Sunday, March 27, 2011

Mosaic Co. (NYSE: MOS): Q3 Earnings Preview 2011

Mosaic Co.

Mosaic Co. (NYSE: MOS) is scheduled to release its third-quarter earnings after the closing bell on Wednesday, March 30, 2011. Analysts, on average, expect the company to report earnings of $1.07 per share on revenue of $2.35 billion. In the year ago period, the company reported earnings of $0.50 per share on revenue of $1.73 billion.

The Mosaic Company engages in the production and marketing of concentrated phosphate and potash crop nutrients for the agriculture industry worldwide.

In the preceding fiscal second quarter, the Plymouth, Minnesota-based company's net income was $1.0 billion or $2.29 per share, compared to $107.8 million or $0.24 per share in the prior year quarter. The second quarter results include a gain of $570 million or $1.28 per share on the sale of the company's interest in Fosfertil S.A. Revenue jumped 56% to $2.67 billion from $1.71 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 91 cents per share on revenue of $2.44 billion. Gross profit margin rose to 29% from 18%. 

The demand for both phosphates and potash continues to expand globally, placing Mosaic in a unique position to capitalize in markets worldwide. Fertilizer demand continues to strengthen and market segment sentiment has improved due to the rally in grain prices, lean producer inventories and the need to refill a de-stock pipeline.The broad-based rally in agricultural commodity prices translates into profitable farm economics and record or near-record farm income around the world. Expanding middle-class in China and India are demanding more meat and diverse prroduce, both of which require fertilizer-fueled farms. And in North America, famers are spending more on high-tech equipment and genetically engineered seeds. They use more fertilizer to make sure those investments pay off. Rallies in a broad array of agricultural commodity prices during the last few months are fueling an increasingly positive outlook for phosphate and potash demand. Phosphate prices have increased sharply. And potash prices have begun to move up. Given the positive demand outlook, P and K markets is likely remain tight until new capacity comes on later this decade.

At its last earnings call in January, the company said that its third quarter total phosphate sales volumes of 2.4 to 2.7 million tons. The company said that its third quarter sales volumes will be impacted by normal seasonal factors following which we expect a very good fourth quarter led by strong North American spring demand. The company expects an average DAP selling price in the third quarter of $510-540 per ton. Mosaic expects third quarter total potash sales volumes of 1.9 to 2.1 million tons and an average MLP selling price of $330-350 per ton. The company expects capital spending for fiscal 2011 to range from $1.2 to $1.4 billion. 

In Janaury, Cargill said that it plans to split off its 64% stake, or 286 million share position, in the Mosaic Co. to Cargill's equity and debt holders, the two agricultural products companies. The complicated series of transactions is expected to be completed in the next two or three years. Cargill is one of the company's biggest stake holders. For Mosaic, the deal is expected to improve its financial flexibility and increase the liquidity of its common stock. The deal is also seen as significant as it opens the door for Mosaic to potentially be acquired. On a conference call outlining the transaction, Mosaic CEO Jim Prokopanko stated that "it's possible for Mosaic to be acquired" between now and the two years that it will take for Cargill to divest its stake. 

The company's stock currently trades at a forward P/E  (fye May 31, 2012) of 14.90 and PEG Ratio (5 yr expected) of 1.31. In terms of stock performance, Mosaic shares have gained nearly 33% over the past year.

Full Disclosure: None.
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