Reuters — U.S. fertilizer company Mosaic Co. said Tuesday it will eliminate more than 500 jobs in the next year as it reported a larger-than-expected 43 per cent drop in quarterly profit.
The fertilizer sector has been under pressure since last summer’s breakup of one of the world’s biggest potash traders, Belarusian Potash Co., led to a steep drop in prices. Transportation problems in North America also dogged the industry during the frigid winter.
Mosaic CEO Jim Prokopanko said the Plymouth, Minn.-based company will shed 550 to 560 jobs across the company, using layoffs, attrition, early retirement and eliminating contractors.
The company said in October it aimed to cut $500 million in costs during the next five years, bolstering its status as a low-cost phosphate producer and reducing its relatively high cost of producing potash (all figures US$).
“We feel we can reduce the spending because we have a sounder enterprise overall” than previously, Prokopanko said in an interview. “We’ve allowed ourselves to grow when times were good. Now we think we can be just as productive with fewer people.”
Prokopanko said more than half of the jobs to be eliminated are not directly involved in production, but would not say how the cuts break down between the phosphate and potash segments.
The company will shed another 200 jobs from previously announced asset sales in South America and the United States.
Mosaic’s job cuts follow rival PotashCorp’s move in December to slash its workforce by 18 per cent, or more than 1,000 jobs. [Related story]
Prokopanko said the potash market looked oversupplied for the next three years as demand grows only modestly just as producers have expanded capacity.
“It could be, just (based on) purely supply and demand, some tough sledding,” he said on an earlier conference call.
Prokopanko said the company will not halt expansion of its Esterhazy, Sask. mine, but would not comment directly when asked if Mosaic may close or sell other potash mines.
“We look at our portfolio of assets frequently and we’re always asking ourselves that question, that’s all I’ll say. We’re looking to maximize production to our lowest cost facilities and balance the supply with the actual market demand,” he told Reuters.
The company’s dividend is secure and it will carry out its share buyback program as planned, Prokopanko said.
The cost-cutting comes on the heels of two acquisitions. Mosaic said in April it would buy Archer Daniels Midland’s fertilizer distribution business in Brazil and Paraguay for $350 million. It recently bought the phosphate business of CF Industries for $1.4 billion.
“I don’t think they’re conflicting messages,” Prokopanko said in the interview. “With a cyclical low, you have to trim your sales, but that’s a time you have to have the courage and the conviction in your sectors to strike when assets come for sale.”
Mosaic forecast global potash shipments to rebound in 2014 by seven per cent to a record 57.4 million tonnes. Phosphate shipments look to rise four per cent to a record 65.5 million.
“Prices are still bumping along the bottom,” but volumes are starting to return, said BGC Financial analyst Mark Gulley.
First-quarter net earnings fell to $217.5 million from $379.8 million a year ago, while net sales tumbled 14 per cent to nearly $2 billion.
Analysts expected Mosaic, the world’s largest producer of finished phosphate products, to earn 59 cents a share on sales of $2 billion, according to Thomson Reuters I/B/E/S.
The quarterly results were “outstanding” in the trough of a market, Prokopanko said.
Average realized prices of diammonium phosphate and muriate of potash fell 16 per cent and 29 per cent to $414 and $267 per tonne, respectively, but came within forecast ranges.
Mosaic said it sold 2.7 million tonnes of phosphate in the first quarter, flat versus last year but topping its forecast of 2.3 million to 2.6 million tonnes.
The company sold 2.4 million tonnes of potash in the quarter, within its outlook of 2.3 million to 2.7 million tonnes and ahead of the year-ago total of two million tonnes.
For the second quarter, Mosaic forecast phosphate sales volumes of 3.1 million to 3.4 million tonnes, up from 2.9 million last year. It said potash sales should range from 2.2 to 2.5 million tonnes, compared with 2.4 million a year earlier.
Prokopanko said in March he has cancer but would keep a regular schedule as CEO as he underwent chemotherapy. On Tuesday, he said he felt “fit and well.”
— Rod Nickel is a Reuters correspondent based in Winnipeg.