Mosaic (MOS -0.08%) stock crashed Tuesday morning, trading down by 9.4% as of 2:30 p.m. EDT after the agriculture company's third-quarter earnings failed to impress Wall Street. Even a massive dividend increase couldn't pacify the market.
You'll want to look beyond the headlines if you own Mosaic shares, though.
On Monday morning, Citi analyst P.J. Juvekar downgraded his rating on Mosaic stock with a price target of $46 a share just ahead of the company's earnings release, citing the stock's lofty valuation. Juvekar, though, still projected a strong Q3 report and robust performance in 2022 from Mosaic.
Later in the evening, Mosaic reported one of its strongest quarters in more than a decade, with its revenue jumping 44% year over year to $3.4 billion and gross margin zooming to 25.3% from only 14.9% in the year-ago quarter, driven by strong prices for potash and phosphates.
Why, then, did Mosaic stock crash Tuesday morning, you may ask?
Blame analysts' expectation: Consensus estimates called for roughly $3.7 billion in sales and adjusted earnings per share (EPS) of $1.55. Mosaic earned $1.35 in adjusted EPS.
To be fair, Mosaic did report lower sales volumes for both potash and phosphates, in Q3, but one shouldn't jump to conclusions -- as the market has apparently done -- before knowing the reasons behind the drop.
Mosaic's potash volumes declined only because the company closed the K1 and K2 mine shafts at its Esterhazy, Saskatchewan, site in June, nine months ahead of schedule to manage brine inflows in a bid to eliminate brine management expenses after July 2021 and significantly increase potash production capacity in 2022. Mosaic projects its potash volumes will return to normal levels in the fourth quarter.
Mosaic's phosphates volumes slipped primarily because of Hurricane Ida, and the company expects production volumes will normalize in the coming months.
As you can see, the market is clearly overreacting to Mosaic's numbers. I fact, I'd even say the market was simply looking for any reason to cool Mosaic's stock price down after its torrid run-up this year. Otherwise, the company delivered a really strong quarter, and there's no reason its stock price should have dropped.
And beyond all that, there's the biggest takeaway from the third-quarter report: Mosaic raised its 2022 annual dividend payout by 50% to $0.45 per share. It'll be the second consecutive year of a 50% increase in the dividend, which is no mean feat for any stock, let alone a commodity stock.