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Will Higher Prices Help Mosaic (MOS) Beat Earnings in Q4?

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The Mosaic Company (MOS - Free Report) is set to release fourth-quarter 2018 results after the bell on Feb 25.

Mosaic’s adjusted earnings of 75 cents per share for the third quarter topped the Zacks Consensus Estimate of 64 cents, translating into a 17.2% positive surprise.

Net sales jumped roughly 48% 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, however, missed the Zacks Consensus Estimate of $2,936.5 million.

Mosaic beat the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of roughly 7.3%.

Mosaic has outperformed the industry it belongs to over a year. Its shares have popped 20% compared with roughly 7% rise recorded by the industry.


 

Let’s see how things are shaping up for this announcement.

What the Zacks Model Says

Our proven model shows that Mosaic is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is the case here, as you will see below:

Earnings ESP: Earnings ESP for Mosaic is +2.11%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at 58 cents and 57 cents, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mosaic currently carries a Zacks Rank #2, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 (Sell) or #5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors to Consider

Mosaic, during its third-quarter call, raised its adjusted earnings per share guidance for 2018 to the range of $1.80-$2.00 from the prior view of $1.45-$1.80, considering strong business performance and lower expected effective tax rate for the year.

The company also expects adjusted EBITDA for 2018 in the range 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. 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.

The company expects Potash segment's sales volumes in the range of 2.2-2.5 million tons for the fourth quarter. Adjusted gross margin is forecast 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.

The Zacks Consensus Estimate for fourth-quarter total revenues is currently pegged at $2,348 million, reflecting an expected increase of 12.3% from the year-ago quarter’s tally.

The Zacks Consensus Estimate for net sales in the Phosphates segment is currently pegged at $940 million for the fourth quarter, reflecting an estimated 5.7% year over year decline. Moreover, the same for the company’s Potash segment is expected to rise 30.8% year over year in the fourth quarter, as the Zacks Consensus Estimate is currently pegged at $649 million.  

Mosaic is gaining from higher fertilizer prices, which boosted growth in its top line in the third quarter. Higher average realized sales prices also enabled the company achieve double-digit sales growth in Phosphates and Potash segments. Prices of major crop nutrients have gained strength on the back of strong global demand and tightened supply. Higher prices should continue to drive the company’s sales and margins in the fourth quarter.

The Zacks Consensus Estimate for average selling price per ton for the Phosphates segment for the fourth quarter is pegged at $470, reflecting an expected increase of 17.8% on a year-over-year comparison basis. The same for the Potash segment is expected to rise 22.8% year over year, as the Zacks Consensus Estimate is currently pegged at $275.  

The Vale Fertilizantes acquisition should also drive revenues in the to-be-reported quarter. The buyout has allowed Mosaic to capitalize on the rapidly growing Brazilian agricultural market. The company achieved more than $100 million in synergies from the acquisition as of the third quarter. It expects to achieve $140-$160 million in synergies for full-year 2018.

The Mosaic Company Price and Consensus

 

The Mosaic Company Price and Consensus | The Mosaic Company Quote

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Newmont Mining Corporation (NEM - Free Report) has an Earnings ESP of +12.07% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eldorado Gold Corporation (EGO - Free Report) has an Earnings ESP of +9.48% and carries a Zacks Rank #3.

Quaker Chemical Corporation (KWR - Free Report) has an Earnings ESP of +2.99% and carries a Zacks Rank #3.

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