Mosaic Gains on Strong Demand Amid Soft Fertilizer Pricing

The Mosaic Company MOS is gaining from healthy demand for phosphate and potash and actions to improve its cost structure amid headwinds from weaker fertilizer prices.
The company's shares are down 15.5% over a year compared with a 17.4% decline recorded by its industry.

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Mosaic, a Zacks Rank #3 (Hold) stock, is well-positioned to gain from the strong demand for phosphate and potash, aided by favorable agricultural conditions. Attractive farm economics and improved affordability are driving demand for fertilizers globally. Farmer economics remains attractive in most global growing regions on strong crop demand and affordable inputs.
Demand for grains and oilseeds remains high along with strong farm economics. Improved farmer affordability due to a pullback in prices of nutrients is also likely to continue to drive demand for fertilizers. Strong demand is expected to support the company's sales volumes.
MOS, on its first-quarter call, said that agricultural fundamentals are strong this year and farmers worldwide remain profitable notwithstanding the softening of corn and soybean prices. The expected transition from El Nino to La Nina could benefit regions like Southeast Asia, India and Brazil. Many growers in certain parts of the world, after years of reduced fertilizer use, are aiming to restore soil nutrients.
Moreover, the company is taking actions to reduce costs amid a still-challenging operating environment. Its actions to improve its operating cost structure through transformation plans are expected to boost profitability. Mosaic remains on track with its cost-reduction plan announced last year, which is expected to drive $150 million in run-rate cost reductions by the end of 2025.
Mosaic also remains committed to carrying out investments with high returns with moderate capital expenditures. It has completed the 800,000-ton MicroEssentials capacity conversions. The Esterhazy Hydrofloat project, which will add 400,000 tons in milling capacity, is expected to be completed by the middle of next year. The construction of a new blending and distribution center in Palmeirante, Brazil is also expected to be completed in 2025.
However, weaker fertilizer prices may weigh on the company's margins. Prices of phosphate and potash have retreated since the back half of 2022 from their peak levels attained in the first half riding on the impacts of the Russia-Ukraine war and disruptions due to the sanctions in Belarus. Lower selling prices hurt sales and margins across the company's Phosphate and Potash segments in the first quarter of 2024. Despite some recovery of late, weaker year-over-year fertilizer prices are expected to continue to weigh on the company's profitability in the second quarter.

The Mosaic Company Price and Consensus

The Mosaic Company price-consensus-chart | The Mosaic Company Quote

Stocks to Consider

Better-ranked stocks in the basic materials space include Carpenter Technology Corporation CRS, Axalta Coating Systems Ltd. AXTA and ATI Inc. ATI.
Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). CRS beat the Zacks Consensus Estimate in three of the last four quarters while matching it once, with the average earnings surprise being 15.1%. The company's shares have soared roughly 94% in the past year.
Axalta Coating Systems, carrying a Zacks Rank #1, has a projected earnings growth rate of 26.8% for the current year. In the past 60 days, the consensus estimate for AXTA's current-year earnings has been revised upward by 5.9%. The company's shares have gained roughly 6% in the past year.
ATI currently carries a Zacks Rank #1. ATI beat the Zacks Consensus Estimate in each of the last four quarters, with the average earnings surprise being 8.3%. The company's shares have rallied around 35% in the past year.

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