Bot:
POT at 135.25 on the break above 134 on nice volume.
MOS at 90.65. Couldn’t wait until the close. It was $3 above my breakout point of 87.63.
I will continue to trade these with an upside bias. The AGU earnings should beat estimates. They report before market on 02/13. So that is another Ag play. The Street is expecting AGU to report $0.87, up from $0.25 last year. My guess is that EPS should come in well over $1.00, judging from the POT and MOS results recently. POT and MOS may trade up into the AGU report.
BWLD at 24.72 due to a "Costanza moment". The stock is confirming a "low pole reversal" on the P&F charts.
Thursday, January 31, 2008
Monday, January 28, 2008
Trading Rules
Here are my ten trading rules:
1.) Don’t lose money
2.) Pick a proven strategy and stick with it.
3.) Focus on preservation of capital, especially when the market is being “difficult”.
4.) Cut losses quickly. Honor your stops.
5.) Read rule #1 at the beginning and end of each day.
6.) Focus on capital appreciation when the market is trending.
7.) Don’t have more that 10% of your assets invested into any one stock, unless you are an insider intimately familiar with the company.
8.) If a stock is dropping and you are looking to go long, or if it is rising and you are looking to short, let the chart action confirm your thinking before you pull the trigger.
9.) Use position sizing when buying long or shorting. If your hard dollar stop loss is $1,000, and your stop price is $2.50 below (above on shorting), you should buy (or short) no more than 400 shares.
10.) Don’t agonize about “coulda, woulda shoulda”.
1.) Don’t lose money
2.) Pick a proven strategy and stick with it.
3.) Focus on preservation of capital, especially when the market is being “difficult”.
4.) Cut losses quickly. Honor your stops.
5.) Read rule #1 at the beginning and end of each day.
6.) Focus on capital appreciation when the market is trending.
7.) Don’t have more that 10% of your assets invested into any one stock, unless you are an insider intimately familiar with the company.
8.) If a stock is dropping and you are looking to go long, or if it is rising and you are looking to short, let the chart action confirm your thinking before you pull the trigger.
9.) Use position sizing when buying long or shorting. If your hard dollar stop loss is $1,000, and your stop price is $2.50 below (above on shorting), you should buy (or short) no more than 400 shares.
10.) Don’t agonize about “coulda, woulda shoulda”.
Friday, January 25, 2008
Potash Corp. (POT)
Chinese potash price negotiations ware expected to conclude by the end of March or the beginning of April, in contrast to the 2006 negotiations that dragged on like "water torture".
Potash buyer ex-China are not holding off purchases, waiting for the outcome of the price negotiations. It's interesting that Russian producers of potash are not shipping product to China at this time.
The comments from company management were that they can expect substantial price increases in China this year. Street EPS estimates will be coming up.
POT reported Q4 net of $1.16, up from $0.58. Street estimates averaged about $0.98. Revenue increased for the quarter to $1.43 B from $1.02 B.
Management gave guidance of $1.30 to $1.60 for Q1.
Continuing to buy shares in both POT and MOS. Also have some shares of TNH, to round out my positions in producers of the three major classes of fertilizer.
Potash buyer ex-China are not holding off purchases, waiting for the outcome of the price negotiations. It's interesting that Russian producers of potash are not shipping product to China at this time.
The comments from company management were that they can expect substantial price increases in China this year. Street EPS estimates will be coming up.
POT reported Q4 net of $1.16, up from $0.58. Street estimates averaged about $0.98. Revenue increased for the quarter to $1.43 B from $1.02 B.
Management gave guidance of $1.30 to $1.60 for Q1.
Continuing to buy shares in both POT and MOS. Also have some shares of TNH, to round out my positions in producers of the three major classes of fertilizer.
How to Trade the "Recession"
Goldman and CSFB are calling for negative GDP growth in Q2 and Q3. It is no wonder that the Fed is planning to cut rates “aggressively”. I realize that some of you have your own measures and indicators of a recession, such as how many plasma TVs were bought from Best Buy last quarter, or the aggregate tonnage of chicken wings consumed at BWLD stores during the college football season. But let’s just assume for a moment that the “asshats” at Goldman know what they are talking about.
How would you trade with this information?
First of all, we must make a distinction between “the market” and “a recession”. The two are linked, but not synchronized. By that I mean, they are not concurrent. The market is a forecaster of the economy. Sort of like The Fly’s time machine, only with solid gold wheels and loaded with ridiculously more coin. That’s why “the market” is categorized as a “leading economic indicator”. Leading economic indicators are indicators which change before the economy changes. Stock market returns are a leading indicator, because the stock market usually begins to decline before the economy declines and it improves before the economy begins to pull out of a recession. Leading economic indicators are the most important type for investors as they help predict what the economy will be like in the future. Ok, enough of Econ 101. You get the point.
So, let’s get back to the original premise. If we have negative GDP growth for Q2 and Q3 of this year, viz. “a recession”, how would you want to trade, based on that assumption?
Convention says that the market forecasts six to nine months in advance. If you subscribe to that, then you would look for a bottoming process in the market sometime between now and March. The low zone of 11,600 - 11,650 on the DJIA now appears to represent an intermediate term support and a stop loss point for the market. Since it was tested the past two days this week, it appears that it may hold for a while. Keep in mind the time factor here. If the market doesn’t make any kind of decisive move up, or drifts sideways here in the next 1 -2 weeks, I think the chances for another downturn increase.
