2nd UPDATE: K+S 4Q Adjusted Profit Soars, Shares Slip On Bleak '09 View

German fertilizer and salt supplier K+S AG (SDF.XE) Thursday unveiled a sharp rise in fourth-quarter adjusted after-tax earnings on higher fertilizer prices but said a volume decline that began in that quarter will lead to "significantly" lower sales and earnings in 2009, news that sent its shares sharply lower.

In 2009, a significant drop in sales will offset high prices for potash and magnesium products, leading both operating earnings and after-tax profit to be considerably lower than the peak seen in 2008 but above 2007 levels, said Chief Executive Norbert Steiner.

K+S shares fell sharply after the news to a 2009 low of EUR30.38. At 1239 GMT shares were trading down 7.6% at EUR31.44, underperforming the German market, with the DAX down 1.5%.

K+S has scaled back potash fertilizer production and introduced shorter working hours in the first half of 2009, due to a sharp drop in demand among both agricultural customers and producers of complex fertilizers.

For 2010 K+S said it is "highly probable" that volumes in the potash and magnesium products segment will grow again, leading to a marked increase in revenues and operating earnings.

Fourth-quarter after-tax profit adjusted for the effect of market value changes in hedging transactions and tax effects, was EUR227.5 million, soaring from EUR22.9 million in the same period of 2007 and beating an average forecast of EUR224 million in a Dow Jones poll of 15 analysts.

Operating earnings came in at EUR287.8 million from EUR33.6 million in the previous fourth quarter, and below analysts' estimate of EUR338 million.

Revenues in the quarter were up year-on-year by 6.9% to EUR955.5 million from EUR893.7 million, falling short of analysts' average forecast of EUR1.21 billion.

Commerzbank analyst Stephan Kippe said fourth-quarter sales and earnings were below expectations, mainly due to a significant potash volume slowdown. Given that management expects tangibly higher potash prices in 2009, talk of significant declines in sales and earnings "indicates volume expectations are far below market projections," he said.

Sentiment should be damaged by the fact that K+S failed to meet its fourth-quarter sales guidance of just under EUR1.4 billion, since top-line visibility is important for earnings projections considering K+S' high operational leverage, Kippe said, adding he will review his buy rating and EUR60 target price for the company.

At the results press conference, CEO Steiner said K+S hasn't yet reached the limits of its potential in the salt business and would closely examine all opportunities arising on the market, including Compass Minerals International Inc. (CMP).

Steiner declined to comment on speculation of a potential acquisition of Compass Minerals or the fertilizer division of Dutch chemicals company Koninklijke DSM NV (DSM.AE).

A report in the U.K. newspaper Daily Telegraph last week said K+S would decide Sunday on a possible $2.4 billion cash bid for Compass Minerals.

BASF SE (BAS.XE) holds a stake of around 10% in the fertilizer company, according to the K+S web site.

The German fertilizer producer competes with Agrium Inc. (AGU), The Mosaic Co. (MOS), Potash Corp. of Saskatchewan Inc. (POT) and Yara International ASA (YAR.OS).

K+S shares joined the DAX index last September and have lost around 23% of their value in the last 12 months and around 64% since their peak last June.

Company Web site: www.k-plus-s.com

-By Erin Fines, Dow Jones Newswires, [phone]; [e-mail] (Heide Oberhauser-Aslan contributed to this report)