Will Mosaic Top PotashCorp With Its Big Buy From CF Industries?

Mosaic (NYSE: MOS  ) will release its quarterly report on Tuesday, and investors are still feeling shell-shocked after the huge decline in the fertilizer giant's shares during the summer. Yet even though Mosaic and PotashCorp  (NYSE: POT  ) are both part of a major Canadian potash group that got hit hard when its Russian counterpart disintegrated, Mosaic hopes its recent purchase of CF Industries'  (NYSE: CF  ) phosphate business will help it weather the fertilizer storm.

Despite strong overall conditions in the agriculture industry, Mosaic and PotashCorp have both struggled in recent years compared to their huge success during much of the 2000s. Plunging natural-gas prices left Mosaic's potash- and phosphate-based fertilizers at a competitive disadvantage to the nitrogen-based fertilizers that CF Industries and several of its peers produce, sending potash and phosphate prices falling. With Russian potash giant Uralkali having decided to end an agreement with former partner Belaruskali, investors expect potash prices to decline sharply as well. Let's take an early look at what's been happening with Mosaic over the past quarter and what we're likely to see in its report.

Stats on Mosaic

Analyst EPS Estimate

$0.57

Change From Year-Ago EPS

(44%)

Revenue Estimate

$1.96 billion

Change From Year-Ago Revenue

(22%)

Source: Yahoo! Finance.

Can Mosaic rebound from its huge drop?
Analysts in recent months have gotten even more pessimistic about the prospects for Mosaic earnings, cutting their views for the just-ended quarter by about $0.25 per share. But the stock has actually rebounded from its July swoon, climbing 10% since early August.

Both Mosaic and PotashCorp got crushed in late July, on news that Uralkali had decided to end its cartel relationship with Belaruskali. The Uralkali-Belaruskali cartel had controlled more than 40% of global exports, putting the industry at risk of a severe drop in prices as potash flooded the market. Combined with the negative effects that competition from nitrogen fertilizers has wrought on the potash industry, Mosaic got hit while it was already down.

But Mosaic isn't just a potash producer. It's also the world's largest maker of phosphate-based crop nutrients, and the company secured an even greater dominance of the sector last week with its $1.4 billion deal to buy the phosphate business of CF Industries. Coming right after Mosaic ended its nearly 40-year relationship with PotashCorp in marketing phosphate fertilizers together, it's clear that Mosaic is looking to take firm control of that branch of the fertilizer market.

The thing to remember about Mosaic and its peers is that in the long run, the challenge of feeding a growing population around the world should help boost every type of fertilizer, whether it be PotashCorp's potash, Mosaic's phosphates, or CF Industries' nitrogen-based products. Short-term supply and demand issues might produce temporary gains in one type of fertilizer over another, but over time any product that successfully increases crop yields will earn demand from farmers eager to boost their own profits.

In the Mosaic earnings report, watch for signs of the company's plans for its newly expanded phosphate operations. With so much potential for future growth, Mosaic should signal its intent to dominate key niches of the fertilizer industry in order to protect its long-term prospects.

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