- Mosaic generated $438.4 million in cash flow from operations and prepaid $150 million of debt during the first quarter.
- The Company prepaid an additional $300 million at the beginning of the fiscal 2008 second quarter, bringing the total amount of debt prepayments since May 2007 to $700 million.
- The first quarter average diammonium phosphates (DAP) price was $407 per tonne, a $156 per tonne increase compared with a year ago and a $69 per tonne increase compared with the fourth quarter of fiscal 2007. (35% year over year price increase and even more amazing 20% sequential price increase, again I am surprised by the strength here and it bodes well for CF Industries (CF))
- Sales volume for the Potash segment was 2.1 million tonnes during the first quarter, a 24% increase compared with the prior year period.
- The average potash selling price was $160 per tonne, up $31 per tonne compared with a year ago and a $14 per tonne increase compared with the fourth quarter of fiscal 2007. (24% year over year and 10% sequential)
- Mosaic's gross margin for the fiscal 2008 first quarter was $521.8 million, or 26.0% of net sales, compared with $196.3 million, or 15.2% of net sales a year ago. (gross margin explosion)
- The increases in gross margin and operating earnings were primarily the result of higher selling prices for phosphates and potash and an increase in volumes in the Potash business.
- Net sales in the Phosphates business were $1.18 billion for the first quarter, a 50% increase compared to a year ago. The sales increase resulted from higher selling prices. The first quarter gross margin was $353.5 million, or 29.9% of net sales, compared with $109.2 million, or 13.8% of net sales, for the same period a year ago.
- The increase in gross margin was primarily due to the sharp increases in fertilizer prices partially offset by higher costs for ammonia and sulfur; a change in mark-to- market effect from derivatives; and higher mining and concentrates production costs.
- Sales volumes to North America nearly doubled as a result of strong year-on-year market recovery and Mosaic's plan to grow sales in this region. International sales volumes declined approximately 29%, due principally to the increased volume sold in North America. (looks like a lot of corn farmers really needed phosphates for their misguided ethanol)
- The Potash business' gross margin increased to $126.6 million in the first quarter, or 30.7% of net sales, compared with $69.4 million a year ago, or 23.9% of net sales.
- Gross margin and operating earnings increased as a result of the higher volumes and selling prices, partially offset by a change in mark-to-market effect from derivatives and additional costs this year to manage the saturated brine inflow at the Esterhazy potash mine.
- The Potash business' total sales volume of 2.1 million tonnes during the first quarter was 24% higher than last year's first quarter volumes. The large increase is the result of strong domestic and international demand this year compared to an unusually weak market a year ago when contracts with key customers in China and India were delayed.
- The Offshore segment's net sales totaled $497.5 million during the first quarter, an increase of 64% compared to the same period a year ago. This increase was mainly due to higher sales volumes and selling prices in Brazil, India and Argentina. Gross margin increased to $51.1 million in the first quarter, or 10.3% of net sales, compared to $13.3 million, or 4.4% of net sales, for the same period a year ago.
- Selling, general, and administrative (SG&A) expenses were $66.6 million in the first quarter, compared to $65.7 million for the same period a year ago. (talk about efficiencies of scale - all this new business and SGA barely budges! this means increases in revenue, in larger part, drop right to the bottom line)
- Industry inventories for North American producers of phosphates and potash continue to decline and supplies remain very tight. At the end of August, combined DAP and MAP inventories were at their lowest level for this period in over 15 years and potash inventories had declined 42% compared to levels one year ago.
- Mosaic's realized DAP price, FOB plant, for the second quarter of fiscal 2008 is expected to be similar to the first quarter's average of $407 per tonne. Mosaic's second quarter average realized potash price, FOB plant, is expected to increase by about $10 per tonne compared with the first quarter average of $160 per tonne.
- Sales volumes for the Phosphates business are anticipated to range from 8.6 to 9.1 million tonnes during fiscal 2008, while Potash sales volumes are anticipated to range from 8.5 to 9.0 million tonnes. Both of these are unchanged from prior guidance.
Takeaway: I see the guidance increase is not superlative, so perhaps this is why the muted response to a heck of a report. That said I think that muted response is a mistake; the North America phosphates business really surprised me.
I guess this is how it works folks - you pay your taxes to the Federal government - the Federal government takes your taxes and pays subsidies to corn growers who are already enjoying the best crop prices ever (but we need to subsidize them with our tax dollars) and the farmers are paying Mosaic whatever price they want since its all free money to them. So you can sit here and be peeved about our government or make it an investing thesis. We've been complaining about the oil subsidies for years during record crude oil and even that doesn't get reversed, so I guess as we enter an era of commodity prices up the wazoo, there is no level of prices that the government will take back subsidies - I mean after all who pays all the bills for campaigns in Washington. So in short hand: Your tax dollar --> pockets of Mosaic (skip all the middlemen)
Again, if phosphates are this strong, CF Industries (CF) which focused on phosphates and nitrogen should benefit as well. Agrium (AGU) is another play which has its hands in every part of the fertilizer business. Or if you want to keep it simple, I keep saying - just MOO.
Long Mosaic and CF Industries in fund; no personal positions
