Mosaic Company (The) (MOS)

MOS 
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The Mosaic Company (MOS)

(Qtr End 05/31/2010) Earnings Call

July 23, 2010 10:00 AM EST

Executives

Christine Battist – Director, Investor Relations

Larry Stranghoener – EVP and CFO

Rich Mack – EVP, General Counsel and Corporate Secretary

Jim Prokopanko – President and CEO

Mike Rahm – VP, Market Analysis and Strategic Planning

Rick McLellan – SVP, Commercial Operations

Joc O’Rourke – EVP, Operations

Analysts

Vincent Andrews – Morgan Stanley

David Silver – Bank of America

Jeff Zekauskas – JPMorgan

P. J. Juvekar – Citi

Jacob Bout – CIBC

Edlain Rodriguez – Gleacher & Company

Fai Lee – RBC Capital Markets

Lindsay Drucker Mann – Goldman Sachs

Elaine Yip – Credit Suisse

David Begleiter – Deutsche Bank

Charles Neivert – Dahlman Rose

Michael Picken – Cleveland Research

Presentation

Operator

Good morning ladies and gentlemen, and welcome to The Mosaic Company’s fiscal 2010 fourth quarter earnings conference call. At this time, all participants have been placed in listen-only mode. The floor will be opened for questions following today’s presentation.

Your host for today’s call is Christine Battist, Director of Investor Relations of The Mosaic Company. Please proceed Christine.

Christine Battist

Thank you, Chanel. Welcome to Mosaic’s fiscal 2010 fourth quarter earnings conference call. With us today are Jim Prokopanko, President and Chief Executive Officer; Larry Stranghoener, Executive Vice President and Chief Financial Officer; and Rich Mack, Executive Vice President, General Counsel and Corporate Secretary; and other members of the senior leadership team.

After my introductory remarks, Larry will review our fourth quarter results and provide some comments on the outlook and financial guidance for fiscal 2011. Following Larry’s remarks, Rich will provide an provide on the hearing yesterday related to the South Ford Meade permit, and Jim will wrap up with a recap of our strategic priorities, key accomplishments this past year and what lies ahead.

The presentation slides we are using during the call are available on our website.

We will be making forward-looking statements during this conference call. These statements include, but are not limited to, statements about future financial and operating results. They are based upon management’s beliefs and expectations as of today’s date, July 23rd, 2010 and are subject to significant risks and uncertainties.

Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is included in our press release issued yesterday and in our reports filed with the Securities and Exchange Commission.

This call is the property of Mosaic. Any distribution, transmission, broadcast or rebroadcast in any form without the expressed written consent of Mosaic is prohibited.

Now I’ll turn the call over to Larry.

Larry Stranghoener

Thank you, Christine, and good morning, everyone. Fiscal 2010 was a transitional year in the agricultural markets and for us. Demand for our products began to rebound during the second half of the year and we finished on a strong note as we expected. Our financial results consistently improved each quarter this fiscal year. And, for the year, we earned $1.85 per share and generated $1.4 billion in operating cash flow.

Our fourth quarter results improved both sequentially and compared to year-ago results. Earnings per share were $0.89, nearly tripled the amount last year. Sequentially, our results improved due to firming debt selling prices and improved operating leverage in the potash segment, partially offset by lower potash sales volumes. We generated $532 million in cash flow from operations this quarter, primarily due to the increase in net earnings, up from $306 million a year-ago.

During the quarter, our phosphates business segment generated $221 million in operating earnings, fourfold the results in the third quarter. Sales volumes were slightly below the low end of our guidance range. However, solid operating performance, higher selling prices and a favorable product mix contributed to a 26% gross margin rate this quarter, an improvement of 15 percentage points from a quarter ago.

Fourth quarter potash sales volumes were up strongly compared to last year, but slightly below the low end of our guidance range. Potash operating earnings of $347 million were above the third quarter and substantially ahead of year-ago results. The gross margin rate improved sequentially 6 percentage points to 54%. The key driver in our performance was improved cost leverage due to increased production as well as lower brine inflow expenses.

Now, turning to our outlook and financial guidance for fiscal 2011, please refer to slide seven. We see strong demand for phosphates, lean inventories and improving grain and oil seed prices and fundamentals underscore our positive outlook. Global phosphate shipments are projected to climb to 54 million to 56 million tons in calendar 2010 and to 55 million to 57 million tons in calendar 2011. Key growth regions for phosphates include India, Brazil, and Argentina.

For our first quarter, we estimate total phosphate sales volumes of 2.8 million to 3.2 million tons and an average DAP selling price of $410 to $440 per ton. We expect to run our North American phosphate operations at 85% to 90% of capacity. As for raw material trends, we expect that the price of sulfur will decline in the third calendar quarter to a level in line with current international spot values. The price of ammonia in July settled at $355 per ton and we expect ammonia prices will exhibit less volatility during this fiscal year.

Remember that current raw material costs typically flow through our P&L with a two to three-month leg. This means that in our first fiscal quarter, we will be selling product manufactured at raw material costs higher than current market pricing. This coupled with an anticipated higher percentage of blend projects in our first quarter sales mix suggest a decline in our first quarter phosphate gross margin rate compared to the fourth quarter level.

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