Mosaic's (MOS) Q2 Earnings Trail, Net Down on Weak Pricing - Analyst Blog

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Mosaic 's ( MOS ) profit for second-quarter 2014 slid as it saw a significant decline in pricing for potash in the quarter. The Minnesota-based fertilizer maker's profits tumbled around 42% year over year to $248.4 million or 64 cents per share in the reported quarter from $429.8 million or $1.01 a share a year ago.

Barring one-time items, earnings per share were 70 cents per share, missing the Zacks Consensus Estimate by a couple of cents.

Revenues fell roughly 7% year over year to $2,440.2 million, but managed to squeak past the Zacks Consensus Estimate of $2,398 million. Sales fell as a rise in the Phosphate segment was more than offset by a decline in the Potash unit.

Separately, Mosaic noted that CEO Jim Prokopanko will return from an earlier announced medical leave and resume his duties on Aug 4. Its shares were inactive in pre-market trading .

Segment Highlights

Revenues from Mosaic's larger Phosphate segment went up around 6% year over year to $1.7 billion in the quarter as higher volumes offset lower finished product prices. Average selling price fell around 3% to $465 per ton in the quarter from $477 per ton last year. The segment's gross margin rose around 2% to $284 million as lower pricing was more than offset by a decline in raw material costs and higher volumes. Segment sales volumes were up roughly 17% year over year to 3.4 million tons.

Potash division's sales fell around 22% year over year to $762 million in the quarter as a 27% fall in prices more than offset higher shipment volumes. Sales volumes were flat year over year at 2.5 million tons while selling price fell to $267 per ton from $366 per ton a year ago. Gross margin slid 36% year over year to $250 million, hurt by lower pricing and decreased operating rate.

Financials

Mosaic ended the quarter with cash and cash equivalents of $2.4 billion, down 4% sequentially. Long-term debt was flat sequentially at $3 billion at the end of the quarter. Mosaic's capital expenditure was $214 million in the reported quarter. Operating cash flow fell 19% year over year to $796 million in the quarter.

Mosaic returned $550 million of cash to its shareholders during the reported quarter. It has completed the repurchase of 52 million shares, representing 12% of its outstanding shares at the end of 2013.

Outlook

Looking ahead, Mosaic envisions strong demand for phosphates and potash to drive phosphate margins and potash prices in the third quarter.

Mosaic expects sales volume for its phosphates business to be between 3.3 million and 3.6 million tons in the third quarter compared with 2.7 million tons achieved a year ago. Average selling price for the quarter is expected to be in the band of $440 to $470 per ton. The segment's gross margin for the quarter is expected to be in the mid to high teens. Operating rate is expected to approach 90%.

Mosaic foresees sales volume from its potash business in the range of 1.8 million to 2 million tons in the third quarter versus 1.4 million tons a year ago. Average selling price for the quarter is expected in the range of $275 to $295 per ton. The segment's gross margin is expected to be in the high 20% to low 30% range. Operating rate has been forecast in the low-70% 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. Mosaic is progressing well with the integration of the acquired business and is on track to achieve $40 million to $50 million in annual synergies (before-tax) in 2015.

Moreover, Mosaic is also progressing towards completion of its takeover of Archer Daniels Midland's ( ADM ) fertilizer distribution business and has received the anti-trust clearance in Brazil for the acquisition. The buyout 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 noted that its phosphate joint venture project in Saudi Arabia has secured project financing of $5 billion. The company expects capital expenditure, including the Saudi Arabia project, to be in the band of $1 billion to $1.2 billion for 2014. It also remains focused on achieving $500 million in annual operating cost savings over the next five years.    

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

A better-ranked stock in the fertilizer space is Potash Corp. ( POT ), sporting a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: MOS , POT , ADM , CF

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