Mosaic's fiscal Q3 net earnings down 49.6% year-over-year to US$273M, driven by lower potash volumes, higher phosphate raw material costs; net sales unchanged at US$2.2B
Andrew Rogers
PLYMOUTH, Minnesota
,
March 28, 2012
(press release)
–
The Mosaic Company reported third quarter fiscal 2012 net earnings of
$273 million, compared to
$542 million a year ago. The decline was primarily driven by lower potash volumes and higher phosphate raw material costs. Earnings per diluted share were
$0.64 in the quarter compared to
$1.21 in the quarter last year. In the 2012 quarter, earnings per diluted share were negatively impacted by notable items totaling
$0.08, primarily foreign currency transaction losses. Mosaic's net sales in the third quarter of fiscal 2012 were
$2.2 billion, flat with the same period last year, as growth in phosphate sales was offset by declines in potash sales. "We are continuing to make significant strategic progress for long-term success even as we work through seasonal and cyclical market factors, and we feel very good about our business momentum," said
Jim Prokopanko, President and Chief Executive Officer of Mosaic. "Our potash expansion initiative remains on track and on budget, as we bring several major projects to completion this calendar year. Our innovative premium phosphate product, MicroEssentials®, continues to win an increasing share of North American sales, and we will have new capacity in fiscal 2013.
"During the third fiscal quarter, we reached two important agreements to resolve matters that created uncertainty for investors. We reached an agreement on our potash tolling dispute, which will result in 1.3 million tonnes of peaking capacity for Mosaic beginning in January 2013, and we reached a settlement agreement to allow us to return to full operation at the South Fort Meade phosphate mine. We also demonstrated both the strength of our balance sheet and our commitment to shareholders by increasing our annual dividend by 150 percent." Mosaic's gross margin for the third quarter of fiscal 2012 was $522 million, or 24 percent of net sales, compared to $854 million, or 39 percent of net sales, a year ago. Third quarter operating earnings were $414 million, a decrease of 46 percent compared to $771 million a year ago. The decreases in gross margin and operating earnings were driven primarily by lower potash volumes and higher phosphate raw material costs. Cash flow provided by operating activities in the third quarter of fiscal 2012 was $405 million compared to $366 million in the prior year. Capital expenditures totaled $412 million in the quarter. Mosaic's total cash and cash equivalents were $3.2 billion and long-term debt was $1.0 billion as of February 29, 2012. Business Highlights Potash Potash Results 3Q FY12 Actual 3Q FY12 Guidance Average MOP selling price $453 $430 to $460 Sales volume 1.1 million tonnes 1.0 to 1.2 million tonnes Potash production 79% of operational capacity 80+% of operational capacity "The Potash segment's operating results reflect delayed purchases, as buyers remained cautious," Mr. Prokopanko said. "While the seasonal lull and risk aversion slowed sales in the third fiscal quarter, we continue to expect near-record global shipments in 2012 and a very strong North American spring season. During the quarter, we produced 1.8 million tonnes and positioned inventory to capture global demand as it emerges." Net sales in the Potash segment totaled $553 million for the third quarter, down 27 percent compared to $758 million a year ago, as a decline in sales volumes more than offset higher prices. Gross margin was $270 million, or 49 percent of net sales, compared to $412 million, or 54 percent of net sales, a