Mosaic Favors Buybacks as It Sees $2 Billion Surplus CashChristopher Donville
Mosaic Co., the world’s largest producer of phosphate crop nutrients, said it favors share buybacks over dividends to redeploy surplus cash.
With an estimated $2 billion of cash by the end of the month, Mosaic is assessing its ability to buy back shares while seizing growth opportunities and maintaining a “solid” investment-grade credit rating, Chief Financial Officer Larry Stranghoener said today on a conference call.
“We’ve got $5 billion of surplus cash and currently available debt capacity to be used for share repurchases, to be used to fund an escrow account for asset retirement obligations, and possibly to be used for strategic opportunities,” he said. “We’re not committing at this point in time to using all of that amount for share repurchases -- we’ll see what the opportunities are.”
Stranghoener’s comments follow criticism from some shareholders that the Plymouth, Minnesota-based company hasn’t distributed enough of its cash to them through buybacks and dividends, Malcolm Polley, chief investment officer at Stewart Capital Advisors LLC in Indiana, Pennsylvania, said May 7 in a telephone interview.
Mosaic, North America’s second-largest potash producer by market value, had about $3.3 billion of cash as of the end of its fiscal third quarter in February, according to data compiled by Bloomberg.
“Investors are saying ‘‘show me the money,’’” said Polley, who manages $1.1 billion including shares of Mosaic. “The fear is always that management does something stupid with the cash. I don’t think we have that issue with Mosaic, but there is always that fear.”
The company’s quarterly dividend, currently 25 cents a share, will “grow in line with earnings growth,” Stranghoener also said today on the call.
Mosaic fell 3.1 percent to $61.30 at the close in New York. The shares have gained 8.2 percent this year.
Mosaic, which was split off from closely held Cargill Inc. about two years ago, also said it plans to begin talks with charitable trusts associated with Cargill’s founding family about buying the Mosaic shares that the organizations acquired in the split.
Those talks won’t begin until after May 26, which is also the date when potential tax consequences related to any potential takeover of Mosaic expire.
Cargill, based in Minneapolis, previously owned about 64 percent of Mosaic.
Mosaic also said it would defer plans to expand its potash production capacity by 2 million metric tons a year at its Belleplaine mine in Saskatchewan.
“At this point in time we’re not sure the market conditions warrant the size of the investment that would be required,” Stranghoener said on the call. “We think that by waiting a year or two we may see improved labor conditions in Saskatchewan that might help bring down the cost of this project.”
Potash Corp. of Saskatchewan Inc. is North America’s largest potash producer by market value.
(For a replay of Mosaic’s conference call, see http://www.mosaic.com.)