Friday, January 1, 2010

Mosaic Co. (NYSE: MOS): Second Quarter Earnings Preview 2010

Mosaic Co. (NYSE: MOS), North America's second-largest fertilizer maker, is scheduled to release its fiscal second quarter earnings before the market open on Monday, January 4, 2010. Analysts, on average, expect the company to report earnings of 35 cents per share on revenue of $1.68 billion. In the year ago quarter, the company reported earnings of $1.12 per share on revenue of $3.01 billion.

The Mosaic Company engages in the production and marketing of concentrated phosphate and potash crop nutrients for the agriculture industry worldwide. The company serves customers in more than 40 countries. It is leading producer of potash in North America, with nearly 40 percent market share. It’s the second-largest global potash producer, with a global market share of 13%. Mosaic is also the world’s largest integrated phosphate producer. Its share of the world phosphate production is 13 percent while its share of the US production is 58 percent.

In October,the Plymouth, Minnesota-based company reported a sharp decline in first quarter profit, hurt primarily by by significant declines in market selling prices for phosphate and potash sales volumes combined with lower potash selling prices. Net income plunged 92% to $100.6 million or $0.23 per share, compared to $1.2 billion, or $2.65 per share, in the prior-year quarter. Net sales for the first quarter plummeted 66% to $1.46 billion from $4.32 billion in the same quarter last year. Analysts, on average, expected the company to earn $0.35 per share on revenue of $1.54 billion. Gross profit for the first quarter was $222.2 million or 15% of net sales, compared to $1.6 billion or 38% of net sales, in the prior year quarter. The average first quarter diammonium phosphate selling price, FOB plant, was $276 per tonne, compared to $1,013 in the first quarter of last year while the average potash selling price, FOB plant, was $382 per tonne, in the first quarter compared to $488 in the first quarter of 2008.

Mosaic generated $172 million in cash flow from operations in second quarter despite weak market condition. Gross margins improved to 14% and it expects further modest improvement in margin in fiscal 2010.

The fertilizer industry was hit hard due to credit crisis as tight lending conditions hurt farmers’ ability to take on loans – preventing them not only from making capital expenditures on things like tractors and other machinery, but also hurting their ability to buy fertilizer.As a result fertilizer demand plummeted while prices crashed. However, demand for fertilizers seems likely to increase in 2010, as farmers replenish soils following two years of limited applications. The recovery in the global economy that will have a positive impact on the crop nutrient business. "Phosphate fundamentals have improved. The potash market is evolving and we expect strong demand in calendar year 2010 for both nutrients," Jim Prokopanko, Mosaic's President and Chief Executive Officer said recently in an interview. "We like the pricing outlook for our products," says Lawrence Stranghoener, Mosaic's chief financial officer. "We're on a path to produce very attractive returns for our shareholders, and very good cash flows."

The company expects second quarter Phosphates sales volumes to be in the range of 1.8 million tonnes to 2.2 million tonnes. Mosaic expects its second quarter realized DAP price, FOB plant, to be $265 to $305 per tonne.

Among other developments, Mosaic Co. declared a quarterly dividend of 5 cents during fiscal second quarter. It will be paid Feb. 18 to shareholders of record as of Feb. 4.Mosaic continues to maintain a strong balance sheet with $2.6 billion in cash providing ample financial flexibility.

In terms of stock performance, Mosaic shares are up nearly 72% since the beginning of the year 2009.

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