Mosaic (MOS) Earnings - as Expected

After Mosaic's (MOS) warning in early December [Dec 2: Mosaic Warns, Stock Up] and Potash's (POT) a few weeks later [Dec 19: Potash Cuts Full Year Guidance; Intrepid Potash Falls off Cliff] yesterday's results were not at all unexpected. The open question is "what is priced into the stock".

Frankly right now HAL9000 is back to ruling the market and as goes oil, so goes everything that is 7 degrees of Kevin Bacon (or oil). It has been this way for the better part of a year now - individual subsectors of commodities mean very little - they all trade in one horde. Frankly it is frustrating. I don't know if this is a permanent change or temporary, but if it's temporary it has been this way for a very long time.

In October I broke out in detail Mosaic's earnings report [Oct 1: Market Hates Mosaic - Phosphates Not Up to Snuff] but the 'horde' trading in commodities has basically taken the winds out of my sails in terms of analyzing any commodity company's specific results - it really does not matter - just own 1 dry bulk shipper, 1 coal stock, and/or 1 fertilizer stock (or replace any of the previous with a copper stock, an iron ore stock, or an oil stock) and then just wait for oil or the Baltic Dry Index to move in the right direction and trade it. That is as "sophisticated" as it is nowadays. We own a few of these to have some exposure in these silly moves that have nothing to do with fundamentals - all 100-150 stocks in the commodity space should just be renamed "Oil and/or Baltic Dry Index Co.". Buy one, you buy them all.

Mosaic (MOS) focuses on phosphates and potash so here is some commentary from their earnings report - as I mentioned they had cut back production for this quarter but then guided it would only be a 1 quarter situation. I doubted that rose colored situation would come to fruition... and that was accurate as we read through the newest guidance. Again, at this point it is a moot point - this could be called DryBulkMosaic or MosaicOil for all that any of the following matter to HAL9000 and friends.

• The Company expects to reduce phosphate and potash production significantly during the remainder of fiscal 2009
• Results are expected to be weak at least through the fiscal third quarter (note: this is the company's second quarter since they have an atypical year end)
• "Toward the end of the quarter, however, worldwide crop nutrient sales activity dropped sharply, and it is expected to remain weak through at least the third quarter. Because of these conditions, we are reducing our production to manage excess inventories, reducing capital expenditures, and working to maintain financial strength and flexibility."
• Mosaic expects its operating cash flow to be negative at least through the third quarter as a result of the weak near-term outlook.

1. Potash prices continued to trend upward, but below expectations due to less spot sales.
   
2. Phosphate prices actually held in better than I expected, and in fact an improvement over last quarter but a stark warning in the earnings release The price momentum of the past several quarters reversed toward the end of the second quarter due to factors previously noted and significantly lower prices are expected in upcoming quarters.

I still like the agricultural area the best for the intermediate term (2-5 years) but if you read between the lines of what I wrote above - there simply is no reason to do any fundamental homework in this space until some time arrives where a coal stock is different from a fertilizer stock is different from an iron ore stock. I might finally jettison Mosaic after this "all commodity stocks need to double since oil is up 30% in a week" rally subsists - since owning 2 fertilizer stocks in this new era of no differentiation is 1 too many.

Unfortunately Obama does not heart fertilizer so we don't have that going for us either.

Long Mosaic, Potash in fund; no personal position