The Mosaic Company Reports Third Quarter 2014 Results

PLYMOUTH, Minn., Oct. 30, 2014 /PRNewswire/ -- The Mosaic Company (NYSE: MOS) today reported third quarter 2014 net earnings of $202 million, up from $124 million a year ago. Earnings per diluted share were $0.54 in the quarter compared to $0.29 last year. Notable items negatively impacted third quarter 2014 net earnings by $11 million, or $0.02 per share. Third quarter 2013 notable items negatively impacted prior year net earnings by $95 million, or $0.22 per share. Mosaic's net sales in the third quarter of 2014 were $2.3 billion, up from $1.9 billion last year. Gross margin during the quarter was $415 million, up from $387 million a year ago, driven by higher phosphate and potash sales volumes. Operating earnings during the quarter were $277 million, up from $144 million a year ago.

"Mosaic delivered improved year-over-year performance despite weakness in the broader agricultural sector," said Jim Prokopanko, President and Chief Executive Officer. "The improving demand momentum for both potash and phosphates that started in the fourth quarter of 2013 continued. We are on pace to deliver more tonnes this year than in any of the last five years, and close to the records of 2008."

"We continued to effectively execute our many recent strategic initiatives. We completed our share repurchase agreement with the Margaret A. Cargill Trusts and continued to return capital to shareholders. In addition, the integration of the former CF Industries phosphate business in Central Florida is proceeding well, we are progressing toward completion of the acquisition of ADM's fertilizer distribution business in Brazil, and the Ma'aden phosphate joint venture is rapidly advancing. Our work to generate cost savings of $500 million over the next five years is ahead of schedule, helping ensure that Mosaic remains a low-cost producer."

Cash flow provided by operating activities in the third quarter of 2014 was $489 million compared to negative $45 million in the prior year. Third quarter 2014 cash flows reflect strong sales volumes. Capital expenditures totaled $188 million in the quarter. Mosaic returned $469 million to shareholders during the quarter, leaving total cash and cash equivalents at $3.0 billion. Total long-term debt was $3.8 billion as of September 30, 2014.

Business Highlights

• Mosaic's growth projects continued to progress as planned:
  • The Company expects to close the previously announced acquisition of Archer Daniels Midland's fertilizer distribution business in Brazil and Paraguay by the end of 2014.
  • The final potash expansion project, the Esterhazy K3 mine shafts, continues on time and on budget, with both shafts more than 1,700 feet below surface.
  • The MicroEssentials® expansion at the New Wales facility is progressing according to plan.
  • The Ma'aden phosphate joint venture is rapidly advancing, with engineering, procurement and construction activities well underway.
  • The CF Industries' phosphate business integration is on pace to achieve pre-tax synergies of $40 to $50 million in 2015.
• Mosaic also made significant progress toward optimizing its portfolio of assets and generating further efficiencies:
  • Mosaic sold its Hersey, Michigan salt mine, and signed an agreement to sell its distribution business in Argentina. Subsequent to the quarter end, the Company also ceased operations in Chile.
  • Mosaic continued to execute and began to realize benefits of an enterprise-wide initiative focused on achieving $500 million in annual operating cost savings over the next five years.
  • The Company is moving forward with front-end engineering and design (FEED) to evaluate further debottlenecking of its Faustina ammonia facility.
• The Company's recordable injury frequency rate improved by almost 11 percent year-to-date in 2014 compared to record setting results in the same period last year.
• As of October 27 year to date, Mosaic repurchased 55.1 million shares, or $2.6 billion, at an average price of $46.96 per share, including 3.6 million common shares purchased in the open market.

Phosphates

"Mosaic's focus on growing operating earnings in phosphates is evident in this quarter's results," Mr. Prokopanko said. "Despite increasing raw material costs, logistical issues and lower grain prices, Mosaic sold more tonnes at higher prices with a notably improved margin per tonne. We have high expectations for our phosphates business."

Net sales in the Phosphates segment were $1.7 billion for the third quarter, up from $1.4 billion last year as a result of higher sales volumes and higher finished product prices. Gross margin was $294 million, or 18 percent of net sales, compared to $193 million, or 14 percent of net sales, for the same period a year ago. The year-over-year change in gross margin dollars reflects higher sales volumes and higher finished product prices, partially offset by lower fixed cost absorption. Operating earnings were $239 million, up from $58 million last year.

