Mosaic MOS is set to release its second-quarter 2015 results before the bell on Aug 4.
In the last quarter, the fertilizer maker delivered a 6.67% negative earnings surprise. Mosaic has missed the Zacks Consensus Estimate in 3 of the trailing 4 quarters with an average miss of 3.34%. Let's see how things are shaping up for this announcement.
Factors to Consider
Mosaic, in Apr 2015, said that it sees healthy demand to continue in its phosphates business and expects to gain from its strategic actions. For the second quarter, the company expects sales volumes for the phosphates unit to be between 2.3 and 2.7 million tons. The segment’s gross margin for the quarter is expected to be roughly 20%
For the potash business, sales volumes have been forecast in the range of 2 to 2.4 million tons for the June quarter. Gross margin for the unit is expected to be in the high 30% range. Sales volumes for the international distribution unit are expected in the band of 1.4 to 1.7 million tons for the second quarter. Gross margin is expected to be in the range of $18 to $25 per ton for the quarter.
Mosaic should gain from its efforts to boost production capacity and acquisitions. The acquisition of CF Industries’ CF phosphate business has reinforced Mosaic’s production capacity of phosphate in Florida. In addition, the acquisition of Archer Daniels Midland Company’s fertilizer distribution business has expanded Mosaic’s annual distribution capability in South America’s growing agricultural markets.
However, Mosaic is facing a challenging business environment in agriculture and there is a continuous negative sentiment among agriculture investors that can create uncertainty through 2015. Weak commodity pricing coupled with anticipated reduction in planted acreage may weigh on demand for nutrients.
Mosaic is exposed to a soft pricing environment and volatility in costs of key raw materials. The company is seeing depressed pricing for grain and oilseed. Agricultural commodity prices in general remain weak. These factors may weigh on the company’s June quarter results.
Earnings Whispers
Our proven model shows that Mosaic is likely to miss earnings estimates this quarter. This is because the stock has a negative Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #4 (Sell).
Negative Zacks ESP: The Earnings ESP for Mosaic is -1.10% – the difference between the Most Accurate estimate of 90 cents and the Zacks Consensus Estimate of 91 cents.
Zacks Rank #4 (Sell): Mosaic’s Zacks Rank #4, when combined with a negative ESP, indicates an earnings miss. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Albemarle Corporation ALB has an earnings ESP of +2.44% and holds a Zacks Rank #2 (Buy).
Axalta Coating Systems Ltd. AXTA has an earnings ESP of +3.33% and carries a Zacks Rank #3 (Hold).
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