Is Worst Over for Mosaic or Do Challenges Persist?

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Mosaic Company (NYSE:MOS), the largest U.S. based potash producer, reported adjusted 4Q13 EPS of $0.36, missing consensus estimates of $0.44 by 8 cents. The headline EPS was adjusted for non-operating charges and discrete tax items. Earnings miss was largely driven by lower potash prices and higher costs, which were partially offset by higher phosphate volumes. Higher-than-expected shipments for phosphates and potash were offset by higher operating costs that weighed on gross margins.

Despite an earnings miss, the company’s shares responded positively to both an incremental $1.0 billion buyback program, which is in addition to the ongoing agreement to purchase 43.3 million shares through July, and management’s view that phosphate has clearly turned the corner and that potash is likely to follow. Going forward, the company is highly optimistic about the potash market, believing that, “The stage is set for improving potash prices later this year [with] record global shipments and improving producer operating rates.”

In a challenging backdrop, the company continues to optimize what’s in its control. The steps, both small and big, that the company has taken to optimize its asset base and performance include the recent purchase of CF Industries’ (NYSE:CF) phosphate assets and the ammonia off-take agreement, which will increase revenue and lower COGS. The Ma’aden JV should also provide growth at an attractive ROIC due to a favorable JV split and logistics arbitrage. MOS has also reduced brine costs as it enjoys some mitigation success.

More Optimistic on Potash Recovery Than POT

MOS seems more optimistic on potash demand recovery in 2014 than Potash Corporation of Saskatchewan (NYSE:POT). The Plymouth, Minnesota-based company expects 57-59 million tons of potash shipments in 2014, up from 54 million tons in 2013. Although we think this is a very optimistic view, if these figures are achieved, this would represent a strong rebound in demand than POT is forecasting. MOS is more optimistic on Asia (including India and China), and Europe and FSU, where the company sees 1 million ton more shipments in 2014.

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