On Apr 21, we initiated coverage on
The Mosaic Company
). While the company is expected to gain from its efforts to
boost production capacity and acquisitions, it is exposed to
volatility in phosphate and potash pricing.
The fertilizer maker saw its profit plummet around 79% year over
year in the fourth quarter of 2013, reported on Feb 11, on lower
prices for potash and phosphate. Adjusted earnings missed the
Zacks Consensus Estimate. Revenues fell on declines across the
board, but beat expectations. The company sees improving market
conditions and expects potash prices to improve later this year.
Mosaic, a Zacks Rank #3 (Hold) stock, is the largest producer of
finished phosphate products globally. It is well placed to
leverage the rising global demand for grain and oilseeds. It also
remains committed to return value to shareholders.
Mosaic's $1.4 billion buyout of
) phosphate business expands its production capacity of phosphate
in Florida. The acquisition will bring Mosaic's annual phosphates
capacity to more than 11 million tons and provide meaningful
Moreover, the recently announced acquisition of
) 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. The acquisition also complements Mosaic's
other strategic initiatives including its purchase of CF
Industries' phosphate business and joint venture with Ma'aden and
SABIC in Saudi Arabia.
Mosaic also remains committed to expand its annual potash
production capacity by roughly 5 million tons from the current
levels. The company has made significant progress in its $5
billion potash capacity expansion projects.
However, Mosaic, like other fertilizer makers, is exposed to a
weak pricing environment. Average realized phosphate price fell
roughly 28% year over year in the fourth quarter, dragging down
the company's revenues in the process. Pricing pressure was also
witnessed in its potash business, partly due to cautious buyer
behavior. These challenges may sustain in the near term.
Fertilizer makers face challenges following the exit of world's
largest potash maker Uralkali Group from one of the biggest
potash cartels - the Belarus Potash Company ("BPC"). Potash
prices have declined sharply since the Uralkali cartel exit move.
While Mosaic expects higher potash import in India in 2014,
Indian government's move to trim potash subsidy levels in an
effort to cut fiscal deficit coupled with local currency
devaluation may continue to lead to depressed demand for the
nutrient in that country. As such, a material recovery in potash
demand in India is not expected in the near term.
Other Stocks to Consider
), which also belongs to the fertilizer industry, is worth
considering with a Zacks Rank #2 (Buy).
ARCHER DANIELS (ADM): Free Stock Analysis
CF INDUS HLDGS (CF): Free Stock Analysis
MOSAIC CO/THE (MOS): Free Stock Analysis
POTASH SASK (POT): Free Stock Analysis Report
To read this article on Zacks.com click here.