Mosaic's Earnings Miss, Weak Pricing Hurts Net

Zacks

Mosaic (MOS) saw its profit plummet in the fourth quarter of 2013 on lower potash and phosphate pricing. The Minnesota-based fertilizer maker’s profits slid around 79% year over year to $129 million (or 30 cents per share) from $616 million (or $1.44 per share) a year ago.

Barring one-time items, Mosaic’s earnings of 36 cents per share missed the Zacks Consensus Estimate of 44 cents.

Revenues slipped roughly 8% year over year to $2,181.5 million, but beat the Zacks Consensus Estimate of $1,794 million. Declines across phosphate and potash businesses dragged down the top line.

For full-year 2013, profit tumbled 43% year over year to $1.1 billion or $2.49 per share from $1.9 billion or $4.34 per share a year ago.  Revenues for the full year fell around 10% year over year to $9 billion.

However, Mosaic bumped up share repurchases by announcing a $1 billion buyback program. Its shares, which are down around 23% in the last 12 months, were up 1.8% in pre-market trading.
 
Segment Highlights

Revenues from Mosaic’s Phosphate segment fell 6% year over year to $1.6 billion in the quarter as lower finished product prices more than offset higher sales volumes. Average selling price fell to $381 per ton in the quarter from $532 last year. As a result, the segment’s gross margin fell to 12% from 17% a year ago. Segment sales volumes were 3.4 million tons in the quarter, up 21% year over year.

Potash division’s sales slipped 10% year over year to $652 million in the quarter as a 30% fall in prices more than offset higher shipment volumes. Sales volumes rose to 1.9 million tons from 1.4 million tons in the year-ago quarter while selling price fell to $303 per ton from $435 per ton a year ago. Gross margin fell to 21% from 41% last year.

Financials

Mosaic ended 2013 with cash and cash equivalents of $5.3 billion, up 55% year over year. Long-term debt rose roughly three-fold year over year to $3 billion at the end of the year. Mosaic’s capital expenditure was $370 million in the reported quarter. Operating cash flow climbed 33% year over year to $503 million in the quarter.

Mosaic’s Board approved a $1 billion share repurchase program, allowing it to buyback Class A or common shares through direct repurchases or open market transactions. This is in addition to the earlier announced agreement to repurchase 43.3 million Class A shares in the first seven months of 2014.

Outlook

Mosaic, which is one of the biggest fertilizer makers along with Potash Corp. (POT) and Agrium (AGU), envisions improving market conditions and expects potash prices to improve later in 2014. It is well placed to leverage the rising global demand for grain and oilseeds.

Mosaic expects sales volume for its phosphates business to be between 2.3 and 2.6 million tons in the first quarter of 2014 compared with 2.7 million tons achieved a year ago. Average selling price for the quarter is expected to be in the range of $390 to $420 per ton. The segment’s gross margin for the quarter is expected to be in the upper teens. Operating rate is expected to be in the low 80% range.

Mosaic sees sales volume from its potash business in the range of 2.3 to 2.7 million tons in the first quarter versus 2 million tons a year ago. Average selling price for the quarter is expected in the range of $245 to $275 per ton. The segment’s gross margin is expected to be in the 30% range in the quarter. Operating rate has been forecast in the mid-80% range.

Mosaic, in Oct 2013, agreed to buy the phosphate mining and manufacturing business of CF Industries (CF) for $1.4 billion in cash. The facilities to be acquired by Mosaic currently produce roughly 1.8 million tons of phosphate annually.

The deal was cleared by the United States Department of Justice (:DOJ) last month. The closing of the transaction is now subject to receipt of other regulatory clearances.  

The buyout will expand Mosaic’s phosphate business and production capacity of the nutrient in Florida. The company’s guidance for the phosphate segment excludes any potential impact from this acquisition.

Mosaic is a Zacks Rank #3 (Hold) stock.

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