(Mosaic item updated to clarify analyst Charles Neivert's outlook on crop prices and the fertilizer industry, and to update stock prices.)
NEW YORK (
shares fell 4% Thursday afternoon after the fertilizer producer reported disappointing fiscal third-quarter results.
At least one analyst, however, downplayed the miss -- but suggested that more worrisome developments may lie on the horizon, not just for Mosaic but for the fertilizer industry as a whole.
In a note to clients Thursday, Charles Neivert of Dahlman Rose called Mosaic's miss a "timing issue," with a seasonal pickup forthcoming in the company's next period, which will benefit naturally from the Northern Hemisphere planting season.
"On the bearish side," Neivert wrote, "we see potential challenges for fertilizer producers by the second half of the calendar year." His rationale? "'The Runaway Bride' syndrome, i.e. a fear of commitment by dealers/distributors." That is, fertilizer buyers may now be shying away from making the big crop-nutrient purchases they had earlier claimed they would.
Furthermore, according to Neivert, bumper crop yields this year in corn and soybeans may result in weaker crop prices in 2011 -- never a good sign for fertilizer makers, since poorer farmers means a drop in demand for crop nutrients.
Neivert's opinion appeared to diverge from Mosaic's, but he later said in a brief interview with
that this isn't so. He noted that his concerns involve next year, not this year. Mosaic has not given guidance, qualitative or quantitative, on calender 2011.
Addressing the nearer term, Mosaic CEO Jim Prokopanko said in the company's earnings release that "early indications point toward a strong North American planting season."
Also, in its core potash business, Mosaic said: "North American dealers are increasingly willing to purchase potash in anticipation of spring planting.
As for its phosphate fertilizers, however, Mosaic was less sanguine. "Customers have met the rapid price increases for phosphates during the quarter with some caution," the company said, "and margin expansion may be constrained by higher raw material costs."
Neivert trimmed his fiscal 2010 and 2011 earnings forecasts. For the former, he now expects the company to post a profit of $2.03 a share, down from his previous target of $2.24. For the later, he's looking for $3.88 a share, down from an earlier estimate of $3.90.
Both projections are below the Wall Street consensus, which pegs Mosaic's fiscal 2010 and 2011 earnings at $2.16 and $4.02 a share, respectively.
After Wednesday's closing bell, Mosaic reported earnings of $222.6 million, or 50 cents a share. Analysts were expecting EPS of 61 cents, according to a Thomson Reuters survey of the sell side.
Compared with the year-ago period, when fertilizer prices had collapsed amid the recession, Mosaic's numbers looked impressive. In the 2009 fiscal third quarter, the company earned just $59 million, or 13 cents a share.
Revenue rose to $1.7 billion from $1.38 billion a year ago.
Shares of Mosaic, the first fertilizer company to report each earnings season, finished trading Thursday afternoon at $58.33, down $2.44, or 4%. Volume was heavy at nearly 11.1 million shares, more than double the daily average.
Other fertilizer stocks held up better Thursday. Shares of
Potash Corp. of Saskatchewan
ended the session down 1.5% at $117.51.
stock was basically flatt, off 0.1% to $70.55, while
declined 1.4% to $29.90.
-- Written by Scott Eden in New York
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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.