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Why Is Mosaic (MOS) Down 2.3% Since Last Earnings Report?

Zacks Equity Research
Safety, Income and Growth (SAFE) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

It has been about a month since the last earnings report for Mosaic (MOS). Shares have lost about 2.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mosaic due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Mosaic Tops Earnings Estimates in Q1, Cuts FY19 View

Mosaic logged profits of $130.8 million or 34 cents per share in the first quarter of 2019, a roughly three-fold jump from a profit of $42.3 million or 11 cents per share in the year-ago quarter. The bottom line in the reported quarter was positively impacted by foreign currency transaction gain and unrealized gain on derivatives.

Barring one-time items, adjusted earnings were 25 cents per share for the reported quarter, up from 20 cents a year ago. The results topped the Zacks Consensus Estimate of 21 cents.

Net sales fell roughly 2% year over year to $1,899.7 million in the quarter. The figure exceeded the Zacks Consensus Estimate of $1,885.5 million. Lower sales in the Phosphates segment due to reduced volumes were offset by higher sales across Potash and Mosaic Fertilizantes segments.

Per the company, higher costs affected all of its businesses during the quarter, including costs related to impacts of weather in North America and regulatory changes in Brazil.

Segment Highlights

Net sales from Mosaic’s Phosphates segment were $806 million in the quarter, down around 7% year over year mainly due to lower sales volumes. The segment’s gross margin fell to $55 million from $97 million in the year-ago quarter, impacted by higher raw material costs and flat average selling prices.

Potash division’s sales climbed around 25% year over year to $504 million in the quarter on the back of higher sales volumes and average sales prices. Gross margin in the quarter was $186 million, up from $103 million in the year-ago quarter. The rise was mainly driven by higher average sales prices.

Net sales in the Mosaic Fertilizantes segment were $698 million, up around 5% year over year. Gross margin fell to $52 million from $59 million in the year-ago quarter, impacted by turnaround costs and costs related to the idling of the Araxa mining complex.

Financials

Mosaic ended the quarter with cash and cash equivalents of $384.6 million, down around 42% year over year. Long-term debt fell roughly 6% year over year to around $4,533 million.

Cash flow used by operating activities was $176 million in the reported quarter, up from $71 million a year ago. Mosaic’s capital expenditures were $314 million in the quarter.
 
Outlook

Mosaic lowered its adjusted EBITDA and adjusted earnings guidance for 2019 factoring in higher costs related to the impact of new tailings dam regulations in Brazil, the impact of production curtailments, higher Canadian resource taxes and delayed recovery in phosphate margins.

The company now expects adjusted EBITDA for 2019 in the band of $2-$2.3 billion, down from its earlier view of $2.2-$2.4 billion. It also sees adjusted earnings per share in the range of $1.50-$2.00 per share for 2019, down from its prior guidance of $2.10-$2.50.

Mosaic expects phosphates sales volumes in the band of 2.3-2.6 million tons for the second quarter of 2019. The segment’s adjusted gross margin is forecast in the band of $40-$50 per ton.

Potash sales volumes have been forecast in the range of 2.3-2.6 million tons for the second quarter and adjusted gross margin is projected in the band of $70-$80 per ton.

The company also expects sales volumes in the Mosaic Fertilizantes segment in the band of 2-2.3 million tons for the second quarter. The company projects gross margin for the unit in the range of $15-$25 per ton.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -46.11% due to these changes.

VGM Scores

Currently, Mosaic has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Mosaic has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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