Tag Archives: POT
Mosaic Co. (MOS), the largest U.S. fertilizer producer, continues to focus on achieving a more efficient balance sheet. Investors should not be surprised by Mosaic’ target to increase its financial leverage. After the latest Q3 report, the management indicated its intention to reduce the company’s cash and increase the leverage. The management emphasized its targets in the company’s conference call on capital management philosophy.
Mosaic’s capital becomes flexible after May 26, which is the two year anniversary of the Cargill split-off transaction. The top priority for the management is to maintain an investment grade rating and financial flexibility for Mosaic’s balance sheet. For liquidity, the management set a target of $2.25 billion, with one-third of cash and two-thirds credit line. Management also wants to maintain a targeted leverage ratio (or adjusted debt-to-EBITDA) of 1.5 times, which means the management can issue additional $3 billion of debt on top of current $1.5 billion debt with $3 billion of EBITDA.
The final 2 million tons of Mosaic’s Potash expansion strategy is deferred, which will be resumed when market conditions warrants and when risk adjustable returns justify. It may first appear to be correlated to suspend the expansion strategy while increasing the leverage for the balance sheet to repurchase more shares and return more capital to shareholders; however, the management stated that they were two separate decisions.
It was a hard won victory for Agrium (AGU), which produces and markets agricultural nutrients and industrial products, including nitrogen, phosphate and potash. According to Bloomberg’s report, JANA Partners, Agrium’s largest shareholder with a 7.5 percent stake, had been pushing the company to spin off its retail division, a network of agricultural outlets that sells seeds, fertilizer and crop-protection chemicals to farmers.
General Meeting – JANA Partners
During Agrium’s annual general meeting in early April, Barry Rosenstein, JANA Partners’ managing partner, said that JANA had pushed the management to improve significantly, including the company’s first large share repurchase in years, dividend increase, and disclosure improvement. However, JANA Partners had requested an independent Chairman be appointed for the meeting on March 28, 2013, and that request was denied.
JANA claimed that the company had received 59 million votes for one or more of its nominees, including, it appeared, enough votes for David Bullock and Barry Rosenstein to be elected to the Board of Directors. However, 3 days after the vote and 3 days after the voting deadline, the votes were revoked.
Mosaic Co. (MOS), the largest U.S. fertilizer producer, reported Q3 profit that beat analysts’ estimates due to strong Asian demand for potash. By reducing the cash and increasing the leverage, more upside is expected for Mosaic with increased efficiency for its balance sheet.
Despite Q3 typically being the slowest quarter, Q3 this year is a solid quarter for MOS as net income rose to $344.6M (81 cents a share) from $273.3M (64 cents) a year earlier. Profit, excluding other one-time items and cost of an antitrust settlement, was 90 cents a share (beating analysts’ estimate of 88 cents per share). Q3 sales increased 2.3 percent to $2.24B, trailing $2.3B as estimated by analysts.
For the total operating earnings of $419M, the potash business unit contributed $216M and the phosphate business unit contributed $197M. For Q3, the company generated $371M in operating cash flow and continues to maintain a strong cash position with $3.3B of cash on hand.
Commodity prices have declined modestly as futures markets recognize the potential for a large 2013 crop. However, the prices remain high relative to historical norms. For Potash, the shipments are expected to reach the higher end of the 55M-57M ton range. The demand is boosted by the contracts with India and China, as well as the expectation for a strong spring planting season. The operating rate of potash mines is expected to increase in Q4 (from 78% of Q3) with better-than-expected demand from China and India. The 3M tons of ongoing potash expansions are proceeding as planned.