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Mosaic Co. (NYSE:MOS) reported preliminary financial results for the quarter ended 2012-08-31.

Mosaic Co. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company.

Mosaic Co.'s analysis versus peers uses the following peer-set: Potash Corp. of Saskatchewan Inc. (NYSE:POT), Agrium Inc. (NYSE:AGU), ICL-Israel Chemicals Ltd. (OTCPK:ISCHF), CF Industries Holdings Inc. (NYSE:CF), K Plus S Ag Adr (OTCQX:KPLUY) and Intrepid Potash Inc. (NYSE:IPI). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-08-312012-05-312012-02-292011-11-302011-08-31
Revenues2,505.12,820.52,189.53,014.53,083.3
Revenue Growth %(11.2)28.8(27.4)(2.2)7.8
Net Income429.4507.3273.3623.6526.0
Net Income Growth %(15.4)85.6(56.2)18.6(19.0)
Net Margin %17.118.012.520.717.1
ROE % (Annualized)14.017.19.521.217.6
ROA % (Annualized)10.212.46.915.613.2

Valuation Drivers

Mosaic Co.'s current Price/Book of 1.9 is about median in its peer group. The market expects Mosaic Co. to grow earnings about as fast as the median of its chosen peers (P/E of 12.8 compared to peer median of 12.1) but not to expect much improvement in its below peer median rates of return (ROE of 14.8% compared to the peer median ROE of 24.2%).

The company's asset efficiency (asset turns of 0.6x) and net profit margins of 17.4% are both median for its peer group. Mosaic Co.'s net margin is less than (but within one standard deviation of) its four-year average net margin of 19.8%.

Economic Moat

Changes in the company's annual top line and earnings (11.8% and -23.2% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

Mosaic Co.'s return on assets currently is around peer median (11.0% vs. peer median 11.7%) -- similar to its returns over the past five years (15.0% vs. peer median 15.0%). This performance suggests that the company has no specific competitive advantages relative to its peers.

The company's comparatively low gross margins of 33.6% versus peer median of 46.8% suggests that it has a non-differentiated strategy or is in a pricing constrained position. However, Mosaic Co.'s pre-tax margin of 23.6% is around the peer median which, when combined with the gross margin, suggests lower operating costs relative to peers.

Growth & Investment Strategy

Mosaic Co.'s revenues have grown at about the same rate as its peers (2.6% vs. 2.2% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 12.8. The historical performance and long-term growth expectations for the company are largely in sync.

Mosaic Co.'s annualized rate of change in capital of 9.7% over the past three years is around its peer median of 11.5%. This median investment has likewise generated a peer median return on capital of 15.2% averaged over the same three years. This median return on investment implies that company is investing appropriately.

Earnings Quality

Mosaic Co.'s net income margin for the last twelve months is around the peer median (17.4% vs. peer median of 21.0%). This average margin and relatively conservative accrual policy (6.2% vs. peer median of 5.1%) suggests possible understatement of its reported net income.

Mosaic Co.'s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median -- which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Company Profile

The Mosaic Co. engages in the production and marketing of concentrated phosphate and potash crop nutrients for the global agriculture industry. It offers phosphate- & potash-based crop nutrients and animal feed ingredients. The company engages in every phase of crop nutrition development, from the mining of resources to the production of crop nutrients, feed and industrial products for customers around the globe. Its customers include wholesalers, retail dealers and individual growers in more than 40 countries. The company operates its business in two segments: Phosphates and Potash. The company was founded on October 22, 2004 and is headquartered in Plymouth, MN.

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Source: Earnings Analysis: Mosaic Co.