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Mosaic delivered strong Q2 revenue growth led by Potash, but missed EPS estimates due to elevated costs, with margin recovery and cost control key for H2 FY2025.

# Mosaic Q2 FY2025: Strong Revenue Growth Driven by Potash, but EPS Misses on Cost Pressures

---

## Executive Summary

- **Mosaic Company delivered a mixed Q2 FY2025**, with **revenue of $3.54 billion beating consensus by 13.3%** (up 25.7% YoY), but **adjusted EPS of $0.51 fell short of the $0.71 estimate by 28.4%**. The top-line strength was led by robust Potash segment volumes and improved market demand.
- **Earnings quality was mixed**: While gross margin improved to 17% (from 14% YoY), higher operating expenses—including a significant increase in SG&A and maintenance costs—dampened profitability and led to the EPS miss. Segment performance diverged, with Potash and Fertilizantes margins improving, but Phosphate margins compressed due to operational headwinds.
- **Management’s tone was cautiously optimistic**. They highlighted strong sales and operational improvements, but flagged ongoing cost pressures, particularly in maintenance and bad debt, and a challenging credit environment in Brazil. The company raised Potash production guidance but trimmed Phosphate expectations, reflecting both opportunity and operational caution.
- **Key risks include continued cost inflation, credit risk in Brazil (with bad debt expenses up sharply), and margin pressures from maintenance and logistics costs**. However, the Biosciences division’s rapid growth and a ramped-up cost reduction program offer upside potential.
- **Catalyst watch**: Investors should monitor the normalization of maintenance costs in H2 FY2025, progress on the expanded cost reduction program, and further updates on Potash demand and pricing.

---

## Performance Snapshot

| Metric         | Reported   | Consensus | Surprise   | YoY Change |
|----------------|------------|-----------|------------|------------|
| Revenue        | $3.54B     | $3.124B   | +13.3%     | +25.7%     |
| Adjusted EPS   | $0.51      | $0.71     | -28.4%     | N/A        |
| Gross Margin   | 17%        | N/A       | N/A        | +300 bps   |
| Free Cash Flow | N/A        | N/A       | N/A        | -40.5%     |
| Potash Volume  | Raised to 9.3–9.5M t | N/A | N/A | N/A        |
| Phosphate Volume | 6.9–7.2M t (lowered) | N/A | N/A | N/A      |
| Biosciences Revenue | >2x YoY | N/A | N/A | >100%     |

---

## Earnings Quality

- **Revenue growth was broad-based**, with Potash leading the way due to higher volumes and improved market demand. Fertilizantes also saw margin improvement, while the Biosciences division more than doubled its revenue YoY.
- **Gross margin expanded to 17% from 14% YoY**, reflecting some pricing power and cost efficiencies. However, this was offset by a **notable increase in operating expenses**: SG&A rose from $128M to $167M (including $30M in bad debt), and idle/turnaround costs increased by $66M YoY.
- **Phosphate segment margins compressed** due to higher maintenance and turnaround costs, highlighting operational challenges that weighed on overall profitability despite strong sales growth.
- **Free cash flow declined 40.5% YoY**, underscoring the impact of higher costs and working capital needs.

---

## Management Commentary & Guidance

- **Management’s tone was mixed**: They expressed confidence in the company’s ability to deliver on strong Potash demand and highlighted operational improvements, but acknowledged persistent cost headwinds and a difficult credit environment in Brazil.
- **Guidance was adjusted**: Potash production guidance was raised to 9.3–9.5M tonnes, reflecting strong demand and operational execution. Phosphate production guidance was trimmed to 6.9–7.2M tonnes due to ongoing maintenance issues.
- **Cost discipline remains a focus**: The cost reduction program was expanded from $150M to $250M by 2026, with management expecting margin improvement and stronger free cash flow in the second half as maintenance costs normalize.

---

## Key Risks

- **Cost inflation and margin pressures**: Rising maintenance, logistics, and SG&A costs could continue to weigh on profitability.
- **Credit risk in Brazil**: Elevated bad debt expenses (90% insured) and a challenging credit environment could impact results.
- **FX and operational risks**: Currency fluctuations and further operational disruptions, particularly in the Phosphate segment, remain key watchpoints.

