PLYMOUTH, Minn., Oct 5 /PRNewswire-FirstCall/ — The Mosaic Company (NYSE: MOS – News) announced today net earnings of $100.6 million, or $0.23 per diluted share, for the first quarter ended August 31, 2009. These results compare with net earnings of $1.2 billion, or $2.65 per share, for the first quarter ended August 31, 2008. The Company maintained a strong financial position, with cash and cash equivalents of $2.6 billion as of August 31, 2009.
- The average diammonium phosphate (DAP) selling price was $276 per tonne and total phosphate sales volumes were 2.1 million tonnes
- The average muriate of potash (MOP) selling price was $382 per tonne and total potash sales volumes were 0.8 million tonnes
- Cash flow provided by operating activities was $172.4 million
- Long-term agricultural fundamentals remain highly attractive
Mosaic had net sales in the first quarter of fiscal 2010 of $1.5 billion, a decrease of $2.9 billion, or 66%, compared to the same period a year ago.
Mosaic’s gross margin for the first quarter of fiscal 2010 was $222.2 million, or 15% of net sales, compared with $1.6 billion, or 38% of net sales, a year ago. First quarter operating earnings were $134.2 million compared with $1.5 billion a year ago. Mosaic’s first quarter results in fiscal 2010 were impacted by significant declines in market selling prices for phosphate and potash sales volumes combined with lower potash selling prices, compared with the prior year quarter. Phosphate sales volumes in the first quarter were comparable to levels a year ago. The decline in potash sales volumes and selling prices continues to be related to cautious purchasing by customers due to volatile grain and oilseed prices and the lack of normal contracting activity compared with a year ago.
“Phosphate fundamentals have improved. The potash market is evolving and we expect strong demand in calendar year 2010 for both nutrients,” said Jim Prokopanko, Mosaic’s President and Chief Executive Officer. “Our long-term outlook for crop nutrients remains positive and we continue to execute our strategic plans designed to drive strong cash flow and shareholder value.”
Phosphates
Net sales in the Phosphates segment were $814.4 million for the first quarter, a decline from $2.6 billion a year ago. Phosphates’ first quarter gross margin was $111.4 million, or 14% of net sales, compared with $1.0 billion, or 39% of net sales, for the same period a year ago. Operating earnings were $61.2 million, a decline from $950.8 million in the same period last year. The decline in operating earnings was primarily due to the effects of significantly lower selling prices partially offset by significantly lower raw material costs for sulfur and ammonia. Net unrealized mark-to-market derivative gains were $4.6 million in the first quarter of fiscal 2010 compared with net losses of $74.6 million for the same period a year ago.
The average first quarter DAP selling price, FOB plant, was $276 per tonne, compared to $1,013 a year ago and $345 per tonne in the fourth quarter of fiscal 2009. The market DAP selling price began to decline sharply toward the end of the second quarter of fiscal 2009 before appearing to bottom out in the first quarter of fiscal 2010.
Phosphates sales volumes were comparable with a year ago at 2.1 million tonnes. Mosaic’s phosphate inventory levels were down significantly as of August 31, 2009 due to increased demand and modestly reduced production levels. Phosphates production levels declined 13% to 1.8 million tonnes from year ago levels in response to a build-up of inventories and a decline in demand. Toward the end of the first quarter of fiscal 2010, production was increased to more normal levels due to increased sales orders and demand.
“Phosphate sales volumes are returning to near normal levels,” said Prokopanko. “Gross margin has improved from the fourth quarter of fiscal 2009 and we look for further modest improvement in fiscal 2010.”
Potash
Net sales in the Potash segment totaled $333.3 million for the first quarter, compared to net sales of $976.4 million a year ago. The Potash segment’s gross margin decreased to $124.6 million in the first quarter, or 37% of net sales, compared with $503.2 million a year ago, or 52% of net sales. Operating earnings were $99.3 million for the first quarter, compared to $477.8 million a year ago. Operating earnings were impacted by a sharp decline in sales volumes, the effects of significantly lower operating rates on fixed cost absorption and a decrease in the average MOP selling price. These factors were partly offset by lower net unrealized mark-to-market derivative losses and lower Canadian resource taxes and royalties. Net unrealized mark-to-market derivative losses were $1.6 million in the first quarter of fiscal 2010 compared with losses of $41.7 million a year ago.
