Reuters — Mosaic Co. offered an encouraging outlook and announced a big share buyback on Tuesday, buoying the U.S. fertilizer company’s stock even as it reported a 79 per cent plunge in quarterly profit, a sharper decline than expected.
Last summer’s breakup of the Belarusian Potash Co. — one of the world’s two dominant potash traders — caused a sharp drop in the price of the crop nutrient potash and a slide in grain prices has also weighed down phosphate. The lower prices dragged down Mosaic’s profit in the fourth quarter.
Even so, Mosaic shares jumped 3.2 per cent to $48.33 in early New York trading, as it said it would buy $1 billion in shares, topping up a $2 billion buyback announced in December (all figures US$).
“You’ve got to like that,” said Jim Llewellyn, portfolio manager at WorldCommodity Fund, a small investor in Mosaic. “I wouldn’t worry about the earnings.”
More importantly than the earnings miss is guidance for the current quarter that looks strong, Scotiabank analyst Ben Isaacson said in a note.
Mosaic forecast first-quarter phosphate sales volumes of 2.3 to 2.6 million tonnes, down from 2.7 million tonnes a year ago. It expects to earn a realized diammonium phosphate price of $390 to $420 per tonne, topping the fourth-quarter price.
Potash sales volumes look to range between 2.3 and 2.7 million tonnes in the current first quarter, Mosaic said, up from two million tonnes a year earlier. The company forecast a first quarter average realized price of $245 to $275 per tonne, lower than last quarter’s price.
CEO Jim Prokopanko said prices are already rebounding in phosphates and potash prices look to improve later this year.
“The atrocious lack of buying in the last quarter is the common denominator” in an expected pickup in demand for both nutrients, Prokopanko said in a Reuters interview.
The company confirmed its forecast for record 2014 global shipments of 64 to 66 million tonnes of phosphate and 57 to 59 million tonnes of potash.
The pace of potash shipments has already picked up substantially and looks to carry into the second quarter, said Rick McLellan, Mosaic’s senior vice-president, commercial.
Canpotex Ltd., the offshore sales arm of Mosaic, PotashCorp and Agrium, should set a potash supply contract with Indian buyers by the end of April, Prokopanko said.
Phosphate prices have improved since late last year even without much Indian demand, but the world’s biggest phosphate importer should buy a lot more in 2014, said Mike Rahm, Mosaic’s vice-president of market analysis and strategic planning.
That said, the direction of grain prices and severe problems moving commodities in North America also look to influence fertilizer prices, Prokopanko said.
Frozen rivers in the United States and backlogged railways in Western Canada have left Mosaic behind on its shipping commitments, but could push up fertilizer prices, he said.
“This is as bad as we’ve ever seen it… People are going to be desperate. They’ll pay higher for whatever’s available.”
Mark Gulley, an analyst at BGC Financial Research, said he does not expect a return to larger potash profits any time soon because of industry over-capacity, but the prospects for phosphate are more promising.
Net earnings for the fourth quarter slid to $129 million, or 30 cents a share, the Plymouth, Minn.-based company’s second-smallest quarterly profit in four years. A year earlier, it earned $616 million, or $1.44 per share. The results included one-time items that weakened earnings by six cents per share.
Revenue dropped eight per cent, to $2.2 billion.
Analysts, on average, expected Mosaic to earn 42 cents a share on sales of $1.86 billion, according to Thomson Reuters I/B/E/S.
Saskatoon-based PotashCorp in late January reported its smallest quarterly profit in four years and produced disappointing 2014 forecasts. [Related story]
Mosaic sold a record 3.4 million tonnes of phosphate in the fourth quarter, exceeding guidance of 2.5 to 2.9 million tonnes, at an average price of $381 per tonne of diammonium phosphate, within the guidance range but a 28 per cent drop year over year.
The company sold 1.9 million tonnes of potash in the quarter, hitting the top end of its guidance range of 1.5 to 1.9 million tonnes, at an average realized price of $303 per tonne. That price fell within Mosaic’s guidance range but was 30 per cent cheaper than a year earlier.
— Rod Nickel is a Reuters correspondent based in Winnipeg.