Mosaic Company (The) (MOS)

MOS 
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The Mosaic (MOS)

Q2 2013 Earnings Call

January 04, 2013 9:00 am ET

Executives

Laura Gagnon

James T. Prokopanko - Chief Executive Officer, President and Director

Lawrence W. Stranghoener - Chief Financial Officer and Executive Vice President

Richard N. McLellan - Senior Vice President of Commercial

Michael Rahm

James C. O'Rourke - Chief Operating Officer and Executive Vice President of Operations

Analysts

Vincent Andrews - Morgan Stanley, Research Division

Christopher Perrella

Ben Isaacson - Scotiabank Global Banking and Markets, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Adam Samuelson - Goldman Sachs Group Inc., Research Division

P.J. Juvekar - Citigroup Inc, Research Division

Olga Guteneva - JP Morgan Chase & Co, Research Division

Bill Carroll - UBS Investment Bank, Research Division

Joel Jackson - BMO Capital Markets Canada

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

Jacob Bout - CIBC World Markets Inc., Research Division

Charles N. Neivert - Dahlman Rose & Company, LLC, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to The Mosaic Company's Second Quarter Earnings Conference Call. [Operator Instructions] Your host for today's call is Laura Gagnon, Vice President, Investor Relations of The Mosaic Company. Ms. Gagnon?

Laura Gagnon

Thank you, and welcome to our second quarter fiscal year 2013 earnings call. Presenting today will be Jim Prokopanko, President and Chief Executive Officer; and Larry Stranghoener, Executive Vice President and Chief Financial Officer. We also have members of our senior leadership team available to answer your questions after our prepared remarks. After my introductory comments, Jim will share our views on current and future market conditions. Larry will discuss capital management, as well as provide insight into our future expectations. The presentation slides we are using during the call are available on our website at mosaicco.com.

We will be making forward-looking statements during this conference call. The statements include, but are not limited to, statements about future financial and operating results. They are based on management’s beliefs and expectations as of today’s date, January 4, 2013, and are subject to significant risks and uncertainties.

Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release issued today and in our reports filed with the Securities and Exchange Commission.

Now I'd like to turn it over to Jim.

James T. Prokopanko

Good morning. And we at Mosaic wish you all a healthy and prosperous new year. Thank you for joining our second quarter earnings discussion. I hope you all had an enjoyable and safe holiday season.

As we expected, the timing issues in some international markets continued during this quarter, and they masked strong business conditions in other parts of the world, especially in the Western Hemisphere. We have 3 key messages for you today. First, farm economics around the world are extremely compelling. And as a result, we expect record global phosphate and potash shipments in calendar 2013. Second, positive fundamentals should take root this year and overtake cautious sentiment. We expect to see volumes increase, followed by stronger pricing. And third, our exceptionally strong balance sheet gives us important flexibility to take advantage of opportunities. All these factors, combined with the ever-growing global demand for food, give us great confidence in Mosaic's future.

First, I'll quickly review the numbers. We reported operating earnings of $560 million on revenue of $2.5 billion for the quarter. Potash business unit contributed $316 million in operating earnings, and the Phosphates business generated $245 million in operating earnings. In total, we reported earnings per share of $1.47, which includes the tax items we reported in November. Assuming a normalized tax rate of 23.3%, our earnings per share were $0.99. Finally, we generated $322 million in operating cash flow during the quarter, and we continue to maintain a very strong cash position with $3.4 billion of cash on hand.

Beyond the quarter's numbers, agricultural fundamentals are exceptionally strong around the globe, and that bodes well for Mosaic over the long term. Despite the severe drought in the U.S. and weather problems in other parts of the world, this year's global harvest was the second-largest ever. Even so, the world will consume more grains and oilseeds than it harvests this year. Food supply is precarious, and farmers are well aware of this fact. So it should come as no surprise that futures markets are signaling farmers to expand planted area and increase fertilizer applications to boost yield in 2013.

In fact, 2013 new crop prices for corn, soybeans and hard red winter wheat have traded at the highest prices ever for the last several months. These record new crop prices support our forecast that U.S. farmers could plant 96 million acres of corn next spring, and the Brazilian farmers could apply a record 31 million tonnes of plant nutrients this year.

Just as important, farmers have the cash they need to invest in their businesses. The USDA estimates that U.S. net farm cash income surged to a record high in 2012 and forecast similar levels this year. Put succinctly, farmers do not want to get caught with a short crop in the current macro environment, so they're going to do everything they can to bring maximum yield out of every acre of land.

We've seen evidence of this imperative this fall in North America as the nutrient application season brought the highest levels of demand for our products since Mosaic was formed. Farmers are undeterred by the challenging 2012 harvest. They have those high grain and oilseed prices clearly in focus. Though the outlook remains strongly positive, but the short term continues to present some uncertainties for our business. I'd like to enumerate those and give you our perspective on how we expect them to resolve and how we're managing through them. In essence, we view all these issues primarily as timing challenges.

Read the rest of this transcript for free on seekingalpha.com