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Tickers in this Article: MOS, POT, AGU, CF, TRA
Fertilizer company Mosaic (NYSE:MOS) reported earnings that drew a mixed reception last week. The company showed strong increases in both revenue and earnings for its fiscal third quarter compared to last year's quarter, yet missed estimates. At issue is Mosaic's and the fertilizer industry's prospects.

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Mixed Report, Mixed Reception
Diluted earnings per share for Mosaic were 50 cents for the quarter, compared to 13 cents for last year's same quarter. Net income was $222.6 million this quarter compared with $58.8 million in the year ago quarter, with revenue increased to $1.7 billion from $1.4 billion in Q3 last year. Analyst estimates had pegged the earnings to come in at 61 cents, so the miss wasn't greeted warmly. The stock, which traded in the $150 range in mid-2008, when fertilizer boomed, now trades in the $50's.

Other Fertilizer Stocks
Potash Corp. of Saskatchewan (NYSE:POT) is trading similarly to Mosaic and others, with similar earnings ups and downs as Mosaic. Its PE of 35 on trailing earnings may be why investor enthusiasm has dampened for the stock, but its forward PE of just over 20 indicates why it and the industry as a whole may get revved up again moving forward. Agrium (NYSE:AGU), another big producer, will be in line to report its earnings soon. It looks to handily beat its last year's same quarter. Agrium finally dropped its bid for CF Industries (NYSE:CF) in March, while CF bought Terra Industries (NYSE:TRA) instead. This ongoing three-way drama has served to dim investor enthusiasm for Agrium and cloud the fertilizer field for now; on the other hand, this activity may indicate future M&A possibilities in the sector.

More On Mosaic
Looking closer at Mosaic's earnings report, we see that net sales on phosphates were up 17%, to $1 billion from $871.3 million in the year ago quarter. Potash sales were up to $730 million from $480.8 million in Q3 last year. Recent selling prices of both phosphates and potash were both up. The company did warn that higher raw material costs may start to slow the phosphate market's rebound. Potash looks to be in continued greater demand.

The Market's Concerns
Wall Street concerns on Mosaic's sales being front-loaded and the worries about a possible slowdown in 2011 accounts for some of the market's unenthusiastic response. The market has tried to see ahead this year and next using Mosaic's business performance as a proxy for the industry so far. Add in the concerns about economic recovery and whether farmers will be willing to commit to larger plantings and thus larger fertilizer orders, and the market is baking in caution and maybe even pessimism.The nine-month year-to-date numbers we referred to earlier for Mosaic are $4.9 billion in sales compared to $8.7 billion through the same period last fiscal year, along with similar earnings figures of $723.2 million compared to $2.3 billion. These numbers may simply show that the boom period was particularly flush.

Mosaic Stock
The fertilizer industry has become a volatile one. The business now bounces from exaggerated overproducing to under producing cycles in agriculture. This shouldn't obscure the long term fundamental growth of agriculture: global crops mean that fertilizer will be increasing in demand. Investors should look at Mosaic and the other fertilizer stocks in at least a two to five year framework or longer to smooth out some of the cyclical jumps in the numbers.

Bottom Line
Mosaic has a tremendous business, and is riding along with the new waves and trends in the agriculture business.The stock probably isn't going to go back to $150 soon, but if investors can capture it in the low-50's or below and be patient through what's sure to be more agricultural turbulence, it should pay off tremendously long term. (Learn about a financial instrument that makes temperature a tradeable commodity. Check out, Introduction To Weather Derivatives.)

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