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How Mosaic is Winning on Its Cost Structure

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Cost structure helping profits

Mosaic’s (MOS) gross profit improved across the phosphate and potash segments despite lower shipments and lower phosphate prices year-over-year.

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Phosphate segment

According to the company, its low raw material costs helped keep overall costs low. However, the company expects the costs of sulfur and ammonia to “increase modestly” in the remaining half of 2015. The phosphate segment’s gross margin improved to 21% from 17% in the corresponding quarter a year ago.

The company expects the gross margins for the phosphate segment to be about 20%. Over the past 12 quarters, the company’s average gross margin was 22.9%.

Potash segment

The potash segment contributed over 41% of Mosaic’s gross profit, although its revenue contribution was only 29%. The potash segment’s gross margins improved to 40% from 33% in the corresponding quarter a year ago.

Weaker Canadian currency, along with Mosaic’s portfolio optimization initiatives, helped lower costs for the potash segment. This would also benefit the VanEck Vectors Agribusiness ETF (MOO), which holds 9.2% of Mosaic and Potash (POT) as a percentage of its total portfolio.

The cost per ton for MOP (Muriate of Potash) fell to $89 per ton from $100 per ton. The average selling price for potash was $280 per ton. The company expects the gross margins for the potash segment to be about 20%.

Improvement in these cost structures has lowered Mosaic’s cost of doing business. According to the company, it generated savings of $500 million, which were primarily achieved by the sale of less profitable businesses.

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