Mosaic Company (The) (MOS)

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The Mosaic Company (MOS)

F1Q11 (Qtr End 08/31/2010) Earnings Call

October 5, 2010 10:00 am ET


Christine Battist - Director of IR

Jim Prokopanko - President and CEO

Larry Stranghoener - EVP and CFO

Mike Rahm - VP, Market and Strategic Analysis

Rick McLellan - SVP, Commercial

Rich Mack - EVP, General Counsel and Corporate Secretary


Anthony Pettinari - Citi

Vincent Andrews - Morgan Stanley

Jeff Zekauskas - JPMorgan

Robert Koort - Goldman Sachs

Jacob Bout - CIBC

Don Carson - Susquehanna

David Silver - Bank of America

Mark Connelly - CLSA

Edlain Rodriguez - Gleacher Company

Mark Gulley - Soleil Securities

Elaine Yip - Credit Suisse

Fai Lee - RBC Capital Markets

Farooq Hamed - Barclays Capital

Charles Neivert - Dahlman Rose

Horst Hueniken - Stifel Nicolaus

Hari Sambasivan - National Bank



Good morning, ladies and gentlemen, and welcome to The Mosaic Company's fiscal 2011 first quarter earnings conference call. (Operator Instructions) Your host for today's call is Christine Battist, Director of Investor Relations of The Mosaic Company.

Christine Battist

Thank you, Veronica. Welcome to Mosaic's fiscal 2011 first 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 Dr. Mike Rahm, Vice President, Market and Strategic Analysis; and other members of the senior leadership team.

After my introductory comments, Jim will review our first quarter results, comment on execution against our strategic priorities and update financial guidance. Then he'll provide an update on South Fort Meade. Following Jim's remarks, Mike will provide an in-depth review of supply and demand for the phosphate and potash markets.

The presentation slides we are using during this call are available on our website at

We will be making forward-looking statements during the conference call. The 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, October 5, 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. I have just one housekeeping item to share with you. We plan to file our 10-Q with the SEC on October 12.

Now I'll turn the call over to Jim.

Jim Prokopanko

Thank you, Christine, and good morning everyone on what is a beautiful harvest morning in Minnesota. It is a great time to be the largest combined phosphate and potash producer in the world.

As I said on our last call in late July, market sentiment was beginning to catch up with fundamentals. That has now happened. Several factors have tightened agricultural commodity markets, bolstering crop prices and farm profitability. This is driving strong demand for crop nutrients at a time when producer inventories are low and concerns are growing about crop nutrient supplies, creating a positive outlook for Mosaic. The steady drumbeat on the food story continues.

Now, let's shift to our quarterly results. We are executing against our strategic plans and delivering results. Earnings per share was $0.67 in the quarter, nearly triple the amount last year. We generated $556 million in cash flow from operations this quarter, primarily due to an increase in net earnings and customer prepayments. These prepayments are an indicator of the strong demand for our products.

Our phosphates business segment generated $178 million in operating earnings, nearly a four-fold increase over a year ago. The improvement in the first quarter operating earnings was primarily due to higher selling prices, partially offset by higher sulfur and ammonia cost and the unfavorable impact of reduced rock production at South Fort Meade. The segment gross margin was respectable at 15%, driven by strong sales volume into North America and Brazil.

We operated near full out at our concentrate plants, while our mining production was impacted by close to $30 million this quarter due to idling South Fort Meade, which I'll speak more about in a few minutes.

Potash sales volumes this quarter were double compared to last year and 200,000 tons above the high end of our guidance. Potash operating earnings were $218 million this quarter, double the year-ago performance.

Key driver in the results compared to a year-ago were increased sales volumes and improved cost leverage due to higher production levels. We expect our second quarter operating rate to improve as we come out of the seasonal turnarounds.

Now, I'd like to highlight a couple of matters related to execution of or strategic priorities. During July, we invested $385 million in the Miski Mayo phosphate rock mine in Peru.

Shipments have started and we're beginning to use this rock in our operations. Miski Mayo advances are strategic priority to secure additional phosphate rock and reinforces our commitment to remain the largest integrated phosphate producer in the world.

Last week, we closed the sale of our minority stake in Fosfertil for the gross proceeds of approximately $1 billion. We viewed Fosfertil as a non-strategic investment and we took advantage of an opportunity to sell and at an attractive valuation.

This sale does not affect our distribution assets which continue to give us a large footprint in Brazil. We have a rock solid balance sheet with cash on hand it provides us great flexibility. There has been no change to our cash allocation priorities that I outlined on last quarter's call.

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