---

## Expected Market Reaction

- **Investor sentiment is likely to be cautious** in the near term, given the significant EPS miss and margin pressures, despite the strong sales beat and positive Potash outlook.
- **Analysts may focus on the company’s ability to execute on cost reductions and deliver margin improvement in H2 FY2025**. The market may also scrutinize the sustainability of recent positive items (e.g., FX gains, mark-to-market effects) that boosted net income.

---

## Final Takeaway

- **Mosaic’s Q2 FY2025 was a mixed quarter**: Strong revenue growth and Potash momentum were offset by cost headwinds and an EPS miss. The underlying business remains resilient, but execution on cost control and margin recovery will be critical in the coming quarters.
- **The market may be underappreciating the long-term strength in Potash and Fertilizantes**, while overvaluing one-off positive items that masked underlying cost pressures and a sharp drop in free cash flow.
- **Upcoming catalysts**: Watch for H2 margin improvement as maintenance costs normalize, and progress on the expanded cost reduction program. Updates on Potash pricing and demand will also be key for sentiment.

---

Mosaic (MOS): Potash Strength, Cost Pressures Cloud Outlook

Mosaic (MOS) is demonstrating margin resilience and pricing power in Q2 2025, with improved phosphate pricing and cost discipline offsetting volume headwinds, positioning the company for potential earnings upside.

# Mosaic Company: Margin Resilience and Pricing Power Set the Stage for Q2 2025 Earnings Upside

## Executive Summary

We hold a **Neutral-to-Bullish** outlook for The Mosaic Company (NYSE: MOS) heading into Q2 2025. Management’s recent guidance and segment-level data point to **margin stabilization** and **improved pricing** in the phosphate segment, with DAP prices guided up to **$650–$670/tonne** (from Q1’s $635–$655/tonne). While phosphate volumes are being trimmed to **1.5–1.6M tonnes**, robust cost discipline and a **Q1 operating margin surge of 96% YoY** to $338.5M suggest earnings resilience. The market may be underestimating the **positive impact of FX gains** and Mosaic’s ability to offset volume headwinds with pricing and operational efficiency.

## Recent Trends Signal What’s Next

Recent quarters reveal a **modest deceleration in total revenue** but a clear pivot toward **margin protection** via pricing and cost controls. Q1 2025 revenue was **$2.62B**, with phosphate sales at **1.5M tonnes** and DAP prices at **$635–$655/tonne**. Management’s Q2 guidance maintains phosphate volumes at **1.5–1.6M tonnes** but raises DAP pricing, signaling a shift from volume to value. Potash and Mosaic Fertilizantes segments are expected to provide steady support.

### Revenue, Margin, and EPS Trend Table

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q3 2024      | 2.78         | 15.2             | 8.1                  | 5.3           | 0.62    |
| Q4 2024      | 2.65         | 14.7             | 7.9                  | 5.1           | 0.59    |
| Q1 2025      | 2.62         | 15.5             | 12.9                 | 7.2           | 0.74    |
| Q2 2025E     | 2.65–2.70    | 15.5–16.0        | 10.0–12.0            | 6.5–7.5       | 0.75–0.80|

**Trend:** Revenue is stabilizing, but margin expansion is the key driver for EPS upside.

## Management’s Forward Tone and Positioning

Management’s Q1 2025 commentary reflects a **measured shift from caution to confidence**. Notable quotes include:

- “We are well positioned to deliver margin improvements in the coming quarters.”  
- “Our U.S. operations are on track for an 8M tonne annualized run rate in 2H 2025.”

This is a marked change from prior quarters’ focus on “uncertainty” and “market volatility.” The current tone emphasizes **operational execution** and **cost discipline**, suggesting management expects to deliver on guidance despite volume headwinds.

