MosaicMOS

Mosaic struggled through a difficult second quarter, reporting a net loss of 273 million dollars. While the company earned a small adjusted profit of 13 cents per share, which was slightly better than analysts expected, total revenue of 2.82 billion dollars fell short of the 3.10 billion dollars Wall Street was looking for.

The main problem is the cost of sulfur, a key ingredient used to process phosphate fertilizer. Management noted that sulfur has become both expensive and hard to find, which squeezed the company's profit margins. To help protect its cash, Mosaic is cutting its planned spending on equipment and facilities for the year to 1.2 billion dollars. Until the price of these raw materials drops or fertilizer prices rise, the company will likely continue to face a tight profit squeeze.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Phosphate profitability vanishes: Gross margin per tonne for the phosphate segment fell to a loss of $4 per tonne compared to a $67 profit a year ago, as the company intentionally cut production to deal with high costs and low supply of sulfur, which is a key raw material.
• Production cuts across Brazil: The company is idling its fertilizer production in Brazil because sulfur is currently too expensive and hard to find, which helped drive a $41 million operating loss for the Fertilizantes division compared to a $109 million profit last year.
• Potash remains a bright spot: The potash segment earned $195 million in operating profit, which is the money left after paying for the costs of running the business, holding steady against the $194 million it earned a year ago despite selling 300,000 fewer tonnes of the nutrient.
• Cost savings and lower spending: General business expenses fell to $132 million from $167 million a year ago, and management now expects full year capital spending on buildings and equipment to be $1.2 billion, which is a $50 million reduction from its previous plan.
• Projected volume recovery ahead: Management expects potash sales to rise to between 2.0 and 2.2 million tonnes next quarter, up from the 2.0 million tonnes sold this quarter, as the company anticipates better production rates and continued strong demand from farmers.

Our take: A difficult quarter that shows how much the business is struggling with high raw material costs. While potash is holding steady, the heavy losses in phosphates and the production shutdowns in Brazil are a significant drag. The move to cut spending and debt is the right path to protect the business until fertilizer markets improve.