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
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
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
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
The Mosaic Company (MOS): Read the Full Research
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