The Mosaic Co. has reported 3Q16 net earnings of US$39 million, down from net earnings of US$160 million in 3Q15. Earnings per diluted share were US$0.11, which included a negative US$0.30 impact from notable items and a benefit of US$0.08 per share from lowering the expected full year effective tax rate accrual. Mosaic's net sales in the 3Q16 were US$2.0 billion, down from US$2.1 billion last year. Operating earnings during the quarter were US$70 million, down from US$246 million a year ago, primarily driven by lower potash prices and lower phosphate margins partially offset by higher sales volumes and positive impacts of cost savings initiatives.
"We expected improving market conditions in the 2H16 and this quarter's results reflect improvement," said Joc O'Rourke, President and Chief Executive Officer. "Both potash and phosphate prices strengthened in the quarter as pent-up demand materialised. While the fourth quarter is expected to reflect a normal seasonal slowdown, we see a more stable operating environment in 2017, starting the year with lower pipeline inventories and demand growth in both nutrients. At the same time, we are taking action to protect the balance sheet and reduce operating expenses."
Cash flow provided by operating activities in the third quarter of 2016 was $96 million compared to US$184 million in the prior year. Operating cash flow was negatively impacted by the record prepayments received in the second quarter of 2016. Capital expenditures plus investments totalled US$380 million in the quarter, including a $120 million contribution for Mosaic's investment in the Ma'aden Wa'ad Al Shamal Phosphate Company. Mosaic's total cash and cash equivalents were $654 million and long-term debt was US$3.8 billion as of September 30, 2016.
"We are pleased with this quarter's results and are continuing to focus on optimising cash flow and protecting our balance sheet," said Rich Mack, Mosaic's Executive Vice President and Chief Financial Officer. "We've made meaningful changes to our five year capital program and significantly reduced operating costs. Going forward, we will continue to assess our cash generation and use in light of our strong commitment to maintain an investment grade credit rating."
"Our phosphates business results continued to gradually improve from the early part of this year," O'Rourke said. "Relatively stable prices, lower raw material and phosphate rock costs, combined with a higher operating rate, resulted in better margins during the quarter. Looking ahead, we see a return to a more stable environment, with affordable phosphate prices and lower raw material costs, following the traditional seasonal slowdown in the fourth quarter."
Net sales in the Phosphates segment were US$930 million for the third quarter. Gross margin was US$101 million, or 11% of net sales, compared to US$199 million, or 19 percent of net sales, for the same period a year ago. The year-over-year change in gross margin rate primarily reflects lower average selling prices partially offset by lower realised ammonia and sulfur costs and benefits from our actions to reduce costs.
The third quarter average DAP selling price, FOB plant, was US$326/t and phosphates segment total sales volumes were 2.5 million t.
"As anticipated, pent-up demand, combined with a reduction in output across the industry, dramatically drew down producer and channel inventories resulting in higher spot prices globally," O'Rourke said. "We are cautiously optimistic with good buyer engagement in most geographies, including India and China. Longer term, we expect further supply rationalisation and demand growth will result in a constructive operating environment for the industry."
Net sales in the Potash segment totalled US$428 million for the third quarter.
Potash production was 1.7 million t.
Read the article online at: https://www.worldfertilizer.com/phosphates/02112016/mosaic-co-reports-3q16-results/