On Mar 3, 2016, we issued an updated research report on fertilizer maker Mosaic MOS.
Mosaic’s profits tumbled in fourth-quarter 2015, hit by lower phosphate and potash prices. Lower prices and sluggish demand hurt margins in the company’s core phosphates business in the quarter. Lower volumes and pricing contributed to a decline in revenues in the quarter.
The company’s guidance indicates a year-over-year fall in sales volumes for phosphate and potash in first-quarter 2016. Mosaic expects phosphates sales volumes in the band of 1.8–2.2 million tons for the first quarter versus 2.3 million tons for the same quarter in 2015. Potash sales volumes have been forecast in the range of 1.5 to 1.9 million tons for the quarter versus 2 million tons a year ago.
Mosaic is curtailing 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 said 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 that can create uncertainty in the near term. Continued downturn in crop prices is weighing on U.S. farm income. Lower farm income unfavorably impacts grower’s input purchasing decisions.
The near-term outlook for the fertilizer space still remains cloudy due to insipid economic growth in certain developing markets such as Brazil. Tighter profit margins and insufficient credit are making growers in Brazil more cautious in their spending.
Mosaic is also exposed to a still challenging pricing environment. Agricultural commodity prices in general remain weak. Weak farm commodity pricing may weigh on demand for nutrients in the short haul.
Mosaic carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Better-ranked companies in the basic materials space include Koninklijke DSM N.V. RDSMY, Daqo New Energy Corp. DQ and Flexible Solutions International Inc. FSI. While Koninklijke DSM and Daqo sport a Zacks Rank #1 (Strong Buy), Flexible Solutions carries a Zacks Rank #2 (Buy).
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KONINKLIJKE DSM (RDSMY): Free Stock Analysis Report
DAQO NEW ENERGY (DQ): Free Stock Analysis Report
FLEXIBLE SOLTNS (FSI): Free Stock Analysis Report
MOSAIC CO/THE (MOS): Free Stock Analysis Report
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