Mosaic 3Q earnings soar; results remain way behind YTD

The Mosaic Co. reported net earnings of $222.6 million ($.50 per diluted share) for the third quarter ended Feb. 28, 2010, a 279 percent increase over the year-ago net earnings of $58.8 million ($0.13 per diluted share). Mosaic had net sales in the third quarter of $1.7 billion, a 26 percent increase from $1.4 billion in the same period a year ago.

For the nine months ended Feb. 28, however, net income was off 80 percent from the stellar performance for the year-ago period. The recent net income was $431 million ($.97 per share), versus the year-ago $2.2 billion ($4.94 per share). Net sales were $4.9 billion, a decrease of 44 percent from the $8.7 billion reported a year ago.

“Early indications point toward a strong North American planting season,” said Jim Prokopanko, Mosaic’s President and CEO. “We are executing successfully on our strategy and are well positioned to serve our customers around the world in coming months. We are driving to finish our fiscal year on a strong note.

“Phosphates sales volumes continued their strong recovery from the weak levels of the same period last year,” said Prokopanko. “Compared to the prior quarter, and as we expected, the gross margin percentage improved modestly in spite of rising raw material costs and lower production rates,” he stated. “We look for continued gross margin improvement into our fourth fiscal quarter, though margin expansion will be constrained by the normal lag between our average realized prices and prevailing market prices, as well as higher raw material costs.”

Phosphate net sales were $1.0 billion for the third quarter, an increase of 17 percent from $871.3 million a year ago. Operating earnings were $52.9 million, an increase from a loss of $152.2 million in the same period last year. The increase in operating earnings in the third quarter of fiscal 2010 compared with a year ago was primarily due to higher sales volumes, the favorable effects of lower raw material costs, and higher production levels, partially offset by lower selling prices. Gross margin and operating earnings in last year’s third quarter included a $28.3 million inventory valuation write-down.

The average third-quarter DAP selling price, FOB plant, was $336/mt, compared to $499/mt a year ago and $287/mt in the second quarter of fiscal 2010.

The average Tampa ammonia and sulfur prices for the quarter were $319/mt and $81/lt, respectively, versus the year-ago $496/mt and $228/lt.

Phosphates segment sales volumes were 2.5 million mt, an increase of 52 percent compared with a year ago. This improvement was primarily due to stronger demand in North America, as well as internationally, compared to weak volumes a year ago. Mosaic’s North American phosphate production level was 1.7 million mt during the third quarter, almost double year-ago levels of 900,000 mt, yet down slightly from the second quarter due to planned turnarounds.

“The potash business has taken a leap forward on all fronts, and sales volumes and operating profits were up strongly during the quarter,” said Prokopanko. “Recent demand trends are encouraging in most of our key geographies. We have increased operating rates and inventory levels have steadily declined.”

Third-quarter potash net sales were $730.0 million, an increase of 52 percent from $480.8 million a year ago. Operating earnings were $326.0 million versus the year-ago $186.0 million. Operating earnings in the quarter improved due to significantly improved sales volumes, partially offset by a decline in selling prices. The average third-quarter MOP selling price, FOB plant, was $356/mt, compared to the year-ago $565/mt. Potash total sales volume was 1.9 million mt, up from the year-ago 800,000 mt and 1.0 million mt in the second quarter.

Potash production was comparable at 1.3 million mt in both the current and the year ago quarter, while up slightly from 1.1 million mt in the second quarter. Production rates were increased late in the quarter due to improved demand for potash.

“Many indicators point to a strong North American spring season,” said Prokopanko. “We expect to operate at normal rates during the fourth quarter and anticipate continued improvement in financial results. The long-term crop nutrient demand outlook is favorable, and we are confident having a balanced portfolio of both phosphate and potash will lead to superior results over the long term.”

Mosaic expects total sales volumes for phosphates to be modestly constrained by low inventory levels. They are expected to range from 2.4 to 2.8 million mt for the fourth quarter of fiscal 2010 ending May 31. Mosaic’s realized DAP price, FOB plant, for the fourth quarter of fiscal 2010 is estimated to be $420 to $460 per mt.

Total sales volumes for the potash segment are expected to range from 1.9 to 2.3 million mt for the fourth quarter. Mosaic’s realized MOP price, FOB plant, for the fourth quarter is estimated to be $325 to $365 mt.