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Why Is Mosaic (MOS) Down 14.9% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Mosaic (MOS). Shares have lost about 14.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mosaic due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Mosaic Misses Earnings Estimates in Q3, Cuts FY19 View

Mosaic slipped to a net loss of $44.1 million or 11 cents per share in third-quarter 2019 from a profit of $247.5 million or 64 cents in the year-ago quarter.

Barring one-time items, adjusted earnings per share were 8 cents, falling well short of the Zacks Consensus Estimate of 27 cents.

Mosaic faced challenging market conditions in the third quarter. The company noted that its results were hurt by weaker-than-expected gross margins in its Phosphates segment.

Net sales fell roughly 6% year over year to $2,753.4 million in the quarter. The figure, however, beat the Zacks Consensus Estimate of $2,575.8 million.

Segment Highlights

Net sales in the Phosphates segment were $820 million in the quarter, down around 18% year over year mainly due to lower sales prices stemming from weather-related decline in demand in North America. The segment’s gross margin per ton was at a loss of $10 million. Margin was impacted by lower selling prices that more than offset benefits of lower raw material costs.

Potash division’s sales rose roughly 1% year over year to $616 million on the back of higher average sales prices, partly offset by lower sales volumes. Gross margin per ton in the quarter was $68 million, up 3% year over year. 

Net sales in the Mosaic Fertilizantes segment came in at $1.4 billion, flat year over year. Gross margin per ton fell to $39 million from $42 million in the year-ago quarter.

Financials

Mosaic ended the quarter with cash and cash equivalents of $641.1 million, down around 38% year over year. Long-term debt was essentially flat year over year at around $4,533.2 million.

Cash flow provided by operating activities was $486 million in the reported quarter, down 7% year over year. Mosaic’s capital expenditures were $322.3 million in the quarter.

Mosaic has also bought back 7.1 million shares for $150 million year to date. It repurchased 5.8 million shares for $125 million in the reported quarter.
 
Outlook

Mosaic lowered its outlook for 2019. The company now expects adjusted EBITDA for 2019 in the band of $1.4-$1.5 billion, down from its earlier view of $1.8-$2 billion. It also projects adjusted earnings in the range of 50-60 cents per share, down from its prior guidance of $1.10-$1.50.

While the company sees a strong North American 2019 fall application season, it believes that this may not lead to strong near-term revenue recognition given distributors’ high inventories.

For the fourth quarter, Mosaic expects phosphates sales volumes in the band of 2.1-2.3 million tons. Potash sales volumes have been forecast in the range of 1.7-1.9 million tons for the quarter. The company also expects sales volumes in the Mosaic Fertilizantes segment in the band of 2.2-2.4 million tons for the fourth quarter.

Mosaic is also temporarily lowering production in phosphates and potash to match demand in 2019. The company envisions that these actions will place it to capitalize on opportunities in 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -74.75% due to these changes.

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VGM Scores

Currently, Mosaic has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Mosaic has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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