What we’re looking for
The graphs you’re about to see tell Mosaic Co (NYSE:MOS)’s story, and we’ll be grading the quality of that story in several ways:
- Growth: Are profits, margins, and free cash flow all increasing?
- Valuation: Is share price growing in line with earnings per share?
- Opportunities: Is return on equity increasing while debt to equity declines?
- Dividends: Are dividends consistently growing in a sustainable way?
What the numbers tell you
Now, let’s take a look at Mosaic Co (NYSE:MOS)’s key statistics:
MOS Total Return Price data by YCharts
| Passing Criteria | Three-Year* Change | Grade |
|---|---|---|
| Revenue growth > 30% | 47.6% | Pass |
| Improving profit margin | 54.8% | Pass |
| Free cash flow growth > Net income growth | (32.8%) vs. 128.4% | Fail |
| Improving EPS | 139.3% | Pass |
| Stock growth + 15% < EPS growth | (7.8%) vs. 139.3% | Pass |
Source: YCharts. * Period begins at end of Q2 (May) 2010.
MOS Return on Equity data by YCharts
| Passing Criteria | Three-Year* Change | Grade |
|---|---|---|
| Improving return on equity | 48.8% | Pass |
| Declining debt to equity | (47.8%) | Pass |
| Dividend growth > 25% | 400% | Pass |
| Free cash flow payout ratio < 50% | 142.6% | Fail |
Source: YCharts. * Period begins at end of Q2 (May) 2010.
How we got here and where we’re going
Mosaic Co (NYSE:MOS) puts together a really strong performance, earning seven out of nine passing grades and narrowly missing an eighth on the free cash flow comparison. Over the past three years, Mosaic Co (NYSE:MOS)’s falling free cash flow has evolved into its greatest fundamental challenge, and it may not be able to support current dividend payouts if the decline continues. Will Mosaic Co (NYSE:MOS) be able to move past this problem and rebound? Let’s dig a little deeper to find out.
Last year, Mosaic benefited from exclusive contracts with emerging-market buyers in China and India, leading to a big improvement in its strained international distribution relationships. However, the company is now having a hard time selling products to farmers in both countries due to declining prices of Potash Corp./Saskatchewan (USA) (NYSE:POT) and phosphate fertilizers. Weakening Indian rupees and reduced farm subsidies could continue to weigh heavily on agricultural chemical producers, particularly those, like Mosaic, that depend on potash sales. On the other hand, China has been subsidizing fertilizers to the point of overproduction, which hits Western potash producers from the other side. A terrible drought in the U.S. and dwindling sales from international markets could very well slow down Mosaic’s growth in the near future.
