Weak Potash, Phosphate Prices Dry Up Mosaic Company's Profits in Third-Quarter 2015, Capex Ticks Lower

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Mosaic Company (NYSE:MOS) (Plymouth, Minnesota), the world's largest phosphate mining company, reported weakened revenues and profits in third-quarter 2015 as sales volumes and average realized prices for phosphates and potash dipped. Although the company saw promise with an acquisition that boosted its foothold in Latin America, it began to pay a heavy price to the U.S. government for alleged mishandling of waste materials in Florida and Louisiana. Industrial Info is tracking $5.4 billion in active projects involving Mosaic.

Among the projects tracked is the $225 million expansion of the New Wales Fertilizer Plant in Mulberry, Florida. Mosaic plans to increase capacity to 3.5 million tons per year by constructing a sulfur-melting plant, unloading facilities, and two warehouse buildings. Devco Companies (Tulsa, Oklahoma) and River Consulting Incorporated (Columbus, Ohio) are performing turn-key services. The expansion is set to be completed toward the end of the year.

Net earnings for the quarter totaled $160 million, a 20.75% decrease from third-quarter 2014, while net sales totaled $2.11 billion, a 6.45% decrease. Although sales volumes and prices were not dramatically lower in the Phosphates segment, margins on monoammonium phosphates were lower after Mosaic decided to cut production. Prices in the Potash segment were down about 9% and sales volumes about 11%, although production was flat.

Nonetheless, the International Distribution segment reported a sales volume increase following Mosaic's acquisition in April of Archer Daniels Midland's (NYSE:ADM) (Chicago, Illinois) fertilizer distribution business in Brazil and Paraguay; executives said the segment sold more tonnes at higher-than-expected margins when compared with the same period last year.

Capital expenditures for the quarter were reported to be $245 million, compared with $188 million in third-quarter 2014.

In early October, the U.S. Environmental Protection Agency (EPA) announced that Mosaic had entered into a settlement agreement with the EPA and several Florida environmental agencies to pay about $800 million to address allegations concerning Mosaic's handling of hazardous waste and cleanup operations at six Florida sites and two Louisiana sites.

"In North America, the fall application season is meeting our expectations," said James O'Rourke, the president and chief executive officer of Mosaic, in a conference call. "Potash shipments to North America in 2015 are expected to be lower than last year, mostly because of a buildup in retail inventories we saw at the end of 2014. Retailers are working through inventories now, and we are seeing evidence that inventories are reaching low levels. Supply is a different story, and we realize that concerns about future oversupply are driving current equity valuations."

Capital expenditures for full-year 2015 are now expected to total between $1.1 billion and $1.2 billion, a notch lower than previous guidance of $1.1 billion to $1.3 billion. Two of the company's major segments are expected to see a dip in sales volumes in fourth-quarter 2015, compared with the same period last year: between 1.9 million and 2.2 million tons in the Phosphates segment, compared with 2.4 million tons in fourth-quarter 2014; and between 1.8 million and 2.1 million tons in the Potash segment, compared with 2.3 million tons. In the International Distribution segment, Mosaic expects to see between 1.3 million and 1.6 million tons, compared with 1.1 million tons in fourth-quarter 2014.

"The one constant around the world, for both potash and phosphate, is that demand remains strong," O'Rourke said. "We expect total global phosphate shipments to set a new record, and total global potash shipments to decline slightly this year compared with last year's record. That is an important point: Demand for fertilizer is underpinned by demand for food and we have no doubt that this demand will continue to grow along with world population. Even if supply outpaces demand for a short period of time, demand will continue its steady upward trajectory. We're seeing this now in the day-to-day operations of farmers all around the world."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.