UPDATE 3-Mosaic rises on outlook, buyback even as profit plunges

Tue Feb 11, 2014 12:14pm EST

By Rod Nickel
    Feb 11 (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
percent 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 percent 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.
    "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 2 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.
    Chief Executive 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, Potash Corp
of Saskatchewan and Agrium Inc, 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, Minnesota-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 6 cents per share.
    Revenue dropped 8 percent 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.
    Potash Corp of Saskatchewan Inc in late January
reported its smallest quarterly profit in four years and
produced disappointing 2014 forecasts. 
    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 percent 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
percent cheaper than a year earlier.