The average first quarter MOP selling price, FOB plant, was $382 per tonne compared to $488 a year ago and $540 per tonne in the fourth quarter of fiscal 2009. The lower average MOP selling price was primarily the result of a decline in the average export price for MOP and a shift in sales volume mix. The shift in mix to a greater percentage of non-agricultural sales was primarily driven by lower sales volumes of crop nutrients. The average non-agricultural selling price is lower than crop nutrient selling prices but the gap is narrowing on pricing.
Reflecting the lower demand, the Potash segment’s total sales volume was 0.8 million tonnes for the first quarter which was lower compared with year-ago first quarter volume of 1.9 million tonnes, but up from 0.6 million tonnes for the fourth quarter of fiscal 2009. Potash production declined 59% to 0.8 million tonnes from year ago levels due to slow demand and in order to more effectively manage inventories. Mosaic continues to operate at lower production rates and will do so until demand improves.
“Even at current low selling volumes the Potash segment generated a healthy gross margin and is poised to generate substantially improved profits when demand fully returns,” stated Prokopanko.
Offshore
The Offshore segment’s net sales totaled $468.1 million during the first quarter, compared to net sales of $1.0 billion a year ago. This decline in net sales was mainly due to lower selling prices. Gross margin decreased to $11.2 million in the first quarter, or 2% of net sales, compared to $180.6 million, or 17% of net sales, for the same period last year. Offshore had an operating loss in the first quarter of fiscal 2010 of $8.0 million, compared to operating earnings of $159.0 million a year ago. Strong Offshore results a year ago reflected the benefit of positioning lower cost inventories in a period of rising selling prices.
Other
A foreign currency transaction gain of $13.1 million was recorded for the first quarter compared to a gain of $86.7 million for the same period a year ago. This non-cash gain is the result of the effect of a weakening Canadian dollar on significant U.S. dollar denominated intercompany receivables and cash held by Mosaic’s Canadian subsidiaries.
Income tax expense was $32.8 million in the first quarter resulting in an effective tax rate of 25% compared to $497.7 million, or an effective tax rate of 31% for the same period last year.
Total equity earnings in non-consolidated subsidiaries were $2.5 million in the first quarter, compared with $59.8 million for the same period a year ago. The reduction in equity earnings is primarily the result of the sale of Mosaic’s interest in Saskferco Products ULC in October 2008 along with weak results from Fertifos S.A. during the first quarter of fiscal 2010.
Mosaic ended the first quarter with $2.6 billion in cash and cash equivalents. Cash flow provided by operating activities in the first quarter of fiscal 2010 was $172.4 million compared with cash flow provided by operating activities of $561.5 million a year ago. The decline in cash flow from operations was primarily due to lower net earnings and significant working capital changes. Mosaic’s total debt as of August 31, 2009 was $1.4 billion compared to $1.5 billion as of August 31, 2008.
Market Outlook
Several important signs of a global economic recovery have emerged in recent months as an impetus to crop nutrient recovery, including gains in key Asian economies and improved outlooks in developed economies. Concurrently, grain and oilseed consumption is steadily increasing as the world’s appetite continues to swell due to steady population growth and increases in income in developing countries, inevitably leading to increased investments in agriculture, including a balance of crop nutrients.
Longer term, annual global real gross domestic product growth is estimated by a leading economic forecasting firm to trend upward from 2.5% in 2010 to 3.8% in 2012, and with it, more prosperity and the desire to improve diets.
Inventories for North American phosphate producers declined again in August 2009 and are at the lowest levels since May 2006. Inventories for North American potash producers are working down from elevated levels earlier this calendar year. The distribution pipeline has been largely emptied, although buyers remain cautious about re-stocking.
“Farmers around the world have reduced crop nutrient applications in their most recent growing season, drawing down the nutrient levels banked in their soils,” said Prokopanko. “We believe farmers will increase application rates in response to high 2010 new crop prices and the need to replenish the large amount of nutrients withdrawn by the record crop this year.”
Financial Guidance
Sales volumes for the Phosphates segment are expected to range from 1.8 to 2.2 million tonnes for the second quarter of fiscal 2010. Mosaic’s realized DAP price, FOB plant, for the second quarter of fiscal 2010 is estimated to be $265 to $305 per tonne.
Mosaic is not providing financial guidance on potash sales volumes or MOP selling price until market conditions normalize.
Capital spending for fiscal 2010 is expected to grow to a range of $1.0 billion to $1.2 billion. Mosaic is executing its multi-year potash expansion plan as well as investing substantial funds to further improve operating performance of its existing plants and mines.
SG&A is estimated to range from $350 million to $370 million in fiscal 2010 and the effective income tax rate is estimated in the high 20% range for the year.
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