Higher Phosphate Prices Help Boost Mosaic's Net By DONNA KARDOS January 9, 2008 8:12 a.m.
Mosaic Co.'s fiscal second-quarter net income rose nearly six-fold as profit margins almost tripled, with the fertilizer maker benefiting from higher pricing and favorable industry conditions as demand rose for its products amid the ethanol craze and developing-world growth.
The news sent shares soaring in premarket trading.
For the quarter ended Nov. 30, Plymouth, Minn.-based Mosaic posted net income of $394 million, or 89 cents a share, up from $65.9 million, or 15 cents a share, a year earlier.
Net sales surged 44% to $2.2 billion from $1.52 billion. The mean estimates of analysts polled by Thomson Financial were for 72 cents a share on $2.1 billion in revenue. Gross margin was 28.4%, compared to 10.5%.
Mosaic and Canadian competitor Potash Corp. of Saskatchewan Inc. have benefited from strong developing-world growth and the hot market for ethanol and other alternative fuels. Rising incomes have led to increased meat consumption, which generates demand for grain to raise the animals, while the growing alternative-fuels market has increased demand for corn and soybeans, all of which need fertilizer.
Mosaic's phosphates business saw a 61% jump in net sales to $1.23 billion due to the significant increase in selling prices more than offset higher costs for sulfur and ammonia. Sales volumes to North American customers increased 70%, reflecting strong demand recovery and growth, while sales volumes to international customers declined about 25%, largely due to the increased volumes sold in North America.
The potash segment's net sales were up 23% to $431.6 million, while sales volumes increased 3% and operating earnings more than doubled to $161.2 million, as a result of the higher selling prices, partially offset by additional costs this year to manage the brine inflow at a potash mine.
"Our second-quarter results demonstrate that Mosaic is leveraging the robust agricultural economy and delivering record results," said President and Chief Executive Jim Prokopanko. "Our unprecedented operating cash flows have allowed us to prepay $1 billion of long-term debt over an eight-month period and we are on track to deliver strong results in fiscal 2008 and beyond."
Last month, Goldman Sachs said U.S. inventories of potash are 49% below the five-year average, and there are also supply constraints on other crop treatments, including ammonia, urea and diammonium phosphate. As a result, Mosaic, along with Potash and other North American producers "that own their own rock," have a "very strong competitive advantage," Goldman said.
Looking ahead, Mosaic said the momentum of its phosphate and potash businesses is expected to continue into 2008, as "further increases in grain and oilseed prices during the last several weeks have bolstered farm economics world-wide and solidify strong nutrient demand prospects for 2008."
However, the company noted that supply of potash is struggling to keep up with accelerating demand, which is likely to persist until there is additional capacity in the next few years. Market prices are expected to continue increasing significantly for shipments into all major markets in the first half of 2008.
The company is also struggling to keep up with phosphate demand, and noted that phosphate exports from China likely will drop this year due to government policies to make more product available for local farmers.
Mosaic reiterated its fiscal 2008 projections for phosphates sales volumes to range from 8.6 million to 9.1 million tons, with potash sales volumes ranging from 8.5 million to 9 million tons.
Shares of Mosaic closed Tuesday at $88.37, and rose to $93.44 in pre-market trading. The stock recorded the biggest gains of any U.S. large-cap company in 2007, more than quadrupling.
