The Mosaic Company (MOS): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


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We are retaining our Neutral recommendation on Mosaic. Profit for the third-quarter 2014 jumped year over year on higher phosphate volume and pricing. Adjusted earnings, however, missed the Zacks Consensus Estimate. Revenues rose on double-digit gains across all businesses, but missed expectations. The company sees continued strong demand for phosphate and potash. Mosaic is expected to gain from its efforts to boost production capacity and the acquisition of CF Industries' phosphate business. It also remains committed to return value to shareholders. However, Mosaic is exposed to a challenging operating environment in the agriculture space as well as volatility in nutrient pricing and costs of key raw materials. Moreover, demand for potash is expected to remain somewhat weak in India (a key market) in the near term.


Founded in 2004, Plymouth, Minnesota-based The Mosaic Company (MOS) is a leading producer and marketer of concentrated phosphate and potash for the global agriculture industry. It was formed through the combination of the fertilizer businesses of agribusiness giant Cargill Incorporated and IMC Global Inc. The company, which participates in every aspect of crop nutrition development, employs around 8,400 people across eight countries.

Mosaic mines phosphate rock from around 200,000 acres of company-owned land in Central Florida. It also mines potash from five mines in North America, mainly in Saskatchewan. Its products are processed into crop nutrients, and then shipped thorough rail, barge and ocean-going vessel to customers in major agricultural centers globally. The company's Board, in Dec 2012, approved a change in its fiscal year end to Dec 31 from May 31. Mosaic began reporting quarterly results on a calendar-year basis with the quarter ending on Sep 30, 2013.

Mosaic operates through two segments Phosphates and Potash. The Phosphates division makes concentrated phosphate crop nutrients and phosphate-based animal feed ingredients. Roughly a third of the company's phosphate product is shipped within North America, with the balance exported worldwide through both export association PhosChem and the company's own distribution channels. Mosaic delivers around 19 million tons of phosphate products to roughly 40 nations annually.

Mosaic's Potash unit makes and markets potash for use as fertilizers and animal feed ingredients, and for a host of industrial applications. With annual capacity of 10.3 million tons, the company is a leading player in the potash industry.

Mosaic, in March 2014, completed its takeover of CF Industries' (CF) phosphate business for $1.4 billion. The company, in Oct 2013, cut a definitive deal to buy the phosphate mining and manufacturing business of CF Industries for $1.2 billion in cash and $200 million to fund CF Industries' asset retirement obligation escrow.

Under the deal, CF Industries has disposed the Hardee County phosphate rock mine, the Plant City phosphate complex, an ammonia terminal, phosphate warehouse and dock at the Port of Tampa and the site of the former Bartow phosphate complex to Mosaic. The facilities acquired by Mosaic currently produce roughly 1.8 million tons of phosphate fertilizer per year.

Mosaic and CF Industries also entered into a long-term ammonia supply agreement, under which, the latter will supply ammonia to Mosaic from its Donaldsonville, La., nitrogen complex. CF Industries will also supply ammonia to Mosaic from its 50% owned Point Lisas Nitrogen Ltd. (PLNL) facility in the Republic of Trinidad and Tobago. Under the Donaldsonville ammonia agreement, CF Industries will supply between 600,000 and 800,000 tons of ammonia per year for up to 15 years, which is expected to begin by 2017. The ammonia to be supplied will be used for phosphate production and its price will depend on the cost of natural gas delivered to Donaldsonville.

Moreover, Mosaic, in April 2014, landed a definitive deal to buy Archer Daniels Midland Company's (ADM) fertilizer distribution business in Brazil and Paraguay for $350 million. The acquisition is subject to regulatory clearances and the purchase price assumes the delivery of $150 million in working capital at deal closure. Under the deal terms, Mosaic will purchase four blending and warehousing facilities in Brazil, one in Paraguay and additional warehousing and logistics service capabilities. Mosaic has also agreed to supply Archer Daniels' fertilizer needs in Brazil and Paraguay under five-year supply agreements. Mosaic said that it will finance the takeover with its cash from operations. The deal is not expected to affect the company's shareholder distribution plans.

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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 Nasdaq, Inc.

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