year ago. Operating earnings were $234 million, down 43 percent compared to $414 million in the prior year. The decreases in gross margin and operating earnings were primarily the result of lower sales volumes. Gross margin excluding resource taxes and royalties, a measure comparable to certain peer reporting, was 60 percent in the third quarter compared to 62 percent a year ago. The third quarter average MOP selling price, FOB plant, was $453 per tonne, up from $358 a year ago. The Potash segment's total sales volumes for the third quarter were 1.1 million tonnes, compared to 1.9 million tonnes a year ago. Potash production was 1.8 million tonnes, or 79 percent of operational capacity, a decrease from 2.0 million tonnes, or 90 percent of operational capacity, a year ago. The 2012 quarter production reflected the initial impact of the Company's previously announced curtailments, while allowing a replenishment of low beginning inventories and positioning of product for an expected strong North American application season. Phosphates Phosphates Results 3Q FY12 Actual 3Q FY12 Guidance Average DAP selling price $536 $530 to $560 Sales volume 2.6 million tonnes 2.2 to 2.6 million tonnes Processed phosphate production 81% of operational capacity 70 - 80% of operational capacity "We generated strong phosphate sales in the quarter," Mr. Prokopanko said. "While margins are expected to remain compressed through the end of this fiscal year, the beginning of fiscal 2013 should benefit from increased production at the South Fort Meade mine and lower spot prices on raw materials. Longer term, we believe the phosphate market provides us with significant opportunities, with strong grower economics driving record shipments in both 2012 and 2013." Net sales in the Phosphates segment were $1.7 billion for the third quarter, up 13 percent compared to $1.5 billion last year. Gross margin was $259 million, or 16 percent of net sales, compared to $454 million, or 31 percent of net sales, for the same period a year ago. Operating earnings were $190 million, down 49 percent compared to $372 million last year. The decrease in gross margin primarily reflects higher raw materials costs. The Company estimates the Faustina outage increased raw material costs by approximately $10 million in the quarter, which was offset by an $8 million insurance recovery benefit reflected in cost of goods sold. Other operating income included an additional $21 million in the related insurance recovery. The third quarter average DAP selling price, FOB plant, was $536 per tonne, compared to $543 a year ago. Phosphates segment total sales volumes were 2.6 million tonnes, compared to 2.4 million tonnes a year ago. Mosaic's North American finished phosphate production was 2.0 million tonnes, or 81 percent of operational capacity, flat with the same period a year ago. North American phosphate rock production was 2.9 million tonnes during the third quarter compared to 3.4 million tonnes a year ago. The year ago quarter included higher output from South Fort Meade from mining a limited 200-acre section of the Hardee County Extension. Other Selling, general and administrative expenses (SG&A) were $91 million for the third quarter, an increase from $84 million a year ago. Other operating expense was $17 million for the third quarter compared to other operating income of $1 million a year ago. The year-ago period included an insurance recovery of $38 million, and the current-year period included a Faustina related insurance recovery of $21 million. Foreign currency transaction loss was $44 million for the third quarter compared to a loss of $32 million in the year ago period. Fluctuations were primarily driven by