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How can any fertilizer company miss out on making money during the current agriculture boom?
Mosaic's (NYSE: MOS ) first-quarter revenues have zoomed past Street expectations. How bright are things looking for the company ahead?
A taste of the numbers
Demand and prices for nutrients have been on an upward trend lately, with farming activity and crop prices rising. Fertilizer player Agrium's (NYSE: AGU ) revenues surged an impressive 40%, while Terra Nitrogen's (NYSE: TNH ) revenues went up 19% in their respective second quarters.
Like its peers, Mosaic's potash and phosphate (the two key nutrients it deals in) segments did very well in the quarter, with both prices and volumes rising. This helped Mosaic's top line grow at an amazing 41% from the year-ago quarter to $3.1 billion. Production of both nutrients also rose in the quarter.
High input prices and an outage at one of its ammonia plants put a little pressure on Mosaic's margins, but they couldn't outpace robust sales. So despite higher costs, the company's gross margin improved from 23.1% to 27.5% year-on-year. The company also expects the plant to get on track and achieve full production capacities in November.
The Street might have expected a bit more, but Mosaic's bottom line jumped an astounding 77% from a year ago to $526 million. Things certainly seem to be working in its favor.
Mosaic has been quite aggressive when it comes to investing in business growth. The company's 5-million-ton potash expansion program is on schedule, and out of the total $391 million of capital expenditures in the quarter, more than $200 million went toward this program.
Mosaic's focus on new products is also noteworthy. It recently received patent approval for its first feed phosphate product, Nexfos, and is about to begin production soon.
Things to watch out for
Mosaic forms the three-member legal cartel that handles Saskatchewan potash exports, along with Agrium and PotashCorp (NYSE: POT ) . In August, an important development took place, in which India agreed to import potash at the prevailing high prices. Being a part of this agreement, India's decision will lock in some sales for Mosaic for the coming quarters.
The company has recently entered into a similar high-priced export contract of phosphate to India. These are positive developments for Mosaic.
Mosaic has also added a feather to its cap by bagging a spot in S&P 500 index. This could fuel buying activity in the stock. The company is now keen on talks with the Cargill trust to repurchase 21.3 million shares.
Another thing I like about Mosaic is its lack of debt and high cash position. With an extremely low total-debt-to-equity of 6.7% and a huge war chest of $4 billion, the company has a large scope to take on debts for further expansions if needed, and improve its return on equity with higher leverage. The Minnesota-based company could also boost its meager dividend yield of 0.4% to attract more investors.
The Foolish bottom line
Mosaic belongs to an industry that is not going to go down under unless we stop eating. In fact, the business should boom as the global population increases. Mix in strong financials and robust top-line growth -- and it looks like we have a winner here. What do you think?
Share your thoughts in the comments below, and stay up to speed on Mosaic news and analysis by adding it to your stock watchlist.