Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Are Mosaic Co. Shares About to Get Pummeled Next Week?

PotashCorp (NYSE: POT  ) underscored the dire situation that fertilizer markets are in when it missed Street estimates on its fourth-quarter earnings by a gaping margin and slashed guidance for 2014. And when the world's largest fertilizer maker sounds cautious, it's a warning bell for investors in any fertilizer company.

That's exactly why Mosaic (NYSE: MOS  ) investors may brace for a disappointing week ahead as the company prepares to announce its fourth-quarter and full-year numbers Tuesday. Or will Mosaic prove critics wrong and spring a surprise, given its relatively lower exposure to potash nutrient and recent restructuring moves?

Mosaic's margin could plummet
Mosaic didn't provide projections for the fourth quarter during its last earnings call, partly because it recently changed its financial year period for reporting purposes. But it's not tough to guess what's coming, given the present condition of the fertilizer markets.

Mosaic expects to end the fourth quarter with potash sales volumes and prices ranging between 1.5-1.9 million tonnes and $285-$310 per tonne, respectively. Sequentially, that would mean higher volumes at lower prices.

While volumes may have improved on strong North American fall planting and Latin American planting seasons, potash prices have plummeted nearly 25% since the fallout between potash giants Uralkali and Belaruskali in the middle of last year. PotashCorp displayed a similar trend during its fourth quarter, reporting 13% higher potash volumes at an average price of only $282 per tonne.

What's worrisome is that lower prices could hit Mosaic's margins significantly. Mosaic may have greater exposure to phosphate, but its profitability largely depends on potash. For perspective, phosphate nutrient accounted for 75% of Mosaic's total third-quarter sales, but contributed only 40% to its operating profit. Clearly, investors shouldn't be surprised if Mosaic reports a sharp slump in gross margin for its fourth quarter.

Will Mosaic pare down more assets?
With not much happening on the operational front, the focus will be on Mosaic's plans to keep up with the challenging times. Mosaic announced some major changes to its business portfolio during the third quarter, and investors should watch for further updates in its upcoming earnings call.

Moves included closing down a potash mine, exiting distribution businesses in Argentina and Chile, dropping plans for a new ammonia plant, and most importantly, striking a deal with CF Industries (NYSE: CF  ) to acquire its phosphates business for $1.2 billion.

Those initiatives should result in considerable cost savings, which could help boost Mosaic's margin in these challenging times. In the upcoming call, investors should also note whether Mosaic has plans to downsize operations further.

Money on your way?
With uncertainty shrouding the fertilizer industry, it's unlikely that Mosaic will spend much on investments over the next few years, except on a potash expansion program that's already under way and phosphate expansion in Saudi Arabia.

Expansion under way at a Mosaic potash plant. Image source: Company website.

On a positive note, lower capital expenditure should boost free cash flow, especially if earnings continue to grow, or even remain stable. For investors, that could mean greater rewards in the form of dividends and share buybacks. Investors will know what to expect next week.

So Mosaic's upcoming earnings report should not only give investors an idea about where the company is headed, but also whether it can stand out in the fertilizer market, thanks to its efforts to realign operations and reduce costs. Mosaic also doesn't have to worry about rising natural gas prices, unlike PotashCorp and CF Industries, both of which produce nitrogen that uses natural gas as key input.

The Foolish bottom line
With recent potash market developments looking positive, and Mosaic securing leadership position in the phosphate market through its deal with CF Industries, investors may hope for decent guidance from the company next week. And that should be enough to propel the shares higher. In any case, Mosaic stock's been pummeled heavily over the past one year, so downside risk looks limited. Stay tuned to know more about Mosaic's future plans and growth potential. 

Mosaic's dividends won't make you rich, but these stocks certainly can.
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend-paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. Learn the identity of these stocks instantly and for free, by simply clicking here now. And yes, dividend stocks are a safe bet even in market declines, so avail this opportunity right away.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2828358, ~/Articles/ArticleHandler.aspx, 8/31/2015 4:53:31 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Neha Chamaria

Neha has been contributing to since 2011, including a one-year stint at the Foolish Blogging Network. She focuses on materials and industrials sectors, with special interest in fertilizers, chemicals, and heavy-equipment companies. Neha loves decoding 10Qs and 10Ks to dig out information about a company an investor would otherwise not know; and cracking the real reasons behind a stock’s move thrills her. Check back at for her articles, or follow her on Twitter

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:05 PM
CF $57.47 Down -0.41 -0.71%
CF Industries Hold… CAPS Rating: *****
MOS $41.04 Up +0.49 +1.21%
The Mosaic Company CAPS Rating: ****
POT $25.95 Up +0.18 +0.70%
PotashCorp CAPS Rating: ****