Will Agriculture Weakness Hurt Mosaic (MOS) Q3 Earnings?
Mosaic MOS is set to release its third-quarter 2015 results before the bell on Nov 3.
In the last quarter, the fertilizer maker delivered a 15.4% positive earnings surprise. Mosaic has beaten the Zacks Consensus Estimate in 2 of the trailing 4 quarters while missing in the other 2 with an average beat of 1.20%. Let's see how things are shaping up for this announcement.
Factors to Consider
Mosaic, in Sep 2015, updated its outlook for the third quarter of 2015. The company said that it will reduce production in its Potash business and maintain lower production in the Phosphate business.
Mosaic noted that delayed fertilizer purchases in Brazil and North America has softened the domestic and international crop nutrient markets. It said that currency volatility, lower grain and oilseed prices, political and economic uncertainty, along with global equity market declines have negatively impacted the markets. In response to these market conditions, the company decided to reduce production, which is expected to impact per unit costs and segment margins.
Mosaic expects Phosphate volumes to be at the low end of the previously projected range of 2.1–2.4 million tons. The average Di-Ammonium Phosphate (DAP) selling price is expected to be in the upper half of the earlier provided range of $435 to $455 per ton. The Phosphates segment’s margin rate is expected to be in the low-20% range as earlier guided by the company.
The company expects potash volumes to be in the bottom half of its earlier given guidance range of 1.6 million to 2 million tons. The average selling price for muriate of potash (MOP) is expected to be in the bottom half of the previously guided range of $260 to $280 per ton. Due to lower operating rates, gross margin rate for the Potash segment is now anticipated to be in the high teens, compared to the previous guidance of the low- twenty percent range.
The guidance for international distribution volumes and gross margins was kept unchanged, which are expected to be close to the midpoint of previous guidance. Volumes are estimated to be in the range of 1.9–2.2 million tons and gross margins in the range of $20 to $26 per ton.
Mosaic is facing a challenging business environment in agriculture and there is a continuous negative sentiment among agriculture investors that can create uncertainty through 2015.
Mosaic is also exposed to a soft pricing environment and volatility in costs of key raw materials. The company is seeing depressed pricing for grain and oilseed. Agricultural commodity prices in general remain weak. These factors may weigh on the company’s September quarter results.
Earnings Whispers
Our proven model shows that Mosaic is unlikely to beat estimates this quarter. This is because the stock has a negative Earnings ESP (Expected Surprise Prediction) and an unfavorable Zacks Rank.
Zacks ESP: The Earnings ESP for Mosaic is -3.85%. This is because the Most Accurate Estimate is 50 cents, while the Zacks Consensus Estimate is pegged at 52 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:
Koppers Holdings Inc. KOP has an Earnings ESP of +3.08% and a Zacks Rank #2 (Buy).
Pan American Silver Corp. PAAS has an Earnings ESP of +27.27% and a Zacks Rank #3 (Hold).
Franco-Nevada Corp. FNV has an Earnings ESP of +7.69% and a Zacks Rank #3.
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