We have dropped about 2,600 points from the October peak on the DJIA, so a 50% retracement puts us back in the 12,800 - 13,000 levels. There is heavy overhead resistance there in terms of previous price and volume activity. This may be where we are headed before the market may turn down again. Financials, retailers and homies should be good for a trade here, especially with Chopper Ben and crew determined to cut rates aggressively. I am now hearing from my bond trading sources that Fed Funds are going below 2.00% by mid-summer. Maybe BS, maybe not.
However, I would still look for a leg down again to test 11,600. Once we see a double bottom there, I would start to look at buying healthcare and tech stocks. I still like the Ag stocks here, especially MOS and POT, since I think they are fairly recession-proof and will continue to trend up regardless of the timing of a “recession”.
As always, take this with a grain of salt and do your DD.
How would you trade with this information?
First of all, we must make a distinction between “the market” and “a recession”. The two are linked, but not synchronized. By that I mean, they are not concurrent. The market is a forecaster of the economy. Sort of like The Fly’s time machine, only with solid gold wheels and loaded with ridiculously more coin. That’s why “the market” is categorized as a “leading economic indicator”. Leading economic indicators are indicators which change before the economy changes. Stock market returns are a leading indicator, because the stock market usually begins to decline before the economy declines and it improves before the economy begins to pull out of a recession. Leading economic indicators are the most important type for investors as they help predict what the economy will be like in the future. Ok, enough of Econ 101. You get the point.
So, let’s get back to the original premise. If we have negative GDP growth for Q2 and Q3 of this year, viz. “a recession”, how would you want to trade, based on that assumption?
Convention says that the market forecasts six to nine months in advance. If you subscribe to that, then you would look for a bottoming process in the market sometime between now and March. The low zone of 11,600 - 11,650 on the DJIA now appears to represent an intermediate term support and a stop loss point for the market. Since it was tested the past two days this week, it appears that it may hold for a while. Keep in mind the time factor here. If the market doesn’t make any kind of decisive move up, or drifts sideways here in the next 1 -2 weeks, I think the chances for another downturn increase.
We have dropped about 2,600 points from the October peak on the DJIA, so a 50% retracement puts us back in the 12,800 - 13,000 levels. There is heavy overhead resistance there in terms of previous price and volume activity. This may be where we are headed before the market may turn down again. Financials, retailers and homies should be good for a trade here, especially with Chopper Ben and crew determined to cut rates aggressively. I am now hearing from my bond trading sources that Fed Funds are going below 2.00% by mid-summer. Maybe BS, maybe not.
However, I would still look for a leg down again to test 11,600. Once we see a double bottom there, I would start to look at buying healthcare and tech stocks. I still like the Ag stocks here, especially MOS and POT, since I think they are fairly recession-proof and will continue to trend up regardless of the timing of a “recession”.
As always, take this with a grain of salt and do your DD.
Thursday, January 10, 2008
Mosaic (MOS)
Here are the posts I made the past two days at www.iBankCoin.com:
01/09/08 1:37pm
Goldman has just declared MOS, “the best opportunity in chemicals”, and upgraded it to a buy. It also cited that investors should, “take advantage of any price weakness stemming from concerns over rising sulfur costs and transitory FX impact”.
Shorticus, be prepared to take it up the shorts.
——————————————–
I feel vindicated by my buys earlier today from $81-82 .
——————————————–
Update: When asked about current pricing, MOS management indicated that yesterday they contracted a shipment of phosphate (”DAP”) at $685/tonne F.O.B. Tampa, FL headed to Brazil. This is a significant mark up from the $417/tonne average for Nov Q2 prices reported earlier today. Apparently, the higher costs for sulfur, a major component in diammonium phosphate (DAP) production, are being passed on and absorbed. Definitely an indicator of strong demand. Strong demand for phosphate and potash will persist until additional capacity in the industry comes online in 2 - 3 years.
01/09/08 11:47 am
I listened to the conference call this morning, which was significantly positive. One of the risks I see going forward, though, is the availability of and the increased costs for sulphur, a prime ingredient in the production of phosphate. Analysts were focusing on this particular issue. Management indicated that they own sulphur reserves in FL, enough to provide supply to meet capacity. The current shortages in sulphur are temporarily due to unusual outages and shutdowns of operations at supplier processing plants. They believe this situation will correct itself in the near future as plants come back online.
Management gave upside guidance with conviction.
As I said in a prior post, I think the fertilizer business is basically recession proof, due to global food shortages, not only because of the weather, but also because of global population growth and the growth of emerging economies in Asia. The increase in the prices of ag commodities, specifically, corn, soybeans and wheat, have given farmers a greater incentive to plant more acreage and boost yields viz. fertilizer. High crop yields coupled with higher prices is covering the increase in costs for fertilizer. Farmers are experiencing a good return for their fertilizer investment.
MOS derives about 66% of its revenues from international customers. Management cited strong and steady demand long term from the overseas markets.
In addition, China is short on supplies of phosphate because of strong demand for food. MOS is the largest producer of phosphate in the world.
I bought more at $81 - $82 earlier today.
For those who care to read it, here are the specific details of the press release: (I apologize for the lengthy post)
MOS reported record results, including net earnings of $394.0 million, or $0.89 per diluted share , for the second quarter ended November 30, 2007, an increase of $328.1 million compared to the same period a year ago. These second quarter results included the following:
Cash flow from operations of $542.5 million and the prepayment of $450 million of long-term debt.
An average diammonium phosphate (DAP) price of $417 per tonne, a $174 per tonne increase compared with a year ago and a $10 per tonne increase compared with the first quarter of fiscal 2008.
