Image: The Mosaic Company.
Fertilizer company The Mosaic Company (MOS 1.71%) has dealt with the same tough conditions that have affected competitors like PotashCorp (POT) in recent years. Yet even as the farming community deals with lower crop prices that are eating into profits, Mosaic hopes it can turn the tide by taking advantage of the more favorable long-term aspects of its business and taking steps to improve its operations now. Mosaic's CEO Joc O'Rourke and his management team have a number of ideas on how to do that, and they shared their views in a conference call following Mosaic's quarterly report in early November. Let's look more closely at what Mosaic's management told investors and what you should anticipate going forward.
"We have two attractive businesses that are of similar size in markets expected to experience long-term secular growth." --O'Rourke
Mosaic has had to deal with two very different sets of market conditions. For potash, the company has focused on emphasizing its most profitable production opportunities and finding the optimal size for the segment given the big downward pressure on potash prices recently. In the phosphates business, Mosaic has made similar cost-cutting measures, but it has also identified the segment as having more growth potential and therefore has given it more capital investment to put Mosaic in a stronger position compared to PotashCorp and other rivals. The combination should do well in the long run while letting Mosaic compete more effectively against PotashCorp and their peers.
"We realize the concerns about future oversupply are driving current equity valuations. ... We continue to maintain our philosophy to match supply with expected demand." --O'Rourke
Even with low prices, especially in the potash market, many fertilizer makers are boosting production, creating fears that supplies will become too high. Yet Mosaic has been smart about managing its own supply, taking steps like curtailing production at its Colonsay potash mines. The company also believes there's time for the market to adjust to the prospect of future supply, with the hope that demand will pick up enough to absorb it in time.
"We are ahead of schedule in our work to achieve $500 million in cost savings across the company." --O'Rourke
Mosaic has taken a number of strategic initiatives, including acquisitions, capacity enhancements, curtailment of production, exiting certain businesses, and boosting return of capital to shareholders. The company believes that these moves have helped it thrive even in a tough economic environment, and that will put Mosaic in an even better position to benefit when conditions return to normal.
"There is no doubt that markets are challenging on several fronts, but Mosaic has made and will continue to make notable progress. We have a realistic market outlook and are taking actions to position the company to excel." --CFO Rich Mack
Mosaic CFO Rich Mack admits that the company is seeing tough conditions. The company doesn't expect dealers in North America to build inventories like they did last year, and weakness in the Brazilian market has been especially difficult on Mosaic in both of its segments. Yet Mack sees demand in 2016 rising to the second-highest on record, and he points out that macroeconomic swings in emerging markets like China don't change the fact that billions of people worldwide need to eat. By being smart about its operations, Mosaic should be able to weather the storm and emerge stronger.
"We're executing very well, and our future looks great." --O'Rourke
O'Rourke has only been CEO of Mosaic for three months, but he likes what he sees. He identified talented personnel, strong financials, lucrative assets, and global reach in its business as reasons for optimism, and he thinks that the market is overreacting by having pushed the company's share price so low. With so many efforts pushing overall earnings growth, Mosaic sees a great future ahead.
Mosaic's stock price hasn't given investors a whole lot to celebrate lately. Yet with its management team convinced of a better tomorrow for the fertilizer giant, investors can remain confident that The Mosaic Company will remain relevant and successful for years to come.