changes in the U.S. dollar to Canadian dollar exchange rate. Income tax expense was $87 million for the third quarter resulting in an effective tax rate of 25 percent, compared to $176 million, or 24 percent, for the same period last year. Financial Guidance Total sales volumes for the Potash segment are expected to range from 1.7 to 2.2 million tonnes for the fourth quarter of fiscal 2012. Mosaic's realized MOP price, FOB plant, for the fourth quarter of fiscal 2012 is estimated to range from $420 to $450 per tonne, reflecting a mix change of grades and geographies compared to the third fiscal quarter. Total sales volumes for the Phosphates segment are expected to range from 2.3 to 2.7 million tonnes for the fourth quarter of fiscal 2012. Mosaic's realized DAP price, FOB plant, for the fourth quarter of fiscal 2012 is estimated to range from $460 to $490 per tonne. Segment margins in the fourth fiscal quarter are expected to remain flat sequentially, driven by the combination of lower expected realized DAP prices offset by realized raw material price declines. The fourth quarter operating rate in the Potash segment is expected to exceed 70 percent of operational capacity. The Company's operating rate at its North American phosphate operations is expected to exceed 80 percent of operational capacity during its fourth quarter. Previously disclosed 2012 guidance for the following items has been updated: Canadian resource taxes and royalties are included as a component of cost of goods sold in the Company's consolidated income statement. About The Mosaic Company The Mosaic Company is one of the world's leading producers and marketers of concentrated phosphate and potash crop nutrients. Mosaic is a single source provider of phosphate and potash fertilizers and feed ingredients for the global agriculture industry. For the third quarter of fiscal 2012, the Company reported the following notable items which, combined, negatively impacted earnings per share by $0.08: Description Segment Line item Amount (pre-tax, in millions) EPS impact (fully diluted) Insurance proceeds Phosphates Cost of goods sold $ (8) $ (0.01) Insurance proceeds Phosphates Other operating expenses (21) (0.04) South Fort Meade litigation costs Phosphates Other operating expenses 13 0.02 Foreign currency transaction loss Corporate Foreign currency transaction (gain) loss 44 0.08 Premium on bond redemption Corporate Non-operating income 20 0.03 $ 48 $ 0.08 Condensed Consolidated Statements of Earnings (in millions, except per share amounts) The Mosaic Company (unaudited) Three months ended Nine months ended February 29, February 28, February 29, February 28, 2012 2011 2012 2011 Net sales $ 2,189.5 $ 2,214.3 $ 8,287.3 $ 7,077.4 Cost of goods sold 1,667.7 1,360.7 6,036.1 4,950.8 Gross margin 521.8 853.6 2,251.2 2,126.6 Selling, general and administrative expenses 91.3 83.6 293.0 261.0 Other operating (income) expense 16.8 (0.8) 17.9 26.3 Operating earnings 413.7 770.8 1,940.3 1,839.3 Interest income (expense), net 4.1 (0.2) 13.3 (12.8) Foreign currency transaction gain (loss) (44.0) (31.7) 5.4 (60.6) Gain on sale of equity investment - - - 685.6 Other (expense) (19.1) (16.1) (19.2) (17.0) Earnings from consolidated companies before income taxes 354.7 722.8 1,939.8 2,434.5 Provision for income taxes 87.0 175.9 522.8 566.8 Earnings from consolidated companies 267.7 546.9 1,417.0 1,867.7 Equity in net earnings (loss) of nonconsolidated companies 4.2 (4.3) 6.9 0.6 Net earnings including noncontrolling interests 271.9 542.6 1,423.9 1,868.3 Less: Net earnings (loss) attributable to noncontrolling interests (1.4) 0.5 1.0 2.9 Net earnings attributable to Mosaic $ 273.3 $ 542.1 $ 1,422.9 $ 1,865.4 Basic net earnings