The third quarter average DAP selling price, FOB plant, was $461 per tonne, compared to $436 per tonne a year ago. Total sales volumes were 3.3 million tonnes in the phosphates segment, up from 2.7 million tonnes last year.

Mosaic's finished phosphate production was 2.5 million tonnes, or 85 percent of current operational capacity, up from 2.1 million tonnes, or 88 percent of operational capacity, a year ago.

Potash

"Despite production issues which were primarily weather related, Mosaic delivered similar costs per tonne in Potash compared to last year," Mr. Prokopanko said. "Mosaic is making notable progress on cost savings initiatives in an environment of growing demand and lean channel and producer inventories. We are well positioned to take advantage of improving potash fundamentals."

Net sales in the Potash segment totaled $593 million for the third quarter, up from $523 million last year, as higher shipment volumes were partially offset by a 15 percent decline in average realized MOP prices. Gross margin was $131 million, or 22 percent of net sales, compared to $184 million, or 35 percent of net sales, a year ago. The year-over-year decrease in gross margin was driven by lower realized prices, lower fixed cost absorption, higher Canadian resource taxes and higher depreciation expense, partially offset by lower plant spending and higher sales volumes.

The third quarter average MOP selling price, FOB plant, was $291 per tonne, down from $342 a year ago. The Potash segment's total sales volumes for the quarter were 1.8 million tonnes, up from 1.4 million tonnes a year ago, driven by higher demand for the product.

Potash production was 1.7 million tonnes, or 62 percent of operational capacity, down from 2.0 million tonnes, or 73 percent of operational capacity a year ago, as a result of timing of turnarounds as well as weather-related down time at the Carlsbad, New Mexico and Belle Plaine, Saskatchewan mines.

Other

SG&A expenses were $84 million for the third quarter, compared with $94 million last year. The year-over-year decrease was primarily driven by the timing of annual equity grants related to the change in Mosaic's fiscal year end.

The effective tax rate, excluding discrete items, increased during the current quarter, reflecting an increase in Canadian repatriation amounts as a result of higher profit expectations at Mosaic's Canadian operations.

Financial Guidance

"We've invested for growth, and the investments we've made and actions we've taken are beginning to deliver benefits," Mr. Prokopanko said. "This is a cyclical industry in which value is created by investing during the trough and we have done exactly that. Going into 2015 we see continued demand momentum, and feel Mosaic is well positioned for growth as fundamentals improve."

Total sales volumes for the Phosphates segment are expected to range from 2.5 to 2.8 million tonnes for the fourth quarter of 2014, compared to 3.4 million tonnes last year. Mosaic's realized DAP price, FOB plant, for the fourth quarter is estimated to range from $430 to $450 per tonne. Mosaic's gross margin rate in the segment is expected to be in the mid-teens percent range during the fourth quarter. The operating rate in the segment is expected to be in the 70 to 80 percent range reflecting on-going production curtailment to limit high cost inventory build-up.

Total sales volumes for the Potash segment are expected to range from 2.0 to 2.3 million tonnes for the fourth quarter of 2014, compared to 1.9 million tonnes last year. Mosaic's realized MOP price, FOB plant, for the fourth quarter, is estimated to range from $275 to $295 per tonne. Mosaic's gross margin rate in the segment is expected to be in the mid 30 percent range during the fourth quarter. The operating rate in the segment is expected to be in the 85 to 90 percent range.

For the 2014 full year, Mosaic estimates:

• SG&A expenses to range from $380 to $395 million, including acquisition and integration related increases, lowered again from the beginning of the year estimate of $400 to $425 million reflecting progress on cost savings initiatives.
• Canadian resource taxes and royalties to range from $175 to $200 million, narrowed from the prior estimate of $170 to $210 million.
• Brine management costs of approximately $200 million.
• The effective tax rate to be in the upper 20 percent range, excluding any discrete tax items. The current year effective tax rate, excluding discrete items, is elevated as a result of the repatriation of cash generated by Mosaic's Canadian operations and is expected to return to the low to mid 20 percent range in 2015.
• Capital expenditures and equity investments, including the Ma'aden phosphate joint venture, in the range of $1.0 to $1.2 billion, down $200 million primarily due to deferral of expenditures into 2015.

