The Mosaic Co., Plymouth, Minn., reported first-quarter net earnings attributable to Mosaic of $130.8 million ($0.34 per diluted share) on net sales of $1.9 billion, up from the year-ago $42.3 million ($0.11 per share) and $1.93 billion, respectively. Adjusted EBITDA was $430 million ($0.25 per share), up from the year-ago $399 million ($0.20 per share).
“Mosaic overcame weather and regulatory changes to deliver solid results,” said Mosaic President and CEO Joc O’Rourke. “We expect our resilient and strong business to generate good results this year and across the business cycle.”
Citing curtailments, higher costs, and Canadian resource taxes, the company has revised downward its full-year adjusted EBITDA guidance to $2-$2.3 billion from the earlier $2.2-$2.4 billion, and adjusted EPS to $1.50-$2.00 from $2.10-$2.50. The company said it widened its range to acknowledge increased logistics-related risks impacting spring demand and slowing the recovery in phosphate margins.
It expects a balanced potash market through 2019. However, Mosaic said despite a slow start, it still assumes in its forecast a normal North American spring application season. “We’ve seen seasons like this before, and the historical data shows us by and large we really don’t miss far on farm demand,” Mosaic Director of Market and Strategic Analysis Andy Jung told analysts.
Wall Street did not react well to the Mosaic news, with shares falling 8 percent to close on May 7 at $23.25. However, after the fall, some analysts said the new price was a good entry point to buy as some of Mosaic’s problems, such as Brazil regulatory issues, were only temporary. Mosaic shares rallied up 3 percent to close May 8 at $23.94.
Mosaic retains its previous full-year volumes guidance of 9-9.4 million mt of potash, 8.6-9 million mt of phosphate, and 9.4-9.8 million mt for Mosaic Fertilizantes. Second-quarter volume guidance is 2.3-2.6 million mt for potash with an adjusted gross margin of $70-$80/mt; phosphate 2.3-2.6 million mt at $40-$50/mt; and Mosaic Fertilizantes 2-2.3 million mt and $15-$25/mt.
Mosaic expects up to $100 million in costs at Mosaic Fertilizantes in 2019 due to costs associated with managing tailings dam regulatory changes. Approximately $50 million of these costs will flow through cost and goods sold and gross margin in the second quarter. Due to the regulatory situation, three mines are down, with the Catalao mine expected back up in the second quarter, and Tapira and Araxa in the third quarter.
In the meantime, Mosaic expects to ship some 600,000 mt of phosphate rock from its majority-owned Miski Mayo mine in Peru to replace approximately 40 percent of the Brazilian mine output, while 300,000 mt of finished phosphates from Florida will go to Brazilian customers. The company expects all of its Brazilian mines to be operational by the end of the year.
First-quarter Phosphate gross margins were off at $55 million on sales of $806 million from the year-ago $97 million and $866 million, respectively. The company said average selling prices were essentially flat and raw materials costs were higher, negatively impacting gross margin per mt. Gross margin per mt dropped to $31 from $49, and on an adjusted basis was $36, down from $57.
The company noted that both sulfur and ammonia costs are down so far in the second quarter. Florida-mined phosphate rock costs are expected to remain elevated at $43/mt as the company transitions to new mining areas. The company also cited high carryover inventories in North America, high and early seasonal imports, as well as increased first-quarter Chinese exports.
Mosaic said while MicroEssentials sales volumes were essentially flat with year-ago levels, reflecting the slower start to the North American season, that the average premium over MAP was $62/mt, while the 2018 average was $43/mt. Projections for the year are $40-$50/mt.
In the current market, Mosaic said it is well positioned, with some 40 percent of its product up country at the end of the quarter, and it now achieving premiums of up to $95/mt over NOLA. It estimated there are only 100 or so barges at NOLA representing only 130,000 mt, which is not that great an overhang when you consider that the summer fill market is 2 million mt.
It said it is confident that the NOLA numbers are overly discounted. The company noted its recent $55 million purchase of the Pine Bend, Minn., terminal (GM May 3, p. 27; April 19, p. 1) from CF Industries Holdings Inc., Deerfield, Ill., as a continued beef-up of its inland storage assets.
The company told analysts that it must make a decision on the fate of the idled Plant City, Fla., plant by July. The company took the 2 million mt/y capacity plant down at the end of 2017 (GM Nov. 3, 2017). The plant had been producing at a rate of approximately 1.5 million mt/y.
If it opts to permanently idle the facility, the company said it would be looking at a non-cash asset writedown. Currently, the facility is valued at $230 million, and there would likely be a five-year post closure cost of $100 million to cover the asset retirement of the facility.
First-quarter Potash gross margin was up at $186 million on sales of $504 million from the year-ago $103 million and $404 million, respectively. Gross margin was driven by higher average sales prices, while cash costs remained flat despite lower operating rates. Sales volumes were 1.9 million mt, up from 1.7 million mt. Gross margin per mt was $100, up from $61, while adjusted gross margin was $100, up from $64.
First-quarter Mosaic Fertilizantes gross margin was $52 million on sales of $698 million, down from $59 million and $665 million, respectively. The margin decrease was driven by turnaround costs and costs associated with idling of the Araxa mining complex as a result of the new mining regulations. Higher prices and distribution margins were partially offset by the impact of higher raw materials costs and lower production volumes. Volumes were 1.5 million mt, down from 1.6 million mt. Gross margin per mt was $34, down from $37, with the same numbers for adjusted EBITDA per mt.