An average potash selling price of $171 per tonne, up $29 per tonne from a year ago and an $11 per tonne increase from the first quarter of fiscal 2008.
A foreign currency transaction loss of $52.4 million, or $0.09 per share, compared to a gain of $19.8 million, or $0.03 per share, a year ago.
A tax benefit of $35.9 million, or $0.08 per share, relating to certain tax matters specific to the second quarter.
These results compare with net earnings of $65.9 million, or $0.15 per share, for the same period a year ago. Net sales in the second quarter of fiscal 2008 were $2.2 billion, an increase of $673.4 million, or 44% compared with the same period a year ago.
Mosaic’s gross margin for the fiscal 2008 second quarter was $623.1 million, or 28.4% of net sales, compared with $160.5 million, or 10.5% of net sales a year ago. Second quarter operating earnings were $529.6 million, compared with $90.7 million for the second quarter in fiscal 2007. The increases in gross margin and operating earnings were primarily the result of higher selling prices for phosphates and potash and realizing the benefit of favorable industry conditions in the Offshore segment.
“Our second quarter results demonstrate that Mosaic is leveraging the robust agricultural economy and delivering record results,” stated Jim Prokopanko, Mosaic’s President and Chief Executive Officer. “Our unprecedented operating cash flows have allowed us to prepay $1 billion of long-term debt over an eight-month period and we are on track to deliver strong results in fiscal 2008 and beyond,” Prokopanko added.
Phosphates
Net sales in the Phosphates segment were $1.2 billion for the second quarter, a 61% increase compared to a year ago. The second quarter gross margin was $397.6 million, or 32.3% of net sales, compared with $35.9 million, or 4.7% of net sales, for the same period a year ago. Operating earnings were $346.8 million compared with $5.1 million for the same period last year. The sales, gross margin and operating earnings increases were primarily due to the significant increase in selling prices partially offset by higher costs for sulfur and ammonia.
The average second quarter DAP price, FOB plant, was $417 per tonne, which is a $174 per tonne increase compared with a year ago and a $10 per tonne increase compared with the first quarter of fiscal 2008. Fertilizer and feed sales in the Phosphates segment were 2.3 million tonnes for the second quarter, comparable with volumes of a year ago. Sales volumes to North American customers increased 70% during the second quarter as this region exhibited strong demand recovery and growth from year ago levels. Sales volumes to international customers declined approximately 25%, principally due to the increased volumes sold in North America.
Potash
Net sales in the Potash segment totaled $431.6 million for the second quarter, an increase of 23% compared with a year ago. The Potash business’ gross margin increased to $175.2 million in the second quarter, or 40.6% of net sales, compared with $88.4 million a year ago, or 25.1% of net sales. Operating earnings were $161.2 million during the second quarter, an increase of $83.0 million, or 106%, compared to the same period last year. Sales, gross margin and operating earnings increased primarily as a result of the higher selling prices, partially offset by additional costs this year to manage the brine inflow at the Esterhazy potash mine. Brine inflow expenses were $12.8 million in the second quarter of fiscal 2008, compared with $6.4 million a year ago.
The average realized potash price, FOB plant, increased to $171 per tonne in the second quarter, up $29 per tonne compared with a year ago and $11 per tonne compared with the first quarter of fiscal 2008. The Potash segment’s total sales volumes of 2.0 million tonnes during the second quarter were 3% higher than last year’s second quarter volumes.
Offshore
The Offshore segment’s net sales totaled $644.3 million during the second quarter, an increase of 29% compared to the same period a year ago. This increase was mainly due to higher selling prices partially offset by a decrease in sales volumes. Gross margin increased to $50.1 million in the second quarter, or 7.8% of net sales, compared to $23.8 million, or 4.8% of net sales, for the same period a year ago. Offshore operating earnings of $25.7 million in the second quarter of fiscal 2008 benefited from higher selling prices and lower cost inventory positions taken in prior quarters, primarily in Brazil and Argentina.
Other
Selling, general, and administrative expenses (”SG&A”) were $79.8 million in the second quarter, compared to $70.4 million for the same period a year ago. The increase was primarily due to higher incentive compensation accruals, post-implementation and depreciation costs related to the enterprise resource planning system implemented last fiscal year and other consulting fees.
A foreign currency transaction loss of $52.4 million was recorded for the second quarter compared to a gain of $19.8 million for the same period a year ago. The loss in fiscal 2008 was mainly the result of a stronger Canadian dollar on significant U.S. dollar-denominated intercompany receivables, intercompany loans and cash held by Mosaic’s Canadian subsidiaries. This is primarily a non-cash charge.
A $10.3 million restructuring charge this quarter was due to a change in estimate related to our asset retirement obligations on certain closed Phosphate facilities, from our May 2006 restructuring.
Income tax expense was $100.9 million resulting in an effective tax rate of 22.3%, including the positive impact of certain tax benefits which are specific to the quarter totaling $35.9 million. The tax rate was favorably impacted by the substantial increase in earnings in the Phosphates business.
Total equity earnings in non-consolidated subsidiaries were $45.5 million for the second quarter, compared with $15.4 million for the same period a year ago. Mosaic’s equity earnings in Fosfertil S.A. were $18.8 million for the second quarter compared to $5.7 million for the same period last year. Fosfertil continues to benefit from strong Brazilian agricultural market fundamentals. Mosaic’s equity earnings in Saskferco Products Inc. increased to $24.0 million from $9.3 million, primarily the result of higher nitrogen selling prices, partially offset by mark-to-market losses on natural gas derivatives.
