The Mosaic Company Earnings: 5 Things You Need to Know

Margins continue to expand1

Potash

lower production costs as

company operated plants at 90% capacity in anticipation of planned turnarounds and higher demand in coming months

improved selling prices as potash markets recovered

Mosaic’s potash gross margin jumped to 40% from 33% a year ago, thanks to:

Expansion underway at Mosaic’s low-cost Esterhazy potash mine. Source: Company website

Phosphates

Low input costs boosted phosphates gross margin by a percentage point to 21% despite flat revenue.

Phosphates contributed 50% to Mosaic’s operating earnings in Q2.

Source: Mosaic Q2 earnings presentation

Costs in control2

Restructuring efforts paying off

Mosaic’s selling, general, and administrative expenses were flat despite 4% higher revenue and greater business footprint (backed by acquisitions) compared to last year.

2015 target: SG&A expenses of $360-$380 million. Company incurred $382 million in 2014.

Integration of acquired business on track3

International distribution segment growing

Integration of Archer Daniels Midland’s fertilizer distribution business in Brazil and Paraguay acquired last year is complete.

The acquisition pushed segment sales up by 17.5% in Q2.

Mosaic’s distribution capacity in the region is projected to jump 50%.

Ma’aden joint venture to cost more4

Wa'ad Al Shamal Phosphate Company Capital cost of JV project

in Saudi Arabia -- in which Mosaic holds 25% stake --to be $8 billion, or 7% higher than initial estimates.

At the time of agreement, Mosaic outlined $1 billion cash investment. Construction underway at Ma’aden JV site.

Source: Mosaic Q2 earnings presentation

Sales volumes guidance revised5

Weak expected Q3 to blameMosaic upgraded full-year phosphates sales volumes slightly, but downgraded potash volumes.

2015 Sales volumes (in million tonnes)

Segment Previous guidance Revised guidance

Phosphates 9-10 mt 9.5-10 mt

Potash 8.5-9 mt 8.2-8.6 mt

Data source: Company earnings release. Chart by author

Foolish takeaway

While Mosaic doesn’t give out full-year sales and profit guidance, it appears to be on track to a solid year. The fertilizer markets may be under pressure, but the company’s cost-reduction efforts and growth initiatives should push its margins higher in 2015 and beyond.

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