Mosaic Sells Fertilizer, Grows Profits

By Sham Gad | April 05, 2011 AAA

Fertilizer giant The Mosaic Company (NYSE:MOS) reported another solid quarter that easily beat analyst estimates. For the 2011 fiscal third quarter, Mosaic earned $1.21 per share versus an average estimate of $1.07. Revenues of $2.2 billion were a little below estimates and, as a result, shares ended the day down. Looking ahead, the fundamental outlook remains very strong for fertilizer companies.

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The Need for More Food
Just recently, the CEO of Wal-Mart stated that consumers are going to be dealing with significantly higher food costs in the near future. Shortly after that, candy giant Hershey's (NYSE:HSY) announced that it was raising prices by 10% in order to cover rising raw material costs. So what does that have to do with fertilizer? The short story is that the world needs more food. While it's true that commodity prices have surged very quickly, the fundamental issue is that there is not enough land to produce the grains the world will need in the future. Fertilizer, of course, helps farmers producer more per acre.

Ready to Profit
During the quarter, Mosaic sold 2.4 million tons of its primary nutrient phosphate. While that was slightly below 2.5 million tons sold in the year ago quarter, Mosaic was able to sell its phosphate at $543 per ton - well above the $336 per ton it received in the same quarter last year. That's a very interesting fact to consider and understand. It suggests that demand is actually quite strong. Farmers continue to plant record amounts of corn and that will likely translate into a strong fourth quarter for Mosaic. In fact, the company is guiding phosphate sales of 2.5 to 2.9 million tons in the fourth quarter at prices that will equal or exceed those received in the fourth quarter. The company's other primary nutrient, potash, is also experiencing demand characteristics. In addition, potash sales have a significantly higher gross margin rate than phosphates. Investors may wish to keep this in mind when Potash Corp. (NYSE:POT), the biggest producer of its namesake fertilizer, reports earnings on April 28. (For more, see Potash Harvests Profits.)

Rewarding Patience
After suffering from a cyclical decline in 2008 and 2009, Mosaic is set to ride a multiyear boom in agriculture. Over the next decade, the company estimates that total phosphate demand will surge from 57 million tonnes to 75 million tons. Potash ships are also expected to grow from 53 million tonnes to over 70 million tons. As one of the few players with the capacity to benefit from this long-term need, Mosaic shares are likely to reward the patient investor. Those looking to diversify away from one company can consider the Market Vector Agribusiness ETF (NYSE:MOO), which counts names like Mosaic, Potash and other large agricultural companies as top holdings. (For more, see 5 Agriculture Stocks To Grow With.)

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