Potash Corp. of Saskatchewan Inc. is reporting a sharp drop in second-quarter earnings and warning of lower than anticipated profits for 2012.

The company reported earnings of $522 million, or 60 cents per share, for the quarter, down from $840 million, or 96 cents per share in the same period last year.

The company says while the results reflect strong underlying performance, earnings were impacted by a $341-million impairment recorded on the company's investment in China's Sinofert Holdings Ltd.

Greater potash demand, including what it called unprecedented offshore sales, resulted in gross margin of $1.2 billion for the quarter, the third-best quarterly total in company history.

A worker surveys machinery at the PotashCorp. factory in Rocanville, Sask. The company posted disappointing earnings Thursday. (David Stobbe/Reuters)

Sales revenue came in at $2.4 billion for the quarter, up slightly from $2.3 billion year over year.

Analysts polled by Thomson Reuters were on average expecting revenues of more than $2.5 billion.

Gross margin for the first six months of 2012 reached $1.9 billion, which trailed the $2.3 billion generated in first-half of 2011.

Potash Corp. reported adjusted net income — which excluded the impairment, finance, income tax and depreciation and amortization costs — of $1.35 billion for the quarter.

The company adjusted its full-year 2012 earnings guidance downward to $2.80 to $3.20 per share — from April's guidance of $3.20 to $3.60 per share, citing higher production costs and "slightly lower realizations in the second half."

Saskatoon-based Potash is the world's largest fertilizer company by capacity and Saskatchewan has the world's largest deposits of potash, a valuable mineral mainly used in fertilizer.

An ongoing drought that's been ravaging the U.S. Midwest this summer has raised questions about future demand for fertilizer. Potash and phosphates tend to linger in the soil if plants don't soak them up, so farmers may not wind up needing to buy more crop nutrients when they plant their fields in the spring.

But the company says it believes farm production shortfalls expected this year will support an extended period of crop prices at levels that encourage high-yield agriculture. This in turn will encourage rising demand for the company's products, specifically potash, in the years ahead.

In 2010, Potash was the target of a hostile US$40-billion takeover bid by Ango-Australian mining giant BHP Billiton.

The takeover battle became a major political flashpoint in Ottawa, and in the company's home province of Saskatchewan. Premier Brad Wall was an outspoken critic of the bid.

In the end, the federal government rejected the offer on the grounds it did not provide a net-benefit to Canada.