Mosaic ended the second quarter with $642.2 million in cash and cash equivalents. Cash flow from operations was $980.9 million for the six months ended November 30, 2007, an increase of $680.5 million from a year ago. Mosaic’s total debt as of November 30, 2007 was $1.7 billion, resulting in a debt-to-capital ratio of 25%, down from 41% a year ago. On December 31, 2007, Mosaic prepaid an additional $150 million of long-term debt, further reducing its debt-to-capital ratio.
Year-to-Date
For the first half ended November 30, 2007, net sales were $4.2 billion, an increase of 49% compared with last year. Year-to-date operating earnings were $979.2 million compared with $222.3 million for the same period a year ago. Year-to-date SG&A expenses were $146.4 million compared with $136.1 million for the same period in fiscal 2007. A foreign currency transaction loss of $71.8 million was recorded for the first half of fiscal 2008, compared to a gain of $27.1 million for the same period a year ago. Equity earnings in non-consolidated entities increased year to date to $57.3 million from $19.3 million last year.
Outlook
Phosphate and potash fundamentals remain exceptionally strong. Phosphate and potash prices increased to even higher record levels at the end of 2007 and this momentum is anticipated to continue into 2008. Further increases in grain and oilseed prices during the last several weeks have bolstered farm economics worldwide and solidify strong nutrient demand prospects for 2008.
In the case of potash, supply continues to struggle to keep up with accelerating demand as evidenced by the extremely low stocks held by North American producers at the end of the fall season. This situation likely will persist until additional capacity comes on line during the next few years. Market prices are continuing to increase significantly for shipments into all major markets during the first half of 2008.
The phosphate situation is similar to that of potash. U.S. producers reported holding the lowest inventories of DAP/MAP in modern history at the end of the North American fall season. More importantly, large increases in market prices for phosphate rock and phosphoric acid in 2008 will dramatically boost costs for non-integrated producers who likely account for almost one-third of global phosphate production. These increases, plus substantially higher sulfur costs underpin higher phosphate selling prices. Finally, phosphate exports from China likely will drop this year due to government policies to make more product available for local farmers.
“The market environment remains extraordinary. Agricultural commodity prices continue to increase to unprecedented levels, resulting in robust farm economics and nutrient demand prospects,” said Jim Prokopanko. “Mosaic’s leadership position in Phosphates, combined with our exceptional Potash business and our focus on effective operational execution, offers a unique value proposition for crop nutrition customers and investors.”
Mosaic’s realized DAP price, FOB plant, for the third quarter of fiscal 2008 is estimated to be $470 to $480 per tonne. DAP costs, however, are also likely to be higher due to increasing sulfur costs. Mosaic’s third quarter average realized potash price, FOB plant, is estimated to be $190 to $200 per tonne. Third quarter sales volumes for the Phosphates and Offshore segments are expected to be below second quarter levels in line with typical seasonal patterns.
For the fiscal year, sales volumes for the Phosphates business are anticipated to range from 8.6 to 9.1 million tonnes, while Potash sales volumes are anticipated to range from 8.5 to 9.0 million tonnes. Both of these are unchanged from prior guidance.
About The Mosaic Company
The Mosaic Company is one of the world’s leading producers and marketers of concentrated phosphates and potash crop nutrients. For the global agriculture industry, Mosaic is a single source of phosphates, potash, nitrogen fertilizers and feed ingredients. More information on the company is available at http://www.mosaicco.com.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results. Such statements are based upon the current beliefs and expectations of The Mosaic Company’s management and are subject to significant risks and uncertainties. These risks and uncertainties include but are not limited to the predictability of fertilizer, raw material and energy markets subject to competitive market pressures; changes in foreign currency and exchange rates; international trade risks including, but not limited to, changes in policy by foreign governments; changes in environmental and other governmental regulation; adverse weather conditions affecting operations in central Florida or the Gulf Coast of the United States, including potential hurricanes or excess rainfall; actual costs of closure of the South Pierce, Green Bay and Fort Green facilities differing from management’s current estimates; accidents involving our operations, including brine inflows at our Esterhazy, Saskatchewan potash mine as well as potential mine fires, floods, explosions or releases of hazardous or volatile chemicals, as well as other risks and uncertainties reported from time to time in The Mosaic Company’s reports filed with the Securities and Exchange Commission. Actual results may differ from those set forth in the forward-looking statements.
01/09/08 7:27 am
Mosaic reported Q2 earnings of $0.89 per diluted share, $0.16 better than the First Call consensus of $0.73; revenues rose 44.2% year/year to $2.2 bln vs the $2.17 bln consensus. Company reported gross margins 28.4 vs the 25.9 Street expectation. The stock is up over $4 in pre-market.
As I said yesterday, with all the bearishness, even though the MOS earnings report is good, it may still go down today. It is a buy under $90. If you don’t buy it now, keep it on the radar.
01/08/08 8:33 am
This is a stock that you can own for the long haul. I had highlighted MOS in a previous post in early December:
“Regardless of the U.S. economic trends, fertilizer consumption and operating costs should remain fairly constant. But, a modest decline in pricing power is possible if the economy creates a situation where farmers become more cost sensitive. Presently, they are driving brand new pickups and drinking rich man’s whiskey. If that is your concern, take a look at Mosaic (MOS), which has lower exposure to U.S. and Canadian demand. MOS gets only about 40% of its revenue from North America, while Potash (POT), Agrium (AGU) and CF Industries (CF) get roughly 70%, 85% and 90%, respectively. Know this: a U.S. recession is not a substantial risk to fertilizer stocks. However, a reversal in economic growth in China and India is. But even then, the risk of a sharp drop in consumption is limited because grain supply worldwide is so low and shifts in the workforce of those countries makes changes in demand less likely to slacken. In summary, buy that shit.”
