3 Key Takeaways From Mosaic Company’s Q1 Earnings Report

Image source: Mosaic Company

Mosaic released its first-quarter earnings last week, reporting 19% and

13% year-over-year drops in its revenue and net income, respectively.

Beyond those numbers, here are three key takeaways from Mosaic’s earning report that you must know.

Fertilizer markets are in bad shape1

Numbers to note

NutrientSales volumes (in million tonnes)

Actual 2015 2016 previous projection

2016 revised projection

Phosphate 9.4 9-10 9-9.75

Potash 7.9 7.5-8.5 7.5-8

While Mosaic doesn’t give out full-year revenue or profit guidance, it lowered its sales volumes estimates in Q1.

Data source: Company financials

Why the lower outlookChina: No contracts for the year from the largest

potash consuming nation yet.India: Lower subsidies, drought conditions, and

unfavorable exchange rates hurting demand.Brazil: Weak demand due to economic turmoil. North America: Slow start to the spring planting

season, supply glut.The four markets account for nearly 70% of the

world’s total fertilizer consumption.

Costs are trending

lower2

Tight grip over expenses

Numbers to noteMosaic lowered its selling, general, and

administrative expenses by 10% year over year to $90 million in Q1.

Mosaic also improved its full-year SG&A expenses guidance to $340 million-$360 million from $350 million-$370 million.

Why it matters With margins under pressure, lower costs should help

offset some of the weakness in sales going forward.

Cash flows under

pressure? 3

Numbers to note

Mosaic generated only $30 million and $338 million in free cash flow during Q1 and the past twelve months, respectively.

MOS lowered its 2016 capital expenditures guidance by $100 million-$200 million in Q1. However, that may not boost FCF if profits decline substantially.

Key point to noteDividends paid > FCF by a gaping margin

Despite deteriorating market conditions, Mosaic remains free cash flow positive and is doing a

good job curtailing expenses. These factors should help Mosaic get back on the growth track once

end markets rebound.

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