INCITEC Pivot Ltd expects a stronger performance in the second half after first half earnings were hit by a rising Australian dollar and a fall in global fertiliser prices.
The explosives and fertiliser supplier on Monday said underlying net profit, which excludes material items, fell 14 per cent to $146.2 million for the six months to March 31.
The company booked a 33 per cent increase in first half net profit to $132.4 million after one-off costs declined from a year earlier.
Incitec chief executive James Fazzino said the company would not be providing guidance on full year profit, but Incitec's earnings were skewed towards the second half.
"That's because that's when we sell the majority of our fertiliser, into the winter cropping season (in Australia)," he told reporters.
"And secondly, in terms of the US (explosives) business, a lot of that business's profitability is driven by quarrying and construction and in the US, the construction season is in the (northern hemisphere) summer months rather than the winter months."
Shares in Incitec gained 14 cents, or 4.61 per cent, to close at $3.18.
IG Markets institutional dealer Chris Weston said Incitec's headline numbers seemed to have pleased the market, but the company would have to pull out some "pretty big numbers" to meet market expectations for the full year result.
Mr Fazzino himself said the first half result was "sound" considering the tough external environment, but for the future, a similar result "really won't be good enough".
He said the explosives business in North America would continue to face challenging trading conditions but was well placed to benefit when the US economy recovered.
Mr Fazzino said the explosives business in the first half had been affected by de-stocking events, including power stations running down coal stocks, and the construction and quarrying sector de-stocking stone.
"The results for March and April would support that we're actually through that de-stocking cycle, and we're a little more confident for the future," he said.
Mr Fazzino said Incitec's explosives volumes in North America tended to move with US gross domestic product, which had passed the worst of the slowdown, but would now take a number of years to recover.
Mr Fazzino said the first half result had been hit by a slump in fertilizer prices, which had reached a peak in the first quarter of fiscal 2009.
Prices for di-ammonium phosphate had improved in the second half of fiscal 2010 and were now considerably above the prices for this time in 2009.
"In terms of the market directionally, we still think that we'll see strength in pricing, albeit DAP always trails off in the last half because that's between seasons globally," he said.
Incitec said that in the first half, group earnings before interest and tax fell 15 per cent to $230.1 million, largely reflecting global fertiliser prices and the impact of the higher Australian dollar, partially offset by business improvement initiatives.
Incitec said the adverse impact of the rise in the Australian dollar was about $74.9 million for the group.
The mix of earnings in the period was 58 per cent from explosives and 42 per cent from fertilisers, compared to 47 per cent from explosives and 53 per cent from fertilisers in the prior corresponding period.
Explosives EBIT increased three per cent to $133.2 million, largely as a result of the improved margins in Asia Pacific, offset by the impact of challenging market conditions in North America and the higher Australian dollar.
Fertilisers EBIT dropped 32 per cent to $96.9 million due to lower average global fertiliser prices and the higher Australian dollar.
Incitec's first half revenue dropped 28 per cent to $1.24 billion.
Incitec declared an interim dividend of 1.8 cents per share, unfranked, compared to 2.1 cents, fully franked, in the prior corresponding period.
