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Why Is Mosaic (MOS) Down 1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Mosaic (MOS - Free Report) . Shares have lost about 1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mosaic due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Mosaic's Q3 Earnings Top Estimates, Ups FY18 View

Mosaic logged a profit of $247.5 million or 64 cents per share in the third quarter of 2018 compared with $227.5 million or 65 cents a year ago.

Adjusted earnings of 75 cents per share beat the Zacks Consensus Estimate of 64 cents.

Net sales rose roughly 47.5% year over year to $2,928.1 million in the quarter, mainly driven by the Vale Fertilizantes acquisition and higher average sales prices across all segments. The figure missed the Zacks Consensus Estimate of $2,936.5 million.

Segment Highlights

Net sales at the Phosphates segment totaled $1 billion in the quarter, up from $779 million in the prior-year quarter. Higher sales were driven by higher average sales prices and sales volumes. Gross margin increased to $180 million from $67 million in the year-ago quarter, mainly driven by higher average sales prices and operational improvement, which brought down controllable operating costs.

Potash division sales rose around 28.5% year over year to $609 million in the quarter on higher sales volumes and average sales prices. Gross margin in the quarter was $161 million, up from $99 million in the year-ago quarter. The rise was primarily driven by higher average sales prices, which was partly offset by the timing of turnaround activities.
 
Net sales at the Mosaic Fertilizantes segment were $1.4 billion, up from $806 million in the year-ago quarter. Gross margin increased to $152 million from $52 million in the year-ago quarter on the back of the Vale Fertilizantes acquisition along with higher margins in the legacy distribution business.

Financials

As of Sep 30, Mosaic had cash and cash equivalents of $1,029.9 million, up around 50.2% year over year. Total long-term debt rose roughly 21.5% year over year to around $4,523.1 million.

Cash flow from operating activities was $524 million in the reported quarter, up from $136 million a year ago. Mosaic’s capital expenditures were $241 million in the quarter.

Outlook

Mosaic raised adjusted earnings per share (EPS) guidance for 2018, considering strong business performance and lower expected effective tax rate for the year.

For 2018, the company now expects adjusted EPS in the range of $1.80-$2.00, up from the prior view of $1.45-$1.80.

The company also expects adjusted EBITDA for 2018 in the band of $1.90-$2 billion, up from the previous view of $1.80-$1.95 billion.

Mosaic expects phosphates sales volumes in the band of 1.7-2 million tons for the fourth quarter of 2018. The segment’s adjusted gross margin is expected in the band of $65-$75 per ton. Per the company, outlook for the Phosphates segment reflects underlying firmness in demand and supply dynamics as well as normal year-end seasonality.

Potash sales volumes have been forecast in the range of 2.2-2.5 million tons for the quarter and adjusted gross margin is anticipated in the band of $80 to $90 per ton. Mosaic expects market conditions to stay strong in potash along with high operating rates in the three Canadian mines.

Sales volumes at the Mosaic Fertilizantes segment have been forecast in the band of 1.9-2.2 million tons for the fourth quarter. The company also projects adjusted gross margin for the unit in the band of $35-$45 per ton. Per the company, impact of the higher average realized selling prices is likely to be partly offset by the strengthening of the Brazilian Real relative to the U.S. dollar. Additionally, Mosaic continues to integrate production and distribution assets to drive revenues. The move is expected to boost margins in the fourth quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 11.14% due to these changes.

VGM Scores

Currently, Mosaic has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Mosaic has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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