On December 4th, the stock was at $71. Is it too late to get in? No. I actually think it may do even better in 2008. Before you call me an asshat, let me give you my take on the stock.
The stock is still cheap. Most investors have never heard of it, even though it’s a huge operation. Institutional ownership is only 26%. It’s American, so it probably won’t be subject to the speculation of a Chinese lotto stock in the overpriced Asian markets. And it is part of a massive, multi-year, possibly multi-decade shift—to more expensive food.
Unbeknownst to the Fly, I “borrowed” his time machine for a joy ride into the future. In 2009, we will look back on 2008, and remember it as the year that food became expensive. Many people will go hungry. This will be one of the big headlines this year. Consider this: Eggs are up 38%, milk is up 30%. Even chocolate is up 6%. Add in the cost of gas and the falling value of homes and people might think twice about buying that iPhone.
In Asia, the effect will be more pronounced. One hundred million newbie middle class-ers in China have developed an appetite for steak and eggs, sodas sweetened with corn syrup, and cream and butter. In essence, they want to gain weight and increase their cholesterol levels. Three billion more Asians need basic staples—but grain (wheat especially, but also rice) prices have soared to 17-year highs. A drought in Australia and poor wheat harvests in Russia make matters even worse.
And finally, ethanol production has pushed up corn and soy bean prices to lofty levels this year.
Fly’s “Milk the Farmer”, is just another way of saying that we are in a new “agricultural super-cycle”. For example, a cross section of agriculture stocks, the DXAG, was up 66% in 2007, after being asleep since 1980.
In January last year, MOS announced $0.15 cents a share earnings, in line with estimates. The stock disappointed in the March report with $0.05 cents, but then reported $0.41 and $0.67 in July and September, respectively.
The company reports tomorrow, January 9 at 10:00 am ET. The Street consensus is $0.72. I think there will be an upside surprise.
If you want to listen to the conference call, the number is 888-680-0892. The passcode is 44890826.
I’m continuing to add to my position while MOS is still under $100
01/09/08 1:37pm
Goldman has just declared MOS, “the best opportunity in chemicals”, and upgraded it to a buy. It also cited that investors should, “take advantage of any price weakness stemming from concerns over rising sulfur costs and transitory FX impact”.
Shorticus, be prepared to take it up the shorts.
——————————————–
I feel vindicated by my buys earlier today from $81-82 .
——————————————–
Update: When asked about current pricing, MOS management indicated that yesterday they contracted a shipment of phosphate (”DAP”) at $685/tonne F.O.B. Tampa, FL headed to Brazil. This is a significant mark up from the $417/tonne average for Nov Q2 prices reported earlier today. Apparently, the higher costs for sulfur, a major component in diammonium phosphate (DAP) production, are being passed on and absorbed. Definitely an indicator of strong demand. Strong demand for phosphate and potash will persist until additional capacity in the industry comes online in 2 - 3 years.
01/09/08 11:47 am
I listened to the conference call this morning, which was significantly positive. One of the risks I see going forward, though, is the availability of and the increased costs for sulphur, a prime ingredient in the production of phosphate. Analysts were focusing on this particular issue. Management indicated that they own sulphur reserves in FL, enough to provide supply to meet capacity. The current shortages in sulphur are temporarily due to unusual outages and shutdowns of operations at supplier processing plants. They believe this situation will correct itself in the near future as plants come back online.
Management gave upside guidance with conviction.
As I said in a prior post, I think the fertilizer business is basically recession proof, due to global food shortages, not only because of the weather, but also because of global population growth and the growth of emerging economies in Asia. The increase in the prices of ag commodities, specifically, corn, soybeans and wheat, have given farmers a greater incentive to plant more acreage and boost yields viz. fertilizer. High crop yields coupled with higher prices is covering the increase in costs for fertilizer. Farmers are experiencing a good return for their fertilizer investment.
MOS derives about 66% of its revenues from international customers. Management cited strong and steady demand long term from the overseas markets.
In addition, China is short on supplies of phosphate because of strong demand for food. MOS is the largest producer of phosphate in the world.
I bought more at $81 - $82 earlier today.
For those who care to read it, here are the specific details of the press release: (I apologize for the lengthy post)
MOS reported record results, including net earnings of $394.0 million, or $0.89 per diluted share , for the second quarter ended November 30, 2007, an increase of $328.1 million compared to the same period a year ago. These second quarter results included the following:
Cash flow from operations of $542.5 million and the prepayment of $450 million of long-term debt.
An average diammonium phosphate (DAP) price of $417 per tonne, a $174 per tonne increase compared with a year ago and a $10 per tonne increase compared with the first quarter of fiscal 2008.
An average potash selling price of $171 per tonne, up $29 per tonne from a year ago and an $11 per tonne increase from the first quarter of fiscal 2008.
A foreign currency transaction loss of $52.4 million, or $0.09 per share, compared to a gain of $19.8 million, or $0.03 per share, a year ago.
A tax benefit of $35.9 million, or $0.08 per share, relating to certain tax matters specific to the second quarter.
