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Mosaic Misses on Earnings & Revs, Profit Tanks

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Mosaic (MOS - Free Report) saw its profit tumble in the third quarter of 2013 on lower potash and phosphate pricing, cautious buyer behavior and a late fall application season in North America. Its shares were down 2.6% in pre-market trading.

The Minnesota-based fertilizer maker’s profits plunged around 70% year over year to $124 million (or 29 cents per share) from $417 million (or 98 cents per share) posted a year ago. On an adjusted basis (excluding negative impact of 22 cents per share mainly resulting from the company’s move to divest assets), Mosaic’s earnings of 51 cents per share missed the Zacks Consensus Estimate by a nickel.

Revenues slid roughly 28% year over year to $1,908.7 million, missing the Zacks Consensus Estimate of $2,071 million. Double-digit declines across phosphate and potash businesses dragged down the top line.

Mosaic said that it is divesting its salt operation and shuttering a potash mine in Hersey, Mich. The company is also closing underperforming distribution businesses in Argentina and Chile and will focus on expanding its presence in Brazil.
Segment Highlights

Revenues from Mosaic’s Phosphate segment went down 18% year over year to $1.4 billion in the quarter. The decline was a result of lower pricing and cautious dealer behavior. Average selling price fell to $436 per ton in the quarter from $533 last year. As a result, the segment’s gross margin fell to 14% from 19% a year ago. Segment sales volumes were 2.7 million tons in the quarter, down from 2.9 million tons a year ago.

Potash division’s sales plummeted 44% year over year to $523 million in the quarter on lower domestic shipment volumes and pricing. Sales volumes declined to 1.4 million tons from 1.8 million tons in the year-ago period while selling price fell to $342 per ton from $453 per ton a year ago. Higher depreciation expenses coupled with lower price and volumes led to a decline in the gross margin, which fell to 35% from 48% last year.


Mosaic had cash and cash equivalents of $3.3 billion as of Sep 30, 2013, compared with $3.9 billion as on May 31, 2013. Long-term debt was $1 billion as of Sep 30, 2013. Mosaic’s capital expenditure was $333 million in the reported quarter.


Moving ahead, Mosaic envisions strong demand in North America for the balance of 2013 based on excellent crop nutrient affordability while overseas demand remains less predictable. It expects a continued challenging pricing environment.

Mosaic expects its phosphates business to sell 2.5 to 2.9 million tons in the fourth quarter of 2013 versus 2.8 million tons a year ago. Average selling price for the quarter is expected to be in the range of $370 to $400 per ton. The segment’s gross margin is expected to remain flat in the fourth quarter as a decline in raw material costs will be offset by lower selling prices. Operating rate at North American phosphate operations is expected to be roughly 80% of operational capacity.

Mosaic sees sales volume from the potash business in the range of 1.5 to 1.9 million tons in the fourth quarter versus 1.4 million tons a year ago. Average selling price for the quarter is expected in the range of $285 to $310 per ton. The segment’s gross margin is expected to be in the mid-20% range in the fourth quarter. Operating rate is pegged at below 65% for the quarter.

Mosaic, last month, agreed to buy the phosphate mining and manufacturing business of CF Industries Inc. (CF - Free Report) for $1.4 billion in cash (including $200 million to fund CF Industries’ asset retirement obligation escrow). The facilities to be acquired by Mosaic currently produce roughly 1.8 million tons of phosphate annually.

The deal is also subjected to a long-term ammonia supply agreement, under which, CF Industries will supply ammonia to Mosaic from its Donaldsonville, La., nitrogen complex. CF Industries will also supply ammonia from its 50% owned Point Lisas Nitrogen Ltd. (PLNL) facility in the Republic of Trinidad and Tobago to Mosaic. In aggregate CF Industries will provide up to roughly 1 million tons of ammonia annually.

The acquisition is expected to add roughly 30 cents per share to Mosaic's earnings per share in 2015. The buyout will expand the company's phosphate business and production capacity of the nutrient in Florida. The deal is expected to complete by 2014.

Mosaic currently holds a Zacks Rank #5 (Strong Sell).

Other fertilizer companies worth considering are China Bluechip and The Scotts Miracle-Gro Co. (SMG - Free Report) with both holding a Zacks Rank #1 (Strong Buy).

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