Why Aren't Mosaic Earnings Growing?

Mosaic (MOS 1.74%) will release its quarterly report next Tuesday, but investors have already been nervous about demand for the company's fertilizer products. With the stock having lost substantial ground in the past couple of months, shareholders want to know whether Mosaic earnings will recover and move higher in the near future.

Given that crop prices have remained reasonably high, you'd expect that farmers would still have high demand for Mosaic's potash and phosphate-based fertilizers. But weakness in emerging markets could limit that demand until economic conditions in places like India start to improve. 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 quarterly report.

Stats on Mosaic

Source: Yahoo! Finance.

Can Mosaic earnings turn around and move higher?
Analysts have stayed relatively firm in their estimates on Mosaic earnings over the past few months, keeping their May-quarter calls unchanged and adding a penny per share to their current full-year estimates. The stock, though, hasn't held up well, falling almost 5% since early April.

Coming off the company's previous quarter, Mosaic had already disappointed investors with slow growth. Although the fertilizer company managed to increase its earnings by 26% from the year-ago quarter, Mosaic's results came in below expectations by about 8% on earnings and 2% on revenue.

Yet the global demographic trends that have existed for years continue to support the fundamentals of the fertilizer industry. In order to feed a growing world population, countries around the world need fertilizers to boost yields.

Some question, though, whether Mosaic is attacking the most profitable opportunities. Rival PotashCorp (POT) gets a much larger percentage of its phosphate revenue from the feed and industrial market, which fetches higher margins than selling phosphates as fertilizer. Moreover, PotashCorp has impressively low costs for its namesake potash, whereas Mosaic said in mid-May that it would delay the final phase of its potash expansion strategy until conditions become more profitable in the industry.

Still, one headwind is finally disappearing for Mosaic, as natural-gas prices have been on the rise. For years, Terra Nitrogen (NYSE: TNH) and other nitrogen-based fertilizer companies saw their shares soar as natural gas plunged to decade-low levels on the heels of increased shale-gas production. Now, even though gas prices remain fairly low by historical standards, some of the immense price advantage of nitrogen fertilizers has disappeared, keeping Terra and its peers in a holding pattern and making Mosaic and other mined-fertilizer companies look more attractive by comparison. Moreover, even if gas starts to fall again, Mosaic has plans to boost its nitrogen capacity to become more diversified in its product offerings.

When Mosaic announces earnings, watch to see how the company is dealing with long-held plans from the country of Brazil to decrease its fertilizer imports over the remainder of the decade. With imports still reasonably high and with seven years to go before Brazil's target date, Mosaic doesn't have to address the situation now. But if it does, it could help establish itself as a forward-thinking company with long-term strategic vision -- exactly the sort of company that has the most potential.

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