These results compare with net earnings of $65.9 million, or $0.15 per share, for the same period a year ago. Net sales in the second quarter of fiscal 2008 were $2.2 billion, an increase of $673.4 million, or 44% compared with the same period a year ago.
Mosaic’s gross margin for the fiscal 2008 second quarter was $623.1 million, or 28.4% of net sales, compared with $160.5 million, or 10.5% of net sales a year ago. Second quarter operating earnings were $529.6 million, compared with $90.7 million for the second quarter in fiscal 2007. The increases in gross margin and operating earnings were primarily the result of higher selling prices for phosphates and potash and realizing the benefit of favorable industry conditions in the Offshore segment.
“Our second quarter results demonstrate that Mosaic is leveraging the robust agricultural economy and delivering record results,” stated Jim Prokopanko, Mosaic’s President and Chief Executive Officer. “Our unprecedented operating cash flows have allowed us to prepay $1 billion of long-term debt over an eight-month period and we are on track to deliver strong results in fiscal 2008 and beyond,” Prokopanko added.
Phosphates
Net sales in the Phosphates segment were $1.2 billion for the second quarter, a 61% increase compared to a year ago. The second quarter gross margin was $397.6 million, or 32.3% of net sales, compared with $35.9 million, or 4.7% of net sales, for the same period a year ago. Operating earnings were $346.8 million compared with $5.1 million for the same period last year. The sales, gross margin and operating earnings increases were primarily due to the significant increase in selling prices partially offset by higher costs for sulfur and ammonia.
The average second quarter DAP price, FOB plant, was $417 per tonne, which is a $174 per tonne increase compared with a year ago and a $10 per tonne increase compared with the first quarter of fiscal 2008. Fertilizer and feed sales in the Phosphates segment were 2.3 million tonnes for the second quarter, comparable with volumes of a year ago. Sales volumes to North American customers increased 70% during the second quarter as this region exhibited strong demand recovery and growth from year ago levels. Sales volumes to international customers declined approximately 25%, principally due to the increased volumes sold in North America.
Potash
Net sales in the Potash segment totaled $431.6 million for the second quarter, an increase of 23% compared with a year ago. The Potash business’ gross margin increased to $175.2 million in the second quarter, or 40.6% of net sales, compared with $88.4 million a year ago, or 25.1% of net sales. Operating earnings were $161.2 million during the second quarter, an increase of $83.0 million, or 106%, compared to the same period last year. Sales, gross margin and operating earnings increased primarily as a result of the higher selling prices, partially offset by additional costs this year to manage the brine inflow at the Esterhazy potash mine. Brine inflow expenses were $12.8 million in the second quarter of fiscal 2008, compared with $6.4 million a year ago.
The average realized potash price, FOB plant, increased to $171 per tonne in the second quarter, up $29 per tonne compared with a year ago and $11 per tonne compared with the first quarter of fiscal 2008. The Potash segment’s total sales volumes of 2.0 million tonnes during the second quarter were 3% higher than last year’s second quarter volumes.
Offshore
The Offshore segment’s net sales totaled $644.3 million during the second quarter, an increase of 29% compared to the same period a year ago. This increase was mainly due to higher selling prices partially offset by a decrease in sales volumes. Gross margin increased to $50.1 million in the second quarter, or 7.8% of net sales, compared to $23.8 million, or 4.8% of net sales, for the same period a year ago. Offshore operating earnings of $25.7 million in the second quarter of fiscal 2008 benefited from higher selling prices and lower cost inventory positions taken in prior quarters, primarily in Brazil and Argentina.
Other
Selling, general, and administrative expenses (”SG&A”) were $79.8 million in the second quarter, compared to $70.4 million for the same period a year ago. The increase was primarily due to higher incentive compensation accruals, post-implementation and depreciation costs related to the enterprise resource planning system implemented last fiscal year and other consulting fees.
A foreign currency transaction loss of $52.4 million was recorded for the second quarter compared to a gain of $19.8 million for the same period a year ago. The loss in fiscal 2008 was mainly the result of a stronger Canadian dollar on significant U.S. dollar-denominated intercompany receivables, intercompany loans and cash held by Mosaic’s Canadian subsidiaries. This is primarily a non-cash charge.
A $10.3 million restructuring charge this quarter was due to a change in estimate related to our asset retirement obligations on certain closed Phosphate facilities, from our May 2006 restructuring.
Income tax expense was $100.9 million resulting in an effective tax rate of 22.3%, including the positive impact of certain tax benefits which are specific to the quarter totaling $35.9 million. The tax rate was favorably impacted by the substantial increase in earnings in the Phosphates business.
Total equity earnings in non-consolidated subsidiaries were $45.5 million for the second quarter, compared with $15.4 million for the same period a year ago. Mosaic’s equity earnings in Fosfertil S.A. were $18.8 million for the second quarter compared to $5.7 million for the same period last year. Fosfertil continues to benefit from strong Brazilian agricultural market fundamentals. Mosaic’s equity earnings in Saskferco Products Inc. increased to $24.0 million from $9.3 million, primarily the result of higher nitrogen selling prices, partially offset by mark-to-market losses on natural gas derivatives.
Mosaic ended the second quarter with $642.2 million in cash and cash equivalents. Cash flow from operations was $980.9 million for the six months ended November 30, 2007, an increase of $680.5 million from a year ago. Mosaic’s total debt as of November 30, 2007 was $1.7 billion, resulting in a debt-to-capital ratio of 25%, down from 41% a year ago. On December 31, 2007, Mosaic prepaid an additional $150 million of long-term debt, further reducing its debt-to-capital ratio.
