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Will Weak Demand & Pricing Hurt Mosaic's (MOS) Q4 Earnings?

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MosaicMOS is set to release its fourth-quarter 2015 results before the bell on Feb 11.

In the last quarter, the fertilizer maker delivered a 19.23% positive earnings surprise. However, its profits tumbled year over year on lower sales. Lower volumes and selling prices hurt revenues in the quarter.

Mosaic has beaten the Zacks Consensus Estimate in 3 of the trailing 4 quarters while with an average beat of 7.28%. Let's see how things are shaping up for this announcement.

Factors to Consider

Mosaic expects sales volumes for phosphates and potash to fall year over year in the fourth quarter. The company anticipates phosphates sales volumes in the band of 1.9-2.2 million tons for the quarter compared with 2.4 million tons achieved a year ago. Potash sales volumes have been projected in the range of 1.8-2.1 million tons for the quarter versus 2.3 million tons a year ago.

Mosaic recently said that it will curtail production in its phosphates business by up to 400,000 tons, with rotating plant shutdowns during first-quarter 2016. The move is in response to the current crop nutrient market conditions. The company noted that buyers are deferring purchases due to the recent volatility in prices and the fall in costs of raw materials that in turn is prolonging the seasonal period of sluggish demand.

Mosaic is facing a challenging business environment in agriculture and there is a continuous negative sentiment among agriculture investors. Continued downturn in crop prices is weighing on U.S. farm income. Lower farm income unfavorably impacts grower's input purchasing decisions.

The outlook for the fertilizer space still remains cloudy due to insipid economic growth in certain developing markets such as Brazil. Tighter profit margins and credit are making growers in Brazil more cautious in their spending.

Mosaic is also exposed to a still challenging pricing environment. The company is seeing depressed pricing for nutrients as witnessed in the third quarter. Agricultural commodity prices in general remain weak. These factors may weigh on the company's December quarter results.

Earnings Whispers

Our proven model does not conclusively show that Mosaic is likely to beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for Mosaic is -13.64%. This is because the Most Accurate Estimate is 38 cents, while the Zacks Consensus Estimate is pegged at 44 cents.

Zacks Rank: Mosaic has a Zacks Rank #5 (Strong Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies in the basic materials sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Pan American Silver Corp. PAAS has an earnings ESP of +12.50% and a Zacks Rank #3.

Franco-Nevada Corporation FNV has an earnings ESP of +8.33% and a Zacks Rank #3.

U.S. Silica Holdings, Inc. SLCA has an earnings ESP of +6.25% and a Zacks Rank #3.

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MOSAIC CO/THE (MOS): Free Stock Analysis Report

PAN AMER SILVER (PAAS): Free Stock Analysis Report

US SILICA HOLDI (SLCA): Free Stock Analysis Report

FRANCO NV CP (FNV): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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