The Mosaic Co. reported the best earnings in its three-year history for the first quarter ending Aug. 31, 2007. Net earnings were up 180 percent, to $305.5 million ($.69 per diluted share) on a 55 percent uptick in sales to $2.0 billion, versus the year-ago $109.0 million ($.25 per share) and $1.29 billion, respectively.
First-quarter gross margin was $521.8 million, or 26 percent of net sales, compared with the year-ago $196.3 million, or 15.2 percent. Operating earnings were $449.6 million versus the year-ago $131.6 million. The increases in margins and operating earnings were primarily the result of higher selling prices for phosphates and potash and an increase in volumes in the potash business.
“Our robust earnings and cash flow during our first quarter demonstrate that we are successfully positioning ourselves to take advantage of strong agricultural fundamentals,” said Jim Prokopanko, Mosaic President and CEO. “Strong cash flow has allowed us to prepay $700 million of long-term debt over the last five months, and we expect to make additional prepayments in coming months. This will move us closer to our goal of achieving investment grade status.”
Phosphate operating earnings were up 274 percent, to $310.2 million versus the year-ago $82.9 million, while sales were up 50 percent, to $1.18 billion from $789.6 million. The average DAP price during the quarter was $407/mt versus the year-ago $251/mt, while Central Florida ammonia and sulfur were both up at $326/mt and $77/lt, respectively, versus the year-ago $301/mt and $72/lt. Total phosphate sales volumes for the quarter were actually down 2 percent, to 2.24 million mt from 2.29 million mt.
Potash operating earnings were up 81 percent, to $110.2 million from the year-ago $60.8 million, while sales were up 42 percent, to $411.8 million from $290.1 million. Potash sales volumes were up 24 percent during the quarter, to 2.08 million mt from the year-ago 1.68 million mt.
Offshore and nitrogen segment results both pulled out of the loss column during the quarter, with offshore operating earnings at $30.1 million on sales of $497.5 million, versus the year-ago loss of $3.6 million on sales of $303.9 million. This increase was mainly due to higher sales volumes and selling prices in Brazil, India, and Argentina.
In the meantime, higher urea prices helped the nitrogen segment post positive operating income at $1.7 million on sales of $35.1 million, versus the year-ago loss of $100,000 on sales of $21.1 million.
Mosaic continues to have an upbeat outlook, citing tight supplies of phosphate and potash. The company said at the end of August combined MAP and DAP inventories were at their lowest level for this period in over 15 years, and potash inventories had declined 42 percent compared to year-ago levels.
“Grain markets continue to remain tight and commodity prices remain at very attractive levels, resulting in strong farm economics and demand for crop nutrients,” said Prokopanko. “In order to meet this strong global demand, we continue to operate our plants at high operating rates. Prices for phosphates remain strong and prices for potash have increased, which should result in very strong earnings and cash flow for the remainder of fiscal 2008.”
Prokopanko told analysts U.S. corn acreage could drop back to 88-90 million acres next year, though he said a lot could happen before those figures are finalized.
He believes the market can absorb near-term increases in phosphates from OCP and Fertinal, with China being a possible wildcard. He speculated that China may have sold too much product on the export market and not kept enough for the domestic market. He said India will continue to be a strong market for phosphates, especially since it is struggling with its own domestic production.
Prokopanko said the rising price of phosphate rock will not have a material impact on Mosaic, that instead it increases the value of Mosaic’s own reserves.
On potash, Prokopanko expects an early decision on 2008 prices to China, with expectations that Canpotex will close the gap between what China is paying versus the rest of the world. He noted that by the end of the year Brazil will be paying $355/mt DEL, versus a year-ago $185/mt DEL.