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Why Is Mosaic (MOS) Down 20.1% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Mosaic (MOS). Shares have lost about 20.1% in that time frame, underperforming 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 drivers.

Mosaic's Earnings and Sales Trail Estimates in Q2

Mosaic swung to a net loss of $233.1 million or 60 cents per share in second-quarter 2019 from a profit of $67.9 million or 18 cents in the year-ago quarter. The bottom line includes $284 million noncash after-tax charge related to the permanent closure of the Plant City phosphate facility. 

Barring one-time items, adjusted earnings per share (EPS) of 12 cents missed the Zacks Consensus Estimate of 30 cents.

Net sales fell roughly 1.3% year over year to $2,176.9 million in the quarter. The figure trailed the Zacks Consensus Estimate of $2,252.3 million.

Per the company, wet weather conditions in the Midwest United States affected North American spring fertilizer sales volume and phosphates margin.

Segment Highlights

Net sales in the Phosphates segment were $917 million in the quarter, down around 16.6% year over year due to lower sales volume and sales price stemming from weather- and logistics-related challenges in North America. The segment’s gross margin was at a loss of $12 million. Margin was impacted by higher raw material costs, lower selling prices along with product mix and sales channel shifts toward lower margin international sales.

Potash division’s sales rose nearly 5.3% year over year to $599 million on the back of higher average sales prices, partly offset by lower sales volumes. Gross margin in the quarter was $181 million, up 37.1% year over year. 

Net sales in the Mosaic Fertilizantes segment came in at $833 million, up around 16.8% year over year. Gross margin fell to $35 million from $53 million in the year-ago quarter, primarily impacted by idle plant costs and higher costs related to the idling of the Araxa, Catalao and Tapira mining complexes.

Financials

Mosaic ended the quarter with cash and cash equivalents of $401.9 million, down around 61.2% year over year. Long-term debt fell roughly 4.1% year over year to around $4,542.2 million.

Cash flow used by operating activities was $507.3 million in the reported quarter, down 37.1% year over year. Mosaic’s capital expenditures were $294.9 million in the quarter.
 
Outlook

Mosaic updated its outlook for 2019. It expects that the potential for record North American fertilizer application volumes as well as strong demand in Brazil will drive demand globally during the second half of 2019.

The company now expects adjusted EBITDA for 2019 in the band of $1.8-$2 billion, down from its earlier view of $2-$2.3 billion. It also projects adjusted EPS in the range of $1.10-$1.50 compared with the prior guidance of $1.50-$2.00.

For the third quarter, Mosaic expects phosphates sales volumes in the band of 2.2-2.4 million tons. The segment’s adjusted gross margin is projected in the band of $5-$15 per ton.

Potash sales volumes have been forecast in the range of 2.2-2.4 million tons for the third quarter and adjusted gross margin is projected in the band of $60-$70 per ton.

The company also expects sales volumes in the Mosaic Fertilizantes segment in the band of 3.6-3.8 million tons for the third quarter. It projects gross margin for the segment in the range of $30-$40 per ton.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -41.03% due to these changes.

VGM Scores

At this time, Mosaic has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, 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 B. 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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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