Will Mosaic (MOS) Q2 Earnings Disappoint On Weak Prices?
Zacks Investment Research | Jul 28, 2016 09:03PM ET
Mosaic (NYSE:MOS) is set to release its second-quarter 2016 results before the bell on Aug 2.
In the last quarter, the fertilizer maker’s earnings matched the Zacks Consensus Estimate. However, its profits tumbled in the quarter, hit by lower potash prices and volumes. Although the company gained from cost management initiatives, lower prices across all segments weighed on the bottom line.
Let's see how things are shaping up for this announcement.
Factors to Consider
In the last earnings call, Mosaic’s guidance indicated a year-over-year fall in sales volumes for phosphate in second-quarter 2016. The company expects phosphates sales volumes in the band of 2.3–2.6 million tons for the second quarter versus 2.8 million tons in the prior-year quarter. The segment’s gross margin for the quarter is estimated to be roughly 10%. Potash sales volumes have been projected in the range of 1.9–2.2 million tons for the second quarter versus 2.3 million tons a year ago.
Mosaic expects the overall business to improve in the second half of the year and sees a record year for global shipments in 2016. However, prices in both potash and phosphate segments continue to affect margins.
Management has decided to lower its capital expenditure by minimizing or eliminating as much capital costs as possible without affecting employee safety or critical requirements. Guidance for capital expenditure in 2016 has been reduced to the range of $800−$900 million from $0.9−$1.1 billion stated earlier.
Mosaic is exposed to a difficult business environment in agriculture and there is a continuous negative sentiment among agriculture investors. Depressed crop prices are weighing on U.S. farm income. The Brazilian market also continues to remain weak due to the volatile economic and political environment in the country.
Potash prices, which are already at their lowest levels since 2007, remain under pressure due to elevated supply. The potash market is expected to remain oversupplied in the near future, thereby hurting prices. Global capacity expansion and lower farm income continue to exert pressure on nutrient prices.
Moreover, a challenging currency environment coupled with economic weakness has contributed to a sluggish demand environment for potash across certain emerging markets. Depressed farm income is also unfavorably affecting nutrient purchasing decisions of farmers.
Mosaic recently said that it will idle its potash mine in Colonsay, Saskatchewan for the balance of 2016 and also halt current turnaround activities. The company is taking this action to meet customer demand amid challenging potash market conditions. Roughly 330 employees have received temporary layoff notices as a result of this move.
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