The Mosaic Company: A guide and comprehensive analysis (Part 8 of 9)
Mosaic has a substantially larger amount of cash than its competitors. This cash came from strong earnings from previous years, and no substantial debt was raised. The benefit of having so much cash is clear: financial strength. This is particularly positive for the potash and phosphate industries, where the price of these products creates volatility. Mosaic has managed to lower the risk caused by price changes and set itself up for expansion. So, what exactly is Mosaic planning to do with its billions?
On January 8, 2014, Mosaic completed the repurchase of 21.65 million shares at a price of $45.77 per share. This billion-dollar investment is expected to double beginning in February 2014 with the repurchase of the remaining 21.65 million shares. In 2012, $1.2 billion was also spent on capital stocks.
Peter Lynch, a famous fund manager with record-breaking returns, repeatedly mentions how he likes when companies purchase their own stocks. He reasons that when a company buys back its own shares, it shows confidence and honest expectations for great future performance.
In company presentations, Mosaic has shown interest in returning its excess cash to shareholders. This means the company could raise its dividends, which right now are at 0.25 cents per share. Increased dividends assure a return floor to Mosaic’s shareholders.
Capital expenditure: Investments
CapEx (capital expenditure) is the purchase of fixed assets. It includes the money needed to sustain current production as well as increase it. In 2011 and 2012, and over the last 12 months since September 30, Mosaic spent $1.3 billion, $1.6 billion, and $1.6 billion respectively in capital. Constantly increasing CapEx means the company isn’t only trying to sustain the assets it already has but also to increase its production capabilities or better reach out to customers through more distribution facilities.
Mosaic made a large investment in new potash mines as well as in Ma’aden JV (Saudi Arabian Mining Co.). In March 2013, Ma’aden, Mosaic, and Saudi Basic Industries agreed to form a $7 billion joint venture in northern Saudi Arabia to mine phosphate rock and process it into fertilizer. Mosaic will have a 25% stake in the venture. Finally, in 2014, 2015, and 2016, Mosaic is expecting to invest large amounts in its international supply chain facilities, which will allow the company to increase its customer base.
Browse this series on Market Realist:
- Part 1 - The Mosaic Company: An investor’s guide to MOS’s business
- Part 2 - An investor’s guide to Mosaic’s revenue generation process
- Part 3 - Why lower sales have led to Mosaic’s shares falling 20.8%
- Basic Materials Industry
- The Mosaic Company