In the year 2007, which might seem like ancient history tosome people by now, Potash Corp (POT) reported1,881.2 million as total gross margin. Of this amount, 912.3 or 48.5%, came fromthe over-hyped potash segment, while 968,9 or 51.5%, came from the under-hypednitrogen and phosphate segments COMBINED, making them the larger contributors tothe total gross margin. In other words, in 2007, the venerable Potash did noteven live up to its own name, let alone my humble expectations.
A closer look reveals that, the totalgross margin increased by 879.2, from a base of 1,002 in 2006, which equates toan 88% increase. Not bad of course, but the potash segment share of that totalgross margin increase was only 351.2, up from its base of 561.1 in 2006, whichequates to a 63% increase.
Meanwhile, comparing apples to apples, the nitrogen andphosphate segments' COMBINED share of the gross margin increase was 528, up froma base of 440.9 in 2006, which equates to a 120% increase. Now comparing applesto oranges, which both need fertilizers by the way, the potash segment share ofthis total 879.2 gross margin increase was 351.2, which equals 40% of the total.The lion's share, 528 or 60%, can thereby be claimed by the nitrogen andphosphate complex.
Obviously, nitrogen and phosphates are lifting this companyup, while potash is holding it down. Amazing, when you consider the prodigiousamounts of bear and bubble-babble about potash that we are all obligated tohear. It all reminds me of certain other well known types of fertilizers, oftenused on farms, in days gone by. Potash Corp. doesn't attempt to produce thesetypes of fertilizers, as the excessively large amounts and easy availability ofthese agricultural products lowers their value, and history suggests thatprolonged use of them will not generate enough long term profits to justifytheir use in the first place. If only more people realized this basicagricultural fact.
Getting back to the original purpose of this article, itseems that not only did the forlorn nitrogen and phosphate complex contributemore to the total gross margin, it also contributed more to the total grossmargin increase, and from a lower 2006 base than the potash segment did. Thisresulted in a percentage increase that nearly doubled the potash segmentincrease. So this half of the company is also clearly growing at a much fasterrate than the potash segment. Please note that not only did the weak 63% potashgrowth rate not measure up to the strong 120% COMBINED growth rate of nitrogenand potash, it also couldn't even measure up to either one alone, as thenitrogen segment grew by 70%, while the phosphate segment grew by 245%. It'sworth mentioning here that both the 63% and 70% numbers were mentioned in theannual report, but not the 245% number. I actually had to figure that one out bymyself. Even my 6th grade math teacher would be pleased!
So, from all this it's plain to see that last year, thepaltry and unpalatable potash performance was clearly part of the problem, andnot part of the solution for poor paradoxical Potash Corp. But then again, "thatwas so last year", wasn't it? Or, was it ?
In conclusion, I am of the opinionthat the disappointing 2007 stock performance of a feeble 201% gain can only beattributed to the general failure of the investment community to fullyunderstand where the profits of this company were actually coming from.The extremely unlucky association in the haplass minds of deluded investorsbetween the under performing potash segment and the company's ill-chosen name,has conspired to hold this unfortunate company's stock down to unrealisticallylow and unsustainable valuations all year long. The malevolent manner in whichthis was done has an uncanny resemblance to the fate of the deluded sailor in"The Tale Of The Ancient Mariner", when he foolishly tied that damned albatrossaround his very own neck, in the vain hope of preventing his own self-createdbad luck from befalling him.
Just imagine what could have happened if the company hadchanged its name to "NitroPhos Corp." instead of Potash Corp. Then all of WallStreet's wonder boy analysts would have been calling it a big bad bubble by now,and we would all be fabulously rich from all the juicy profits from the nitrogenand phosphate complex, "The Better Performing Half of Potash Corp." annum 2007.Coming up, Part II.
Disclosure:Author holds a long position