Mosaic's Earnings Miss Is Not So Terrible

Earnings season is Charles Dickens time for me: the best of times (more information) and the worst of times (rabid overreactions by huge swathes of people who do nothing more than look at a headline and make rapid fire decisions based on it).

As long time readers know, I don't do the "gambling in front of earnings" game that seems to be so popular among the masses - if I want a 50/50 chance, I'll flip a coin. I took a little bit off the table, (but added to Potash earlier Wednesday ) once I realized earnings were the same day - I've been so engrossed in the economic and 40,000 foot stock market actions, I have been losing track of some of the individual company specifics.

Chart wise, one would really like to see Mosaic (MOS) hold $42 (it is below in after hours) but frankly commodity stocks generally move en masse so in general a subsector is a hostage to the "reflation" or "not reflation" trade.

I am not going to spend too much time on the earnings report like I did in 2007 or 2008 because this is just a "proxy" play on commodities for us; the language is not unexpected on first glance and despite a substantial miss the stock is not doing terribly. Ironically at one point in latter 2008 Mosaic reported a far better number but lost 30-40% in value the next day or two. [Oct 1: Market Hates Mosaic - Phosphates Not Up to Snuff] I remember that.... "fondly". It's all about expectations and lemmings during earnings season.

Full report here, expectations were for $1.9 Billion in revenue and 24 cents EPS - they managed to miss both quite dramatically. Gross margins simply imploded... all these fertilizer makers keep pointing to 2nd half recoveries as well (should give them a CNBC time slot) but I've had my doubts. I guess it is time for bulls to start pumping the Cargill buyout rumor mill. [Feb 27, 2009: Cargill Rumor Heats up Mosaic]

• The Mosaic Company (NYSE: MOS - News) announced net earnings of $58.8 million, or $0.13 per diluted share, for the third quarter ended February 28, 2009. These results compare with net earnings of $520.8 million, or $1.17 per share, for the third quarter ended February 29, 2008. The Company maintained a strong financial position, with cash and cash equivalents of $2.5 billion as of February 28, 2009.
• Mosaic had net sales in the third quarter of fiscal 2009 of $1.4 billion, a decrease of $771.7 million, or 36%, compared to the same period a year ago.
• Mosaic's gross margin for the third quarter of fiscal 2009 was $140.3 million, or 10% of net sales, compared with $727.9 million, or 34% of net sales, a year ago.
• Mosaic's third quarter results were driven by significantly lower sales and production volumes, higher raw material costs, and lower phosphate selling prices. This was due to a change in buyer sentiment resulting from, among other factors, lower grain prices, a build-up of inventories in the distribution supply chains, the global economic slowdown and the recalibration of the phosphate market to reflect lower raw material input costs. (but other than that, the quarter went well)

In all seriousness, I remain a long term bull on potash specifically due to the high moat - but even food production is somewhat elastic.

Specific Items

• The average diammonium phosphate [DAP] selling price was $413 per tonne and total phosphate sales volumes were 1.1 million tonnes
• The average muriate of potash [MOP] selling price was $565 per tonne and total potash sales volumes were 0.8 million tonnes
• The Company has increased its phosphate production in the fiscal fourth quarter while maintaining reduced production levels in potash (why increase phospate production?)
• Fiscal fourth quarter results are expected to improve from third quarter levels while remaining weak compared to the recent past
• The global phosphate market appears to have stabilized with a number of customers returning to the market in recent weeks. Potash customers, however, continue to be cautious and the Company expects fourth quarter potash sales to remain weak.

[Mar 4, 2009: Potash, Mosaic, Intrepid Potash Come Under Pressure After Talk of Uralkai 25% Price Cut]

[Jan 6, 2009: Mosaic Earnings - As Expected]

[Dec 2, 2008: Mosaic Warns, Stock Up]

[Oct 28, 2008: Noteable Calls - Mosaic Cargill Standstill Expires Oct 22]

[Jul 29, 2008: Mosaic with Blow Out Earnings]

[Jul 17, 2008: Canpotex to Sell Potash @ $1000/Ton]

[Jul 15, 2008: Mosaic Sells Nitrogen Plant to Yara International for $1.6 Billion]

[Apr 16, 2008: Chinese Agree to $576 Price Point for Potash]

[Mar 27, 2008: Canpotex Potash Contracts Secured with India @ $625]

Disclosure: Long Mosaic in fund; no personal position

Comments

[bluetick:]

Phosphate buyers are returning to the table slowly because Dap prices have dropped $700/ton from Mosaic's posted prices of $1000/ton from April through Oct '08 to the $300 range now in the US mkt.
Potash prices have dropped from the $800/ton range in Q3 of '08 to the $600/ton range in April '09, but farmers are still staying away in droves. They got mad last fall when fertilizer prices skyrocketed while crop prices were crashing, and left the party.
Mosaic held the line on potash during this time, and their results for Q3 were predictable. They killed the golden goose (greed?) and the results were the same as in the story.

Apr 09 06:16 PM

[mr clark:]

so if MOS pulling in 220 million in profits at this level, in 10 years they would bring in $2 billion+ profits... stockholder equity minus goodwill around $6 billion... mkt cap $20 billion? what am i getting for such a premium other than a potential buyout???\

maybe when crop prices head back up this one gets interesting again...

Apr 09 07:14 PM

[Deltaxray7:]

Earning don't mean much these days,
Good earnings or bad earnings, Fertilizer fell 70% since october 08.
Company specifics be damned.

Apr 10 12:21 PM

[Boris Yeltsin:]

Anyone know of a good way to track the DAP spot/futures price on Bloomberg or on the net? Thanks

Apr 15 06:04 AM

[queenie:]

Don't make farmers MAD with increased prices when farm income is falling. Mosiac got just what it deserved.

Apr 23 04:42 PM