Year-to-Date
For the first half ended November 30, 2007, net sales were $4.2 billion, an increase of 49% compared with last year. Year-to-date operating earnings were $979.2 million compared with $222.3 million for the same period a year ago. Year-to-date SG&A expenses were $146.4 million compared with $136.1 million for the same period in fiscal 2007. A foreign currency transaction loss of $71.8 million was recorded for the first half of fiscal 2008, compared to a gain of $27.1 million for the same period a year ago. Equity earnings in non-consolidated entities increased year to date to $57.3 million from $19.3 million last year.
Outlook
Phosphate and potash fundamentals remain exceptionally strong. Phosphate and potash prices increased to even higher record levels at the end of 2007 and this momentum is anticipated to continue into 2008. Further increases in grain and oilseed prices during the last several weeks have bolstered farm economics worldwide and solidify strong nutrient demand prospects for 2008.
In the case of potash, supply continues to struggle to keep up with accelerating demand as evidenced by the extremely low stocks held by North American producers at the end of the fall season. This situation likely will persist until additional capacity comes on line during the next few years. Market prices are continuing to increase significantly for shipments into all major markets during the first half of 2008.
The phosphate situation is similar to that of potash. U.S. producers reported holding the lowest inventories of DAP/MAP in modern history at the end of the North American fall season. More importantly, large increases in market prices for phosphate rock and phosphoric acid in 2008 will dramatically boost costs for non-integrated producers who likely account for almost one-third of global phosphate production. These increases, plus substantially higher sulfur costs underpin higher phosphate selling prices. Finally, phosphate exports from China likely will drop this year due to government policies to make more product available for local farmers.
“The market environment remains extraordinary. Agricultural commodity prices continue to increase to unprecedented levels, resulting in robust farm economics and nutrient demand prospects,” said Jim Prokopanko. “Mosaic’s leadership position in Phosphates, combined with our exceptional Potash business and our focus on effective operational execution, offers a unique value proposition for crop nutrition customers and investors.”
Mosaic’s realized DAP price, FOB plant, for the third quarter of fiscal 2008 is estimated to be $470 to $480 per tonne. DAP costs, however, are also likely to be higher due to increasing sulfur costs. Mosaic’s third quarter average realized potash price, FOB plant, is estimated to be $190 to $200 per tonne. Third quarter sales volumes for the Phosphates and Offshore segments are expected to be below second quarter levels in line with typical seasonal patterns.
For the fiscal year, sales volumes for the Phosphates business are anticipated to range from 8.6 to 9.1 million tonnes, while Potash sales volumes are anticipated to range from 8.5 to 9.0 million tonnes. Both of these are unchanged from prior guidance.
About The Mosaic Company
The Mosaic Company is one of the world’s leading producers and marketers of concentrated phosphates and potash crop nutrients. For the global agriculture industry, Mosaic is a single source of phosphates, potash, nitrogen fertilizers and feed ingredients. More information on the company is available at http://www.mosaicco.com.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results. Such statements are based upon the current beliefs and expectations of The Mosaic Company’s management and are subject to significant risks and uncertainties. These risks and uncertainties include but are not limited to the predictability of fertilizer, raw material and energy markets subject to competitive market pressures; changes in foreign currency and exchange rates; international trade risks including, but not limited to, changes in policy by foreign governments; changes in environmental and other governmental regulation; adverse weather conditions affecting operations in central Florida or the Gulf Coast of the United States, including potential hurricanes or excess rainfall; actual costs of closure of the South Pierce, Green Bay and Fort Green facilities differing from management’s current estimates; accidents involving our operations, including brine inflows at our Esterhazy, Saskatchewan potash mine as well as potential mine fires, floods, explosions or releases of hazardous or volatile chemicals, as well as other risks and uncertainties reported from time to time in The Mosaic Company’s reports filed with the Securities and Exchange Commission. Actual results may differ from those set forth in the forward-looking statements.
01/09/08 7:27 am
Mosaic reported Q2 earnings of $0.89 per diluted share, $0.16 better than the First Call consensus of $0.73; revenues rose 44.2% year/year to $2.2 bln vs the $2.17 bln consensus. Company reported gross margins 28.4 vs the 25.9 Street expectation. The stock is up over $4 in pre-market.
As I said yesterday, with all the bearishness, even though the MOS earnings report is good, it may still go down today. It is a buy under $90. If you don’t buy it now, keep it on the radar.
01/08/08 8:33 am
This is a stock that you can own for the long haul. I had highlighted MOS in a previous post in early December:
“Regardless of the U.S. economic trends, fertilizer consumption and operating costs should remain fairly constant. But, a modest decline in pricing power is possible if the economy creates a situation where farmers become more cost sensitive. Presently, they are driving brand new pickups and drinking rich man’s whiskey. If that is your concern, take a look at Mosaic (MOS), which has lower exposure to U.S. and Canadian demand. MOS gets only about 40% of its revenue from North America, while Potash (POT), Agrium (AGU) and CF Industries (CF) get roughly 70%, 85% and 90%, respectively. Know this: a U.S. recession is not a substantial risk to fertilizer stocks. However, a reversal in economic growth in China and India is. But even then, the risk of a sharp drop in consumption is limited because grain supply worldwide is so low and shifts in the workforce of those countries makes changes in demand less likely to slacken. In summary, buy that shit.”
On December 4th, the stock was at $71. Is it too late to get in? No. I actually think it may do even better in 2008. Before you call me an asshat, let me give you my take on the stock.
