Mosaic Company (The) (MOS)

MOS 
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Mosaic (MOS)

Q3 2011 Earnings Call

March 31, 2011 10:00 am ET

Executives

James Prokopanko - Chief Executive Officer, President, Director and Member of Executive Committee

James O'Rourke - Executive Vice President of Operations

Lawrence Stranghoener - Chief Financial Officer and Executive Vice President

Christine Battist - Director IR

Analysts

Fai Lee - RBC Capital Markets, LLC

Michael Piken - Cleveland Research

Lindsay Drucker Mann - Goldman Sachs

Mark Gulley - Soleil Securities Group, Inc.

Vincent Andrews - Morgan Stanley

Jacob Bout - CIBC World Markets Inc.

Shiv Puri

Donald Carson - Susquehanna Financial Group, LLLP

Fadi Benjamin

David Silver - BofA Merrill Lynch

Edlain Rodriguez - Gleacher & Company, Inc.

Dean Groff

P.J. Juvekar - Citigroup Inc

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Mosaic Company's Fiscal 2011 Third Quarter Earnings Conference Call. [Operator Instructions] Your host for today's call is Christine Battist, Director, Investor Relations of the Mosaic Company. Please proceed, Christine.

Christine Battist

Thank you, Simon. Welcome to Mosaic's Fiscal 2011 Third 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 other members of the senior leadership team.

After my introductory comments, Larry will summarize our third quarter results and financial guidance. He will also provide an update on South Fort Meade and the Cargill split-off transaction. Then Jim will share his views on the markets and Mosaic's strategic priorities. The presentation slides we are using during the call today are available on our website at mosaicco.com.

Recently, Mosaic was recognized for the second year in a row in the Corporate Responsibility Magazine 12th annual 100 Best Corporate Citizens List. This list is known as the world's top corporate responsibility ranking based on publicly available information. This recognition was due in part to our conservation and environmental stewardship, as well as our financial and governance transparency.

I also wanted to bring to your attention to one matter in our press release related to enhanced disclosure regarding MOP selling prices. We have included our average MOP crop nutrient selling prices for both North American and international customers in addition to the average MOP selling price. Historical information for the prior 14 quarters is included in our segment data table found 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, March 31, 2011, 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.

Slide 4 summarizes important information about the proxy statement and prospectus that we have filed with the SEC in preliminary form and that you should read when available in final form. This call is the property of Mosaic. Any distribution, transmission, broadcast or rebroadcast in any form without the express written consent of Mosaic is prohibited.

Now I'll turn the call over to Larry.

Lawrence Stranghoener

Thank you, Christine. Good morning, all. As many of you know, this is Christine's last earnings call, and I'm sure she'll miss them. Christine has led our IR function now for more than the three years she was originally asked to serve and will be rotating soon to a new role. Christine significantly enhanced our IR program, and we are grateful for her contributions. Joining us as our new Vice President of Investor Relations is Laura Gagnon. Laura brings a wealth of IR and related experience to us most recently at Ameriprise where she established the IR function following that company's spin-off from American Express.

Now let's turn to Slide 5. The long-term fundamentals for our business are outstanding, and we are effectively executing against our strategic priorities, which are aligned with this outlook. Yesterday, we reported record third quarter earnings with strong results in both of our business segments. As the leading producer of Potash and Phosphate, there is no company better positioned than Mosaic to capture the growth in crop nutrient markets.

Now let me highlight our financial results. As you can see on the slide, net earnings were $542 million or $1.21 per share compared to $222 million or $0.50 per share a year ago. We generated $366 million in operating cash flow this quarter and funded $312 million in capital expenditures, with the bulk of this going toward our Potash expansions. Gross margin was a record for any quarter at 39%, driven by outstanding market fundamentals and effective execution.

Our Phosphate business segment had an exceptional quarter. As summarized on Slide 6, we generated $372 million in operating earnings compared to $53 million a year ago. Gross margin improved to 31%, up from 11% a year ago and 24% last quarter. The improvement in third quarter operating earnings was primarily due to significantly higher selling prices, partially offset by higher raw material costs. Our focus on operational excellence contributed to our outstanding performance, particularly in mining. Mining production exceeded tonnage in the year-ago quarter by 10% due to better mining performance this quarter and the impact of mining curtailments in the year-ago quarter.

Our Potash segment also showed strong results in the third quarter. Potash operating earnings were $414 million, up about $90 million from last year as highlighted on Slide 7. This improvement was primarily due to the favorable effect of higher production volumes, increased selling prices and insurance recoveries. Compared to the second quarter, operating earnings, excluding discrete items, improved 49% as we began to realize MOP price increases announced last fall. Even though we continue to run our Potash mines at high rates to meet healthy demand, our Potash inventories remain low and are expected to remain so through the summer when we perform our usual turnarounds.

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