Mosaic's Earnings Miss, Weak Prices Dent Net - Analyst Blog

Mosaic's MOS profit for first-quarter 2014 slipped as it saw lower pricing for phosphate and potash. The Minnesota-based fertilizer maker's profits slid around 43% year over year to $217.5 million or 54 cents per share from $379.8 million or 89 cents a share a year ago. Earnings per share also missed the Zacks Consensus Estimate of 58 cents.

Revenues fell roughly 14% year over year to $1,986.2 million, but managed to beat the Zacks Consensus Estimate of $1,976 million. Declines across phosphate and potash businesses dented the top line in the quarter. Inclement weather also weighed on the results.

Mosaic's shares, which lost around 17% over a year, were down 1.6% in pre-market trading.
 
Segment Highlights

Revenues from Mosaic's larger Phosphate segment slipped 16% year over year to $1.3 billion in the quarter, hit by lower finished product prices. Average selling price fell 16% to $414 per ton in the quarter from $491 last year. The segment's gross margin fell to $207 million from $253 million a year ago as lower pricing more than offset a decline in raw material costs. Segment sales volumes were flat year over year at 2.7 million tons.

Potash division's sales fell 11% year over year to $733 million in the quarter as a 29% fall in prices more than offset higher shipment volumes. Sales volumes rose to 2.4 million tons from 2 million tons in the year-ago quarter while selling price fell to $267 per ton from $376 per ton a year ago. Gross margin slid to $212 million from $397 million last year.

Financials

Mosaic exited the quarter with cash and cash equivalents of $2.5 billion, down 53% sequentially. Long-term debt was flat sequentially at $3 billion at the end of the quarter. Mosaic's capital expenditure was $275 million in the reported quarter. Operating cash flow moved up 8% year over year to $627 million in the quarter.

Mosaic bought back 36 million shares during the reported quarter. The company has now repurchased or committed to buyback roughly 52 million shares, representing 12% of its outstanding shares at the end of 2013.

Outlook

Moving ahead, Mosaic envisions improving margins in its phosphate business, stable pricing for potash and strong volumes for both nutrients in the second quarter.

Mosaic sees sales volume for its phosphates business to be between 3.1 and 3.4 million tons in the second quarter compared with 2.9 million tons achieved a year ago. Average selling price for the quarter is expected to be in the range of $430 to $460 per ton. The segment's gross margin for the quarter is expected to be in the high teens. Operating rate is expected to be in the mid 80% range.

Mosaic expects sales volume from its potash business in the range of 2.2 to 2.5 million tons in the second quarter versus 2.4 million tons a year ago. Average selling price for the quarter is expected in the range of $250 to $275 per ton. The segment's gross margin is expected to be in the high 20% range. Operating rate has been forecast in the mid-80% range.

Mosaic, in Mar 2014, completed its takeover of CF Industries' CF phosphate business for $1.4 billion. The acquisition will bring Mosaic's annual phosphates capacity to roughly 11.5 million tons and provide meaningful operational synergies.

Moreover, the recently announced acquisition of Archer Daniels Midland's ADM fertilizer distribution business is expected to accelerate Mosaic's existing growth plans in Brazil and expand its annual distribution capability in one of the world's rapidly growing agricultural regions.

Mosaic also progressed with its phosphate joint venture project in Saudi Arabia with construction started in the reported quarter. The company expects capital expenditure, including the Saudi Arabia project, to be in the band of $1.2 billion to $1.4 billion for 2014.    

Mosaic is a Zacks Rank #3 (Hold) stock.

A better-ranked stock in the fertilizer space is CVR Partners, LP UAN, sporting a Zacks Rank #1 (Strong Buy).