Mosaic Co (NYSE:MOS) : Will the deals help?
Mosaic reported a diluted EPS of $1.47 in the second quarter of 2013. However, on a closer look; I observed a drop in the adjusted EPS by 25% year-over-year. The good news is that it was still $0.12 above the consensus estimate, entirely because of the lower-than-expected tax rate. As for the other parameters, the situation is shaky.
Sales fell by 16% because of the low volumes of phosphate, potash, and also the weak pricing of phosphate. The company’s guidance for the third quarter is also not very promising, either, predicting weakness due to that low pricing. However, its subsidiary Canpotex has entered into a deal with a Chinese company, Sinofert, to supply about 1 million tons of potash.
Mosaic Co (NYSE:MOS)’s volume exceeded analysts’ expectations, but low price per ton on a cost-and-freight basis neutralized the benefits. This indicates that the industry has a surplus products, and that currently, a buyer’s market prevails. Some relief is expected from the recent deal for Canpotex to supply India with potash. But the weakness in prices of phosphate and potash will also limit that deal’s upside.
I do see a ray of hope this coming May, when the restriction on shares held by Cargill is lifted. In 2004, Mosaic Co (NYSE:MOS) separated from Cargill. Two years back, Cargill sold most of its holdings in the company, but because of legal requirements, it still holds 129 million shares of Mosaic, with a restriction on public trading. In May 2013, the restriction on one-third of these shares will be lifted. Chances are, Mosaic could initiate a buyback plan to increase the return for its shareholders.
The Canpotex deals with China and India can help this company’s weak guidance, but the shakiness and feeble pricing in its market could be difficult to conquer. I’ll recommend a hold for the stock until the company issues any information on a possible buyback.
Conclusion
Rentech will face some downtime because of its biannual turnaround, resulting in weak production. But the acquisition of Agrifos seems a good investment for the company, expanding its reach and portfolio.
CVR has also finished the construction of its expanded facility. Its production is delayed, affecting its cash generation, but both factors will get back on track for the rest of 2013. Given the expansion plans, I am optimistic about both Rentech and Agrifos in the future.
As for Mosaic, the situation is still foggy. Weaker pricing and downtime explained its shaky performance in the past, and its future pricing doesn’t look very promising, either. The deal with India, China and the possible buyback give a ray of hope, but for now, I’ll give the stock a hold.
The article How These Farming Stocks Will Perform in 2013 originally appeared on Fool.com and is written by Madhu Dube.
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