per share attributable to Mosaic $ 0.64 $ 1.21 $ 3.24 $ 4.18 Diluted net earnings per share attributable to Mosaic $ 0.64 $ 1.21 $ 3.24 $ 4.17 Basic weighted average number of shares outstanding 425.4 446.3 438.5 445.8 Diluted weighted average number of shares outstanding 426.7 447.7 439.8 447.3 Condensed Consolidated Balance Sheets (in millions, except per share amounts) The Mosaic Company (unaudited) February 29, May 31, 2012 2011 Assets Current assets: Cash and cash equivalents $ 3,201.9 $ 3,906.4 Receivables, net 656.3 926.0 Inventories 1,327.3 1,266.4 Deferred income taxes 150.0 277.8 Other current assets 594.9 308.3 Total current assets 5,930.4 6,684.9 Property, plant and equipment, net of accumulated depreciation of $3,200.6 million and $2,975.8 million, respectively 7,379.5 6,635.9 Investments in nonconsolidated companies 438.4 434.3 Goodwill 1,874.2 1,829.8 Deferred income taxes 94.2 6.5 Other assets 220.0 195.5 Total assets $ 15,936.7 $ 15,786.9 Liabilities and Equity Current liabilities: Short-term debt $ 81.6 $ 23.6 Current maturities of long-term debt 1.1 48.0 Accounts payable 800.5 941.1 Accrued liabilities 657.9 843.6 Deferred income taxes 73.7 72.2 Total current liabilities 1,614.8 1,928.5 Long-term debt, less current maturities 1,010.6 761.3 Deferred income taxes 611.2 580.1 Other noncurrent liabilities 869.8 855.1 Equity: Preferred stock, $0.01 par value, 15,000,000 shares authorized, none issued and outstanding as of February 29, 2012 and May 31, 2011 - - Class A common stock, $0.01 par value, 275,000,000 shares authorized, 170,759,772 shares issued and 128,759,772 shares outstanding as of February 29, 2012 and 57,768,374 issued and outstanding as of May 31, 2011 1.3 0.6 Class B common stock, $0.01 par value, 87,008,602 shares authorized, none issued and outstanding as of February 29, 2012, 200,000,000 shares authorized and 112,991,398 shares issued and outstanding as of May 31, 2011 - 1.1 Common stock, $0.01 par value, 1,000,000,000 shares authorized, 308,719,182 shares issued and 296,680,720 shares outstanding as of February 29, 2012, 287,851,416 shares issued and 275,812,954 shares outstanding as of May 31, 2011 3.0 2.8 Capital in excess of par value 1,455.0 2,596.3 Retained earnings 9,687.4 8,330.6 Accumulated other comprehensive income 664.2 710.2 Total Mosaic stockholders' equity 11,810.9 11,641.6 Noncontrolling interests 19.4 20.3 Total equity 11,830.3 11,661.9 Total liabilities and equity $ 15,936.7 $ 15,786.9 Condensed Consolidated Statements of Cash Flows (in millions, except per share amounts) The Mosaic Company (unaudited) Three months ended Nine months ended February 29, February 28, February 29, February 28, 2012 2011 2012 2011 Cash Flows from Operating Activities: Net earnings including noncontrolling interests $ 271.9 $ 542.6 $ 1,423.9 $ 1,868.3 Adjustments to reconcile net earnings including noncontrolling Interests to net cash provided by operating activities: Depreciation, depletion and amortization 127.9 114.1 368.4 324.5 Deferred income taxes (47.6) 52.2 81.8 58.3 Equity in loss (earnings) of nonconsolidated companies, net of dividends 1.8 4.4 2.7 2.6 Accretion expense for asset retirement obligations 7.1 9.7 21.2 24.0 Share-based compensation expense 3.1 2.6 20.1 18.7 Unrealized loss (gain) on derivatives (8.7) (17.0) 32.7 (23.6) Gain on sale of equity investment - - - (685.6) Other 9.7 9.4 7.8 2.5 Changes in assets and liabilities: Receivables, net 253.2 (137.6) 239.4 (183.9) Inventories, net (123.4) (314.9) (66.2) (129.5) Other current and noncurrent assets (191.3) (37.9) (290.9) 39.5 Accounts payable (3.4) 95.3 (152.1) 94.3 Accrued liabilities and income taxes 29.9 49.7 (215.2) 97.9 Other noncurrent liabilities 