Mosaic (MOS) Q1 Earnings In Line, Cuts FY16 Volume Guidance

Mosaic (NYSE:MOS) logged profit of $257 million or 73 cents per share in the reported quarter, down from $295 million or 80 cents per share a year ago. Earnings, barring one-time items, were 14 cents per share, in line with the Zacks Consensus Estimate. The company gained from sustained cost management initiatives as well as currency and tax benefits, but lower prices weighed on its bottom line.

The Minnesota-based company’s revenues fell roughly 21.7% year over year to $1,674 million in the reported quarter due to lower volumes and prices. Sales, however, came ahead of the Zacks Consensus Estimate of $1,604 million.

Segment Highlights

Revenues from Mosaic’s Phosphates segment slipped roughly 24.3% year over year to $909 million in the quarter owing to reduced product prices and production curtailments. The segment’s gross margin shrank around 70.7% to $65 million due to lower product prices, partly offset by lower costs.

Segment sales volumes dropped roughly 4.4% year over year to 2.2 million tons. Average selling price fell around 22.5% to $355 per ton in the quarter from $458 per ton in the prior-year quarter.

Potash division sales tumbled around 39.7% year over year to $394 million in the quarter, hurt by reduced volumes and lower prices. Sales volumes fell roughly 20% year over year to 2 million tons, while selling price declined roughly 28.1% to $207 per ton from $288 per ton a year ago. Gross margin was $98 million, or $116 million without Canadian Resource Taxes (CRT). Barring CRT, gross margin fell to 30% from 49% a year ago, dragged down by lower selling prices and reduced volumes.

Revenues from the International Distribution segment went up around 6.4% year over year to $467 million on higher volumes from the acquisition of ADM’s distribution business. Gross margin fell around 42.9% to $12 million. Selling price declined around 17.8% to $365 per ton, while volumes jumped 30% to 1.3 million tons.

Financials

Mosaic ended first-quarter 2016 with cash and cash equivalents of $1,057.7 million, down around 17.1% year over year. Long-term debt rose roughly 0.1% year over year to $3,774 million. Mosaic’s capital expenditures and investments were $274 million in the reported quarter. Operating cash flow was $265.9 million in the quarter, down around 63.5% year over year.

Mosaic completed its earlier announced share buyback of $75 million in the first quarter of 2016. The company also paid $96.2 million in dividends during the quarter.

Outlook

Going forward, Mosaic expects global phosphate shipments to accelerate in the back half of 2016. For potash, it expects a more stable operating environment in second-half 2016.

Mosaic anticipates phosphates sales volumes in the band of 2.3–2.6 million tons for the second quarter of 2016 versus 2.8 million tons for the same quarter of 2015. Average selling price for the second quarter is projected to be in the band of $335–$355 per ton. The segment’s gross margin for the quarter is expected to be roughly 10%, while operating rate is estimated to be around 80%.

Potash sales volumes have been projected in the range of 1.9–2.2 million tons for the second quarter versus 2.3 million tons a year ago. Average selling price for the quarter is expected in the range of $180–$200 per ton. The segment’s gross margin is expected to be in the mid to high teens range in the second quarter, excluding CRT. Operating rate is estimated to be 70%.

Sales volumes for the International Distribution segment are expected in the band of 1.4–1.6 million tons for the second quarter compared with 1.5 million tons a year ago. Segment gross margin is anticipated to be in the low single dollar per ton range for the quarter.

For full-year 2016, the company lowered its volume guidance. Phosphates sales volumes are expected in the range of 9–9.75 million tons, down from 9–10 million tons expected earlier. Potash sales volumes are anticipated in the band of 7.5–8 million tons, down from the prior view of 7.5–8.5 million tons. Sales volumes for the International Distribution segment are expected in the range of 6–7 million tons.

For 2016, capital expenditures are estimated to be $0.8–$0.9 billion.

Zacks Rank

Mosaic currently has a Zacks Rank #5 (Strong Sell).

Better-ranked companies in the basic materials sector include KMG Chemicals Inc. (NYSE:KMG) , sporting a Zacks Rank #1 (Strong Buy) as well as The Scotts Miracle-Gro Company (NYSE:SMG) and CVR Partners, LP (NYSE:UAN) , both carrying a Zacks Rank #2 (Buy).