Mosaic (MOS) Tops Earnings Estimates In Q1, Cuts FY19 View

The Mosaic Company (NYSE:MOS) logged profits of $130.8 million or 34 cents per share in the first quarter of 2019, a roughly three-fold jump from a profit of $42.3 million or 11 cents per share in the year-ago quarter. The bottom line in the reported quarter was positively impacted by foreign currency transaction gain and unrealized gain on derivatives.

Barring one-time items, adjusted earnings were 25 cents per share for the reported quarter, up from 20 cents a year ago. The results topped the Zacks Consensus Estimate of 21 cents.

Net sales fell roughly 2% year over year to $1,899.7 million in the quarter. The figure exceeded the Zacks Consensus Estimate of $1,885.5 million. Lower sales in the Phosphates segment due to reduced volumes were offset by higher sales across Potash and Mosaic Fertilizantes segments.

Per the company, higher costs affected all of its businesses during the quarter, including costs related to impacts of weather in North America and regulatory changes in Brazil.

Segment Highlights

Net sales from Mosaic’s Phosphates segment were $806 million in the quarter, down around 7% year over year mainly due to lower sales volumes. The segment’s gross margin fell to $55 million from $97 million in the year-ago quarter, impacted by higher raw material costs and flat average selling prices.

Potash division’s sales climbed around 25% year over year to $504 million in the quarter on the back of higher sales volumes and average sales prices. Gross margin in the quarter was $186 million, up from $103 million in the year-ago quarter. The rise was mainly driven by higher average sales prices.

Net sales in the Mosaic Fertilizantes segment were $698 million, up around 5% year over year. Gross margin fell to $52 million from $59 million in the year-ago quarter, impacted by turnaround costs and costs related to the idling of the Araxa mining complex.

Financials

Mosaic ended the quarter with cash and cash equivalents of $384.6 million, down around 42% year over year. Long-term debt fell roughly 6% year over year to around $4,533 million.

Cash flow used by operating activities was $176 million in the reported quarter, up from $71 million a year ago. Mosaic’s capital expenditures were $314 million in the quarter.

Outlook

Mosaic lowered its adjusted EBITDA and adjusted earnings guidance for 2019 factoring in higher costs related to the impact of new tailings dam regulations in Brazil, the impact of production curtailments, higher Canadian resource taxes and delayed recovery in phosphate margins.

The company now expects adjusted EBITDA for 2019 in the band of $2-$2.3 billion, compared with its earlier view of $2.2-$2.4 billion. It also sees adjusted earnings per share in the range of $1.50-$2.00 per share for 2019, compared with the prior guidance of $2.10-$2.50.

Mosaic expects phosphates sales volumes in the band of 2.3-2.6 million tons for the second quarter of 2019. The segment’s adjusted gross margin is forecast in the band of $40-$50 per ton.

Potash sales volumes have been forecast in the range of 2.3-2.6 million tons for the second quarter and adjusted gross margin is projected in the band of $70-$80 per ton.

The company also expects sales volumes in the Mosaic Fertilizantes segment in the band of 2-2.3 million tons for the second quarter. The company projects gross margin for the unit in the range of $15-$25 per ton.

For Mosaic Fertilizantes, the company expects as much as $100 million in costs for full-year 2019 related to the tailings dam regulatory changes, roughly $50 million of which is expected in the second quarter.

Price Performance

Shares of Mosaic have lost 13.5% year to date, underperforming the industry’s 6.6% rise.

Zacks Rank and Stocks to Consider

Mosaic currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the basic materials space include Sandstorm Gold Ltd. (NYSE:SAND) , Flexible Solutions International Inc. (NYSE:FSI) and Air Products and Chemicals, Inc. (NYSE:APD) .

Sandstorm Gold has an expected earnings growth rate of 200% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 8% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Flexible Solutions has an expected earnings growth rate of 171.4% for the current year and carries a Zacks Rank #2 (Buy). Its shares have rallied roughly 114% in the past year.

Air Products has an expected earnings growth rate of 10.3% for the current fiscal year and carries a Zacks Rank #2. Its shares have shot up around 26% in the past year.

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