74.3 (6.7) 2.9 (54.2) Net cash provided by operating activities 404.5 365.9 1,476.5 1,453.8 Cash Flows from Investing Activities: Capital expenditures (411.8) (311.6) (1,190.3) (897.3) Proceeds from sale of equity investment - - - 1,030.0 Proceeds from sale of business - 50.0 - 50.0 Investments in nonconsolidated companies - - - (385.3) Restricted cash 1.2 (11.7) 2.3 (13.7) Other 5.9 1.7 6.2 3.1 Net cash used in investing activities (404.7) (271.6) (1,181.8) (213.2) Cash Flows from Financing Activities: Payments of short-term debt (17.5) (68.6) (89.7) (293.5) Proceeds from issuance of short-term debt 70.8 88.3 147.7 284.6 Payments of long-term debt (512.5) (459.6) (542.7) (467.1) Proceeds from issuance of long-term debt 1.5 16.9 748.2 17.6 Payment of tender premium on debt - (16.1) - (16.1) Proceeds from stock options exercised 0.2 8.0 2.5 18.7 Repurchase of Class A common stock - - (1,162.5) - Cash dividends paid (21.4) (22.4) (66.1) (67.0) Other (1.0) 1.1 (6.5) 7.2 Net cash used in financing activities (479.9) (452.4) (969.1) (515.6) Effect of exchange rate changes on cash 54.4 50.8 (30.1) 104.1 Net change in cash and cash equivalents (425.7) (307.3) (704.5) 829.1 Cash and cash equivalents - beginning of period 3,627.6 3,659.4 3,906.4 2,523.0 Cash and cash equivalents - end of period $ 3,201.9 $ 3,352.1 $ 3,201.9 $ 3,352.1 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest (net of amount capitalized) $ 12.0 $ 34.4 $ 12.0 $ 56.1 Income taxes (net of refunds) 119.9 128.0 455.4 434.5 Condensed Consolidated Financial Highlights (dollars in millions) The Mosaic Company (unaudited) Increase/ Increase/ Three months ended (Decrease) Nine months ended (Decrease) February 29, February 28, February 29, February 28, 2012 2011 Amount % 2012 2011 Amount % Net sales: Phosphates (a) $ 1,651.7 $ 1,458.0 $ 193.7 13% $ 6,050.4 $ 5,013.0 $ 1,037.4 21% Potash 553.2 757.7 (204.5) (27%) 2,264.7 2,078.6 186.1 9% Corporate/Other (b) (15.4) (1.4) (14.0) NM (27.8) (14.2) (13.6) (96%) $ 2,189.5 $ 2,214.3 $ (24.8) (1%) $ 8,287.3 $ 7,077.4 $ 1,209.9 17% Gross margin: Phosphates $ 259.4 $ 454.2 $ (194.8) (43%) $ 1,144.7 $ 1,175.4 $ (30.7) (3%) Potash 269.8 411.6 (141.8) (34%) 1,107.8 953.5 154.3 16% Corporate/Other (b) (7.4) (12.2) 4.8 (39%) (1.3) (2.3) 1.0 (43%) $ 521.8 $ 853.6 $ (331.8) (39%) $ 2,251.2 $ 2,126.6 $ 124.6 6% Operating earnings (loss): Phosphates $ 190.2 $ 371.8 $ (181.6) (49%) $ 955.0 $ 952.1 $ 2.9 0% Potash 233.9 413.9 (180.0) (43%) 993.7 883.3 110.4 12% Corporate/Other (b) (10.4) (14.9) 4.5 (30%) (8.4) 3.9 (12.3) NM $ 413.7 $ 770.8 $ (357.1) (46%) $ 1,940.3 $ 1,839.3 $ 101.0 5% Depreciation, depletion and amortization: Phosphates $ 66.8 $ 62.6 $ 4.2 7% $ 195.5 $ 182.2 $ 13.3 7% Potash 58.3 49.1 9.2 19% 165.0 133.8 31.2 23% Corporate/Other 2.8 2.4 0.4 17% 7.9 8.5 (0.6) (7%) $ 127.9 $ 114.1 $ 13.8 12% $ 368.4 $ 324.5 $ 43.9 14% (a)Includes PhosChem sales for its other member of $125 million and $97 million for the three months ended February 29, 2012 and February 28, 2011, respectively. Includes PhosChem sales for its other member of $489 million and $370 million for the nine months ended February 29, 2012 and February 28, 2011, respectively. PhosChem is a consolidated subsidiary of Mosaic. (b)Includes elimination of intersegment sales. Key Statistics The Mosaic Company (unaudited) Increase/ Increase/ Three months ended (Decrease) Nine months ended (Decrease) February 29, February 28, February 29, February 28, 2012 2011 Amount % 2012 2011 Amount % Sales volume (in thousands of metric tonnes): Phosphates Segment Phosphates Crop Nutrients(a): North America 931 719 212 29% 2,687 2,544 143 6% International 857 807 50 6% 2,851 3,154 (303) (10%) Crop Nutrient Blends(b) 489 