urge the parties in this dispute to come to a swift resolution to prevent further damage to the Canadian economy.”
Ken Seitz, Nutrien’s president and chief executive officer (CEO).
Earnings miss
This was followed by third-quarter results that were anything but impressive. Net earnings came in for the quarter at $82 million, with adjusted net earnings per share of $0.35 and adjusted EBITDA of $1.1 billion.
The adjusted EBITDA came in lower as the company saw lower net realized fertilizer prices across all segments, along with lower retail earnings. Retail adjusted EBITDA fell to $197 million. Potash adjusted EBITDA fell as well to $611 million, again due to lower net realized selling prices. That came in despite record potash sales in the quarter.
Everything was down for the quarter, with nitrogen adjusted EBITDA down to $294 million as well, due to lower prices and lower production to boot. This all caused the company to adjust its adjusted EBITDA guidance to between $5.8 and $6.4 million, with net earnings per share between $4.15 and $5.00 per share.
“Our focus is on initiatives that strengthen the advantages of our integrated business, drive operational efficiencies and increase free cash flow. We expect to deliver growth from highly targeted investment projects and maintain a balanced and disciplined approach to capital allocation, including the return of meaningful capital to our shareholders.”
Ken Seitz, Nutrien’s President and CEO.
What now?
We look to analysts to tell us how to manage these results, because nothing is permanent — especially in a bear market with a global economy that’s still trying to recover from current market conditions. Nutrien stock now looks to be overweight, and its share price still doesn’t reflect consensus analyst targets.
The third quarter was volatile, to be sure, with certainly some underperformance. Yet many analysts still believe Nutrien stock has the means to be an outperformer for the year. This comes from still creating a solid third-quarter result, despite the strike. Potash production improved, and retail showed some marginal recovery.
But because of its recent past, it seems as though the drop in share price was too much. Now, analysts view the stock as undervalued compared to its peers in the fertilizer business. In the future, analysts predict a far more stable performance in the fertilizer market, and this could certainly restore confidence in Nutrien stock for investors.
