Tuesday, Mosaic Co. (MOS), a phosphate and potash crop nutrients producer, reported a sharp fall in third quarter earnings hurt by significantly lower sales and production volumes, higher raw material costs, and lower phosphate selling prices. Going forward, the company expects phosphate sales volumes in the fourth quarter to be higher than third quarter levels, but short of the prior-year level. Potash sales are expected to remain weak.

The Plymouth, Minnesota-based Mosaic's net income for the third quarter plunged to $58.8 million or $0.13 per share from $520.8 million or $1.17 per share for the prior-year period.

Nine analysts polled by Thomson Reuters expected the company to earn $0.24 per share. Analysts' estimates typically exclude special items.

Results for the recent quarter included foreign currency transaction gains of $47.1 million or $0.07 per share, compared to a gain of $1.5 million a year ago. An inventory valuation write-down of $28.3 million or $0.05 per share was recorded primarily in the offshore segment.

Net sales for the quarter were $1.376 billion, a decline 36% from $2.147 billion in the same period a year ago.

The company attributed the decline in sales to a change in buyer sentiment influenced by lower grain prices, a build-up of inventories in the distribution supply chains, the global economic slowdown and the recalibration of the phosphate market to reflect lower raw material input costs.

Mosaic's gross margin for the quarter was $140.3 million or 10% of net sales, compared to $727.9 million or 34% of net sales a year ago. Net unrealized mark-to-market derivative losses impacted gross margin by $30.5 million or $0.05 per share, compared to net unrealized derivative gains of $40.0 million a year ago.

Segment wise, potash sales decreased to $480.8 million in the quarter from $547.3 million a year ago, as sales volume dipped to 0.8 million tonnes from 2.1 million tonnes a year ago. The decline in sales volumes was primarily due to lower customer demand.

Phosphates segment witnessed a 50% decline in sales volumes as sales sharply decreased to $552.4 million in the quarter from $1.258 billion a year ago. Total sales volume was 1.1 million tonnes, down from 2.2 million tonnes a year ago.

The Phosphates segment recorded an operating loss of $123.9 million, compared to operating income of $442.7 million last year, impacted adversely by higher raw material costs, lower selling prices and net unfavorable realized and unrealized derivative activity compared to a year ago.

Income tax expense was $30.7 million in the quarter or an effective tax rate of 37%, compared to $159.2 million or an effective tax rate of 25% for the same period last year. The higher effective tax rate in recent quarter was due to the fact that no tax benefit was recorded on losses in Brazil.

For the nine months, the company reported increased net income of $2.203 billion or $4.94 per share, up from $1.220 billion or $2.74 per share in the corresponding period in the previous year. Results for the nine months ended February 28, 2009 also includes a $673.4 million gain on the sale of Mosaic's interest in Saskferco.

Year-to-date, net sales rose to $8.705 billion, up 37% from $6.346 billion in the comparable period last year.

Jim Prokopanko, Mosaic's President and Chief Executive Officer said, Despite the turmoil in commodity markets, we remain confident that long-term agricultural fundamentals are excellent. This is a self-correcting cycle because demand for crop nutrients can only be deferred for so long.

Looking ahead, the company anticipates phosphate sales volumes in the fourth quarter to top third quarter levels, but to fall below the prior year level. Potash sales are expected to remain weak and sales volumes are expected to be roughly comparable with third quarter levels. In total, Mosaic anticipates a reduction of potash production of approximately 2.0 million tonnes during fiscal 2009.

MOS closed Tuesday's trading at $42.94, down $1.95 or 4.34%, on a volume of about 7.57 million shares. In the after hours, the shares traded at $40.40, down $2.54 or 5.92%.

For comments and feedback: contact editorial@rttnews.com