Mosaic's (MOS) Strategic Measures Should Yield Results
On Sep 10, we issued an updated research report on The Mosaic Company (MOS). While the company should benefit from its efforts to boost production capacity and acquisitions, it is exposed to volatility in phosphate and potash pricing.
The Minnesota-based fertilizer maker’s profit for second-quarter 2014, reported on Jul 31, tumbled year over year, hurt by lower potash pricing. Adjusted earnings missed the Zacks Consensus Estimate. Revenues fell on a double-digit decline in the potash business, but beat expectations. Mosaic expects strong demand for phosphates and potash in the third quarter.
Mosaic, a Zacks Rank #3 (Hold) stock, is well placed to leverage the rising global demand for grain and oilseeds. The company expects global phosphate and potash shipments to rise 4% and 7%, respectively, in 2014. It also remains committed to return value to shareholders.
Mosaic remains focused on expanding its annual potash production capacity by roughly 5 million tons from the current levels. Moreover, the company is progressing well with the joint venture project in Saudi Arabia and has secured project financing of $5 billion.
Moreover, Mosaic’s $1.4 billion buyout of CF Industries’ (CF) phosphate business reinforces its production capacity of phosphate in Florida. The acquisition will bring the company’s annual phosphates capacity to roughly 11.5 million tons and provide meaningful operational synergies. Mosaic is making a good progress with the integration of the acquired business and is on track to achieve $40 to $50 million in annual synergies (before-tax) in 2015.
The acquisition of Archer Daniels’ (ADM) fertilizer distribution business (expected to close by end-2014) is also expected to accelerate Mosaic's existing growth plans in Brazil and expand its annual distribution capability in one of the world’s rapidly growing agricultural regions.
However, Mosaic, like other fertilizer makers, is exposed to a weak pricing environment. Average selling price for potash fell roughly 27% year over year in the second quarter, dragging down its revenues and profit in the process. Pricing pressure was also witnessed in the phosphate segment. These challenges may sustain in the near term.
Fertilizer makers face challenges following the exit of world's largest potash maker Uralkali Group from one of the biggest potash cartels – the Belarus Potash Company (“BPC”). Potash prices have declined sharply since the Uralkali cartel exit move.
While Mosaic expects higher potash imports in India in 2014, depressed potash subsidy levels, local currency devaluation and scanty monsoon rainfall may lead to somewhat subdued demand for the nutrient in that country. A material recovery in potash demand in India is not expected in the near term.
Other Stocks to Consider
Yara International ASA (YARIY), which also belongs to the fertilizer industry, is worth considering with a Zacks Rank #2 (Buy).
Read the Full Research Report on ADM
Read the Full Research Report on CF
Read the Full Research Report on MOS
Read the Full Research Report on YARIY
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