511 (22) (4%) 2,104 2,078 26 1% Feed Phosphates 169 162 7 4% 468 433 35 8% Other (c) 145 172 (27) (16%) 836 898 (62) (7%) Total Phosphates Segment(a) 2,591 2,371 220 9% 8,946 9,107 (161) (2%) Potash Segment Potash Crop Nutrients(d): North America 291 757 (466) (62%) 1,429 2,344 (915) (39%) International 618 944 (326) (35%) 2,715 2,531 184 7% Non agricultural 182 162 20 12% 527 468 59 13% Total Potash Segment 1,091 1,863 (772) (41%) 4,671 5,343 (672) (13%) Production volume (North America) (in thousands of metric tonnes): Phosphates(e) 1,954 2,007 (53) (3%) 6,200 6,305 (105) (2%) Potash 1,818 2,048 (230) (11%) 5,478 5,166 312 6% Average selling price per tonne: DAP(f) $ 536 $ 543 $ (7) (1%) $ 577 $ 468 $ 109 23% Crop Nutrient Blends(b) (g) 588 503 85 17% 586 452 134 30% MOP - North America(f) (i) 531 394 137 35% 527 366 161 44% MOP - International(f) 411 316 95 30% 400 292 108 37% MOP - Average(f) 453 358 95 27% 445 340 105 31% Average cost per unit: Ammonia (metric tonne) $ 589 $ 406 $ 183 45% $ 573 $ 383 $ 190 50% Sulfur (long ton) (North America) 228 166 62 37% 232 150 82 55% Canadian resource taxes and royalties(h) $ 65 $ 55 $ 10 17% $ 227 $ 187 $ 40 22% (a)Phosphates volumes represent dry product tonnes. Excludes tonnes sold by PhosChem for its other member. (b)The average product mix for blends (by volumes) contains approximately 50% phosphate, 25% potash and 25% nitrogen, although this mix can differ based on seasonal and other factors. (c)Other volumes are primarily single superphosphate, potash and nitrogen products sold outside North America. (d) Potash volumes include intersegment sales, and exclude tonnes mined under a third party tolling arrangement. (e)Includes crop nutrient dry concentrates and animal feed ingredients. (f) FOB plant, sales to unrelated parties. (g)FOB destination. (h)Amounts in millions of U.S. dollars. (i)Prices exclude industrial and feed sales Selected Non-GAAP Financial Measures and Reconciliations The Mosaic Company (unaudited) Potash Gross Margin, Excluding Resource Taxes and Royalties, Calculation Three months ended February 29, February 28, 2012 2011 Sales $ 553.2 $ 757.7 Gross margin 269.8 411.6 Canadian resource taxes and royalties ("CRT") 64.6 55.3 Gross margin, excluding CRT $ 334.4 $ 466.9 Gross margin percentage, excluding CRT 60.4% 61.6% The Company's margins are further reduced by the impact of a third party tolling agreement. The Company has presented above gross margin excluding Canadian resource taxes and royalties (CRT) for Potash which is a non-GAAP financial measure. Generally, a non-GAAP financial measure is a supplemental numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with U.S. generally accepted accounting principles ("GAAP"). Gross margin excluding CRT is not a measure of financial performance under GAAP. Because not all companies use identical calculations, investors should consider that Mosaic's calculation may not be comparable to other similarly titled measures presented by other companies. Gross margin excluding CRT provides a measure that the Company believes enhances the reader's ability to compare the Company's gross margin with that of other companies which incur CRT expense and classify it in a manner different than the Company in their statement of earnings. Because securities analysts, investors, lenders and others use gross margin excluding CRT, the Company's management believes that Mosaic's presentation of gross margin excluding CRT for Potash affords them greater transparency in assessing Mosaic's financial performance against competitors. Gross margin excluding CRT, should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
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