## KPI Trends & Upcoming Quarter Drivers

The following KPIs will be pivotal for Q2 2025:

### Key KPI Table

| KPI                  | Q1 2024 | Q4 2024 | Q1 2025 | Q2 2025E      | YoY Change | QoQ Change |
|----------------------|---------|---------|---------|--------------|------------|------------|
| Phosphate Volume (M t)| 1.7     | 1.6     | 1.5     | 1.5–1.6      | -11%       | +0–7%      |
| DAP Price ($/tonne)  | 610     | 625     | 645     | 650–670      | +7–10%     | +1–4%      |
| Operating Margin (%) | 8.1     | 7.9     | 12.9    | 10–12        | +2–4pp     | -1–3pp     |

- **Phosphate Volume:** Lower YoY, but stable QoQ. Revenue impact will depend on price realization.
- **DAP Price:** Sequential and YoY improvement, directly supporting revenue and margin.
- **Operating Margin:** Q1’s sharp improvement expected to moderate but remain above prior-year levels.

## Missed by the Street

A key overlooked signal is the **$133M FX gain in Q1 2025**, which management is leveraging to offset cost pressures. Additionally, the **disciplined working capital management**—despite a $504M increase in Q1—suggests Mosaic is better positioned to weather input cost volatility than consensus models reflect.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                      |
|----------|--------------|---------|----------------------|------------------------------------------------------|
| Bull     | 2.70–2.75    | 0.80–0.85| 11–12                | DAP prices >$670/tonne, volume recovery, FX tailwind |
| Base     | 2.65–2.70    | 0.75–0.80| 10–11                | Guidance met, stable FX, cost control holds          |
| Bear     | 2.60–2.65    | 0.70–0.74| 8–9                  | Volume shortfall, DAP price stagnation, FX headwind  |

**Most Likely:** The **Base case** is most probable, given management’s confidence, stable pricing, and cost discipline, but with volume risks capping upside.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($B) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|---------|------------------|----------------------|
| Q3 2024      | 2.78         | 0.62    | 15.2             | 8.1                  |
| Q4 2024      | 2.65         | 0.59    | 14.7             | 7.9                  |
| Q1 2025      | 2.62         | 0.74    | 15.5             | 12.9                 |
| Q2 2025E     | 2.65–2.70    | 0.75–0.80| 15.5–16.0        | 10–12                |

### KPI Movement Table

| KPI                  | Q1 2024 | Q1 2025 | YoY Change | Q4 2024 | Q1 2025 | QoQ Change |
|----------------------|---------|---------|------------|---------|---------|------------|
| Phosphate Volume (M t)| 1.7     | 1.5     | -11%       | 1.6     | 1.5     | -6%        |
| DAP Price ($/tonne)  | 610     | 645     | +6%        | 625     | 645     | +3%        |
| Operating Margin (%) | 8.1     | 12.9    | +4.8pp     | 7.9     | 12.9    | +5pp       |

### Key Management Quotes

1. **“We are well positioned to deliver margin improvements in the coming quarters.”**  
   *Q1 2025 Earnings Call* — Signals confidence in cost and pricing strategy.

2. **“Our U.S. operations are on track for an 8M tonne annualized run rate in 2H 2025.”**  
   *Q1 2025 Earnings Call* — Implies operational execution is a near-term focus.

3. **“We expect DAP prices to remain in the $650–$670/tonne range for Q2.”**  
   *Q1 2025 Guidance Update* — Indicates price-driven margin support.

4. **“FX gains of $133M in Q1 provided a meaningful offset to input cost pressures.”**  
   *Q1 2025 10-Q* — Highlights a non-operating tailwind not fully in consensus.

5. **“Working capital increased by $504M, but we remain disciplined in inventory management.”**  
   *Q1 2025 10-Q* — Suggests risk of cash flow pressure, but with mitigation plans.

6. **“We are seeing early signs of normalization in demand, particularly in Brazil.”**  
   *Q1 2025 Earnings Call* — Points to potential upside in international segments.

7. **“We continue to monitor FX volatility and are prepared to adjust hedging strategies as needed.”**  
   *Q1 2025 Earnings Call* — Acknowledges ongoing risk management focus.

---

**Bottom Line:** Mosaic’s Q2 2025 results will hinge on its ability to sustain margin gains through pricing and cost control, with FX and volume trends as key swing factors. The company’s proactive management and improved pricing power position it for a stable-to-upside quarter, though volume and working capital risks remain.

Mosaic (MOS): Margin Strength Drives Q2 2025 Outlook