The stock is still cheap. Most investors have never heard of it, even though it’s a huge operation. Institutional ownership is only 26%. It’s American, so it probably won’t be subject to the speculation of a Chinese lotto stock in the overpriced Asian markets. And it is part of a massive, multi-year, possibly multi-decade shift—to more expensive food.
Unbeknownst to the Fly, I “borrowed” his time machine for a joy ride into the future. In 2009, we will look back on 2008, and remember it as the year that food became expensive. Many people will go hungry. This will be one of the big headlines this year. Consider this: Eggs are up 38%, milk is up 30%. Even chocolate is up 6%. Add in the cost of gas and the falling value of homes and people might think twice about buying that iPhone.
In Asia, the effect will be more pronounced. One hundred million newbie middle class-ers in China have developed an appetite for steak and eggs, sodas sweetened with corn syrup, and cream and butter. In essence, they want to gain weight and increase their cholesterol levels. Three billion more Asians need basic staples—but grain (wheat especially, but also rice) prices have soared to 17-year highs. A drought in Australia and poor wheat harvests in Russia make matters even worse.
And finally, ethanol production has pushed up corn and soy bean prices to lofty levels this year.
Fly’s “Milk the Farmer”, is just another way of saying that we are in a new “agricultural super-cycle”. For example, a cross section of agriculture stocks, the DXAG, was up 66% in 2007, after being asleep since 1980.
In January last year, MOS announced $0.15 cents a share earnings, in line with estimates. The stock disappointed in the March report with $0.05 cents, but then reported $0.41 and $0.67 in July and September, respectively.
The company reports tomorrow, January 9 at 10:00 am ET. The Street consensus is $0.72. I think there will be an upside surprise.
If you want to listen to the conference call, the number is 888-680-0892. The passcode is 44890826.
I’m continuing to add to my position while MOS is still under $100
Wednesday, January 2, 2008
Solar
Akeena Solar (AKNS), recently inked a licensing deal with Suntech Power Holdings (STP), which allows STP to distribute their Andalay solar panel technology to Europe, Japan and Australia. Suntech is estimating sales of over 10 megawatts of the Andalay solar panels to those regions in 2008. AKNS was up over 40% , and STP was up over 4% today.
“Andalay improves on conventional solar panels by including built-in wiring, grounding and racking designed to provide maximum rooftop performance for consumers while minimizing installation costs for solar system installers. The result is a rooftop solar power system with superior built-in reliability with outstanding aesthetics in an all-black, streamlined appearance,” said Barry Cinnamon, CEO of Akeena. “Moreover, an installed Andalay system uses 70 percent fewer parts and requires 25 percent fewer attachment points than traditional solar systems, meaning better long-term performance”.
Suntech has committed to deals for 450 megawatts worth in 2008. It has another 900 megawatts of potential business in the pipeline, but doesn’t have enough silicon or manufacturing capacity to meet all the demand. It expects to reach 1 gigawatt of manufacturing capacity in 2008. This is two years ahead of schedule. It expects to double that by 2010.
Suntech’s solar cells produce electricity at about $2.90 per watt. The company is looking to make that more cost effective by cutting the cost down by 48% in the next five years. For that to happen, silicon prices, which are about 75% of Suntech’s per-unit cost, have to come down. This may happen soon, as silicon producers are ramping up capacity. Suntech has indicated that the current long-term contracts that it is agreeing to show that prices are already dropping. The company is also working on thin film technology and other methods that will allow them to make solar cells with less silicon. If the silicon price hurdle can be cleared, then the industry can grow without government incentives.
But, solar still has problems. What happens when the sun doesn’t shine? Efficiency is still low. The industry average is a little more that 16%. STP’s is 18%-19% efficiency of converting the sun’s rays to energy.
Once silicon, the second-most abundant element on the planet, becomes commoditized, STP’s low cost Chinese manufacturing base will be a big advantage.
“Andalay improves on conventional solar panels by including built-in wiring, grounding and racking designed to provide maximum rooftop performance for consumers while minimizing installation costs for solar system installers. The result is a rooftop solar power system with superior built-in reliability with outstanding aesthetics in an all-black, streamlined appearance,” said Barry Cinnamon, CEO of Akeena. “Moreover, an installed Andalay system uses 70 percent fewer parts and requires 25 percent fewer attachment points than traditional solar systems, meaning better long-term performance”.
Suntech has committed to deals for 450 megawatts worth in 2008. It has another 900 megawatts of potential business in the pipeline, but doesn’t have enough silicon or manufacturing capacity to meet all the demand. It expects to reach 1 gigawatt of manufacturing capacity in 2008. This is two years ahead of schedule. It expects to double that by 2010.
Suntech’s solar cells produce electricity at about $2.90 per watt. The company is looking to make that more cost effective by cutting the cost down by 48% in the next five years. For that to happen, silicon prices, which are about 75% of Suntech’s per-unit cost, have to come down. This may happen soon, as silicon producers are ramping up capacity. Suntech has indicated that the current long-term contracts that it is agreeing to show that prices are already dropping. The company is also working on thin film technology and other methods that will allow them to make solar cells with less silicon. If the silicon price hurdle can be cleared, then the industry can grow without government incentives.
But, solar still has problems. What happens when the sun doesn’t shine? Efficiency is still low. The industry average is a little more that 16%. STP’s is 18%-19% efficiency of converting the sun’s rays to energy.
Once silicon, the second-most abundant element on the planet, becomes commoditized, STP’s low cost Chinese manufacturing base will be a big advantage.
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