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Tickers in this Article: MOS, POT, AGU, TRA
Fertilizer company Mosaic (NYSE:MOS) recently reported not only upbeat earnings but a pleasant surprise as well.

For its first fiscal quarter of 2008 that ended August 31, Mosaic's profit surged to $305.5 million (69 cents per share) versus $109 million (25 cents per share) in the same quarter a year ago, easily beating the street's profit expectations of 58 cents per share.

Growing Demand + Limited Supply = Profit
Demand for both grain and fertilizer products has been at the very least robust on a global basis. This gives Mosaic considerable pricing power. The company's leap in profitability is due in no small part to prices on diammonium phosphate rising about 62% over what they were one year ago and volumes climbed 24% as well. All this combined to increase the firm's gross margin as a percentage of sales to 29.9% from 13.8% a year ago.

Mosaic is world's No.2 producer of potash in an industry that only has a few select players. Potash prices have increased 24% in the last year. Only a dozen nations produce potash and about 20% of those are government controlled. With potash prices seeing substantial improvement in recent years and Mosaic's large fixed-cost base, the firm is seeing commensurate improvement in its operating leverage and margins. With significant barriers to entry and a strong pricing environment, the potash business should continue to do well.

Mosaic is using some of its extraordinary profits to pay down debt. Since May, the company has pared back its debt by $700 million, and it plans to continue that program with the ultimate goal of achieving an investment grade credit rating. (For more insight, read What Is A Corporate Credit Rating?)

Interesting Dichotomies
From an investor's perspective, this is industry is a narrow oligopoly with four principal competitors in the private sector: The Mosaic Company, Potash Corporation of Saskatchewan (NYSE:POT), Agrium (NYSE:AGU) and Terra Industries (NYSE:TRA). Within this small group there are widely divergent results, and investors are urged to dig a little deeper than the obvious.

For example, each of these four firms have price/earnings multiples in the mid-forties. However, if you look at the ratio of market capitalization to sales, the numbers are significantly different with POT at 7.7, MOS at 4.5, AGU at 1.7 and TRA at 1.4. Operating incomes as percentage of sales are also widely divergent.

Investors should also know that Mosaic has already appreciated roughly 250% in the past year. Should you choose to go in, keep your eyes wide open, and manage your risk.

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