(Rewrites, adds detail from press conference.)

FRANKFURT -(Dow Jones)- Fertilizer and salt supplier K+S AG (SDF.XE) Thursday disappointed investors with an outlook that depends heavily on its strong salt operations to drive earnings and sales growth this year and less on its main business, fertilizers.

Despite signs the fertilizer business is recovering, the company emphasized that recently acquired Morton Salt will contribute to a significant rise in earnings and sales this year, after a sharp decline in 2009.

So far during the first quarter of this year, the salt business excluding the contribution of Morton Salt is performing better than the same period a year earlier, officials said Thursday during a press conference.

K+S slashed its dividend proposal for 2009 to EUR0.20 per share from EUR2.40 per share a year ago. Analysts had expected a dividend proposal of EUR0.29.

Investors didn't like the combination of news and at 1115 GMT, the group's shares were down 2.2% or EUR1.04 at EUR45.90, underperforming a softer German market.

Bankhaus Lampe Analyst Marc Gabriel said the results were better than he expected, particularly in the salt business, but the news had already been priced in, and the outlook for higher fertilizer demand was in line with his and most analysts' estimates.

The world's fourth-largest producer of potash, a key nutrient in fertilizer, saw fertilizer prices fall dramatically in 2009 from a record high in 2008. Volumes also declined as customers deferred ordering in the hope that prices would fall further. After major contracts with India and China were signed recently, albeit at low prices, the industry is optimistic that prices may recover along with demand.

Equinet analyst Michael Schaefer said analysts may be too optimistic about the recovery in potash this year and that "real" demand from farmers must be proven.

Still, K+S officials said potash production capacity is currently at 100%. The company's also exploring opportunities for external growth in its fertilizer business, and is discussing a project in the Ural Mountains region with Russian fertilizer company EuroChem.

Net profit for the fourth quarter fell to EUR17.5 million from EUR227.5 million a year earlier, largely in line with analysts' expectations of EUR18 million. The figure is adjusted for the effect of market value changes in hedging transactions and tax effects.

Earnings before interest and taxes, which the company refers to as operating earnings, fell sharply to EUR36.5 million from EUR287.8 million a year earlier, but topped analysts' estimates of EUR26 million.

Sales for the quarter also beat analysts' estimates, rising 11.1% to EUR1.1 billion from EUR956 million a year earlier, compared with estimates of EUR986 million.

Salt sales more than doubled during the fourth quarter from the 2008 level due to a harsher-than-expected winter in Europe which boosted sales of de-icing products, as well as the first-time contribution from Morton Salt. K+S became the world's largest salt producer when it agreed to buy the iconic Morton Salt for $1.68 billion in April 2009.

Operating earnings for the segment jumped 81% to EUR47.3 million from EUR26.2 million a year earlier.

However, strong salt sales were unable to offset the sharp decline in volume and prices in the nitrogen fertilizers and potash businesses.

Potash and magnesium sales fell 28% from the year-earlier period, while operating earnings at the segment shriveled to EUR26.9 million from EUR275.3 million a year earlier. Nitrogen fertilizer sales slipped 1.1% but the operating loss widened to EUR42.3 million from the year-earlier loss of EUR5.2 million.

Worldwide fertilizer volumes should return to near pre-downturn levels in 2011, K+S said. The company expects its own fertilizer sales volume to increase to nearly 6 million tons this year from 4.3 million tons in 2009 - however at significantly lower average prices from the previous year.

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

Reporter Heide Oberhauser-Aslan contributed to this report.

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