Friday, April 4, 2008

Psychology of the Mosaic (MOS) Q3 2008 Call

At 10:03ET, Christine from IR started the call.

5th minute (5 m) CEO Jim Prokopanko: “Good news story, still more to come", with a very convincing matter of fact tone.
6 m We are operating well despite higher costs, specifically for: phosphorous and potash
8 m Cash flows exceptional. Today Saskatchewan expansion announced, slide 4. I can assure you we will be responsible for bringing this new capacity online, (extremely confident delivery).
9 m SG&A slightly higher than expected.
10 m Executive Mike, we are optimistic, sounded rushed, completely different delivery than Jim, although data presented was fundamentally very optimistic, (mentioned slide 7).
11 m China, India mentioned, Biofuels mentioned
12 m Strong economic demand world wide.
13 m futures markets addressed; forward pricing mechanisms in the futures market/hedging strategies.
14 m Bottom line is markets are asking farmers to step on the accelerator world wide, and we still have plenty throttle left.
15 m Agricultural outlook for Mosaic is very positive. Corn stocks will decline to dangerously low levels in 2008.
16 m demand surge mentioned.
17 m competitive position continues to strengthen, sounded extremely confident, very convincing.
19 m CEO Jim back., demand is reason for our success.
19 m VERY IMPORTANT BULLET POINTS WHY MOS IS A GREAT COMPANY:
- MOS is only company that includes phosphate and potash.
- Proven reserves, best processing plants in the world.
- Ability to bring on capacity with incremental costs.
- MOS logistics/transport are the best.
21 m Cash flow is very strong, cash, cash, cash, very powerful delivery on the fact that cash will be used wisely.
22 m "we will use cash judicially in years to come."
23 m, "we are committed to executing for you, the shareholder”, VERY direct to shareholders

Question/Answer Session
24 m Ed Rodriguez from GS, Q: spot market price question A: We've been executing and nothing has changed in the last 6 months, we haven't changed pricing strategy.
25 m follow up Q: Domestic market prices A: demand is very strong, pipe line is well stocked, prices will be higher given the impact from international demand.
26 m David Silver from JP Morgan Q: regarding Indian market, analyst was very relaxed and prepared. A: You're right to notice there has been a change in behavior in India, their high rock/phosphate prices have driven them to secure supplies early on, and they took an early contract of potash.
Follow up from David Silver Q: corn vs soy split do you see an 86M acre corn year? How do you guys interpret domestic business A: Soybean to corn ratio has changed,
30 m certainly signals today are different, we may see a likelihood of more corn acres
31 m Mike from Greenwich Q: sulfur issue, analyst confused, much laughing in back ground from what we believe his board room, seemed like a Friday type of atmosphere going on, management sent him a signal with a "Hello Mike" before answering his question.
33 m Don Carson from Merrill Lynch Q: Sustainability of phosphate, global supply expansion issue, A: In terms of sustainability we are confident,
35 m Saudi project 2011 it will come on, joint venture plants in Morocco
36 m, we have a few high cost plants shut down, and we have no intentions of starting them up right now. 37 m follow up Q: addressing cost issues A: You're right, cost performance did improve; mining more tons of phosphate than expected, benefits will continue.
38 m Mark from Credit Suisse Q: Ocean freight forward explanation A: We don't do a significant amount of business there, nothing meaningful.
39 m Brian from Citi Q: costs of ammonia and sulfur. A: Good question and good observation (complimented analyst), we don't see cost issues affecting MOS.
Cristen McDuffy Goldman Q: debt balance A: Off shore inventories particularly in Brazil; follow up Q: Capital expenditure for the Quarter: A: $90M,
43 m follow up Q: next Quarter (4th) Capital expenditure wanted, A: It will go up substantially.
44 m Charles from Morgan Stanley Q: sulfur price movement question A: We expect elevated sulphur pricing, strong world demand, outages, plants concurrently coming down.
45 m, Good old days coming back within 18-24 months sub $100, we see $50-$100.
47 m North American crop gets planted in two weeks, farmers are very efficient.
50 m Bob from Scopus Q: Tax rate A: Low 30's follow up Q: debt free in 2009, how will you use balance sheet VERY FORWARD LOOKING ANALYST AND QUESTION A: We will maintain a very disciplined approach, high return rate projects only, 52nd minute - a buy back is possible, or dividends...
53 m follow up from David Silver JPM Q: Argentina details wanted, government A: 54 m you asked about four questions, don't know if I'll answer all of them, first time management sounded upset, maybe tired, sounded as though Argentina's price controls are out of Mosaic's hands; a frustrating part of doing business with certain countries governmental policies.
CC ended at the 57th minute

Our psychological take away from the call is:
Mosaic is in the right place at the right time. Management did sound very confident and we see their confidence being rooted in one place: demand is high for their products as countries like China and India are emerging. Demand for agricultural fertilizers will only increase unless there is a global slow down. And that worries the Psychology of the Call team. Shareholders would be wise to expect MOS to either announce a share buy back or dividend in the near future. IF MOS announces a share buy back over dividend, then we would buy in ASAP. IF MOS announces a dividend, perhaps that signals slowing global growth from their perspective, and Wall Street prefers capital expenditures, R&D, share buy backs over dividends, which usually signal stagnation.
Please follow David Silver from JP Morgan and Bob from Scopus, two very extremely well prepared & forward-thinking analysts!
Thank you for reading our Psychology of the Mosaic Call.

Reader Feedback/Commentary/Transparency

"I listened to the same CC and basically agree with your points.The point you missed emphasizing is that MOS expects there to be a major positive shift in what the crop survey said would be the corn plant acres and actual plant acres.I really believe that IMPLIED was a MOS belief then that all fert supply would be GONE, there would be a major fert supply crisis in farmerville and ultimately Canpotex will tell the Chinese to take a hike( where were your perceptive analysts on this crucial issue ?)."

3 comments:

Anonymous said...

very nice last paragraph, congrats on a "different" type of investment blog ...

Anonymous said...

I listened to the same CC and basically agree with your points.
The point you missed emphasizing is that MOS expects there to be
a major positive shift in what the crop survey said would be the corn plant acres and actual plant acres.
I really believe that IMPLIED was a MOS belief then that all fert supply would be GONE, there would be a major fert supply crisis in farmerville and ultimately Canpotex will tell the Chinese to take a hike( where were your perceptive analysts on this crucial issue ?).

The Call Team said...

We appreciate your comments. Your insights will be added for future reference/transparancy/validation.