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. More information on the Company is available at www.mosaicco.com.

Mosaic will conduct a conference call on Thursday, October 30, 2014 at 9:00 a.m. EDT to discuss third quarter 2014 earnings results as well as global markets and trends. Presentation slides and a simultaneous webcast of the conference call may be accessed through Mosaic's website at www.mosaicco.com/investors. This webcast will be available up to one year from the time of the earnings call.

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Northern Promise Joint Venture, the acquisition and assumption of certain related liabilities of the Florida phosphate assets of CF Industries, Inc. ("CF") and Mosaic's ammonia supply agreements with CF; repurchases of stock; other proposed or pending future transactions or strategic plans and other statements about future financial and operating results. Such statements are based upon the current beliefs and expectations of The Mosaic Company's management and are subject to significant risks and uncertainties. These risks and uncertainties include but are not limited to risks and uncertainties arising from the ability of the Northern Promise Joint Venture to obtain additional planned funding in acceptable amounts and upon acceptable terms, the future success of current plans for the Northern Promise Joint Venture and any future changes in those plans; difficulties with realization of the benefits of the transactions with CF, including the risks that the acquired assets may not be integrated successfully or that the cost or capital savings from the transactions may not be fully realized or may take longer to realize than expected, or the price of natural gas or ammonia changes to a level at which the natural gas based pricing under one of the long term ammonia supply agreements with CF becomes disadvantageous to Mosaic; customer defaults; the effects of Mosaic's decisions to exit business operations or locations; the predictability and volatility of, and customer expectations about, agriculture, fertilizer, raw material, energy and transportation markets that are subject to competitive and other pressures and economic and credit market conditions; the level of inventories in the distribution channels for crop nutrients; changes in foreign currency and exchange rates; international trade risks and other risks associated with Mosaic's international operations and those of joint ventures in which Mosaic participates, including the risk that protests against natural resource companies in Peru extend to or impact the Miski Mayo mine; changes in government policy; changes in environmental and other governmental regulation, including greenhouse gas regulation, implementation of numeric water quality standards for the discharge of nutrients into Florida waterways or efforts to reduce the flow of excess nutrients into the Mississippi River basin, the Gulf of Mexico or elsewhere; further developments in judicial or administrative proceedings, or complaints that Mosaic's operations are adversely impacting nearby farms, business operations or properties; difficulties or delays in receiving, increased costs of or challenges to necessary governmental permits or approvals or increased financial assurance requirements; resolution of global tax audit activity; the effectiveness of Mosaic's processes for managing its strategic priorities; adverse weather conditions affecting operations in Central Florida, the Mississippi River basin, the Gulf Coast of the United States or Canada, and including potential hurricanes, excess heat, cold, snow, rainfall or drought; actual costs of various items differing from management's current estimates, including, among others, asset retirement, environmental remediation, reclamation or other environmental regulation, Canadian resources taxes and royalties, the liabilities Mosaic assumed in the Florida phosphate assets acquisition, or the costs of the Northern Promise Joint Venture, its existing or future funding and Mosaic's commitments in support of such funding; reduction of Mosaic's available cash and liquidity, and increased leverage, due to its use of cash and/or available debt capacity to fund share repurchases, financial assurance requirements and strategic investments; brine inflows at Mosaic's Esterhazy, Saskatchewan, potash mine or other potash shaft mines; other accidents and disruptions involving Mosaic's operations, including potential mine fires, floods, explosions, seismic events or releases of hazardous or volatile chemicals, as well as other risks and uncertainties reported from time to time in The Mosaic Company's reports filed with the Securities and Exchange Commission. Actual results may differ from those set forth in the forward-looking statements.

For the three months ended September 30, 2014, the Company reported the following notable items which, combined, negatively impacted earnings per share by $0.02: 

For the three months ended September 30, 2013, the Company reported the following notable items which, combined, negatively impacted earnings per share by $0.22: 

Potash Gross Margin, Excluding Resource Taxes and Royalties, Calculation

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.

Earnings Per Share Calculation

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SOURCE The Mosaic Company

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