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Bear of the Day: Mosaic (MOS)

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The Mosaic Company (MOS - Free Report) got hit hard by the extreme weather conditions in North America and rising costs in the first quarter. This Zacks Rank #5 (Strong Sell) is now expected to see a double digit earnings decline in 2019.

Mosaic makes concentrated phosphate and potash crop nutrients. It is a single source provider of phosphate and potash fertilizers and feed ingredients for the global agriculture industry.

How Bad Was the Spring?

On May 5, Mosaic reported its first quarter results and beat the Zacks Consensus Estimate by 4 cents. Earnings were $0.25 versus the consensus of $0.21.

It was the fourth earnings surprise in a row.

But investors were concerned with the outlook, given that by May, the record rainfall, and flooding, was impacting the spring planting and application season in the Midwest.

In the quarter, Mosaic said that higher costs impacted all of its businesses, including costs associated with impacts of weather in North America and regulatory changes in Brazil. Earnings were negatively impacts by $0.13 per share.

In early May the company said that it was assuming a normal North  American spring application season despite the slow start. But the late start to the spring had impacted potash operating rates into the second quarter.

Lowered EPS Guidance

Given the higher costs, regulatory changes in Brazil, an increase in Canadian resource taxes and delayed recovery in phosphate margins, the company cut full year guidance to a range of $1.50 to $2.00.

That's a really wide range. It indicates that there may continue to be a large amount of uncertainty.

Not surprisingly, the analysts responded by cutting estimates. 6 estimates were cut for 2019 within the last 2 months, pushing the Zacks Consensus Estimate down to $1.72 from $2.17.

That's an earnings decline of 19% as the company made $2.12 in 2018.

The analysts didn't stop there, however. They also cut 2020 estimates as well. That pushed the 2020 Zacks Consensus Estimate down to $2.39 from $2.56.

Shares Sink in 2019

Unlike most stocks which have rebounded off 2018 lows, Mosaic has done the opposite on fears about the planting season.

Shares are down 15.2% year-to-date.

They now trade with a forward P/E of just 14.3, which is cheaper than the S&P 500, which trades around 18x.

Mosaic is also shareholder friendly, with a dividend yielding 0.8%.  

But if you really want to add a fertilizer to your portfolio and you want a better Zacks Rank, you might want to consider CF Industries (CF - Free Report) or Nutrien (NTR - Free Report) . Both are Zacks Rank #3 (Hold) stocks. They also pay out larger dividends, currently yielding 2.6% and 3.2%, respectively.

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