The Mosaic Company reports net earnings of $45 million, Adjusted EBITDA of $576 million for the first quarter of 2024

Date:05-06-2024

The Mosaic Company (NYSE: MOS), reported net earnings of $45 million, or $0.14 per diluted share, for the first quarter of 2024. Adjusted EPS⁽¹⁾ was $0.65 and Adjusted EBITDA⁽¹⁾ was $576 million.

″Mosaic delivered a solid first quarter,″ said President and CEO Bruce Bodine. ″For the remainder of the year, we will focus on execution and the completion of previously announced low capital intensity initiatives that build on our strengths."

First Quarter Results Highlights:

• First quarter revenues totaled $2.7 billion, down 26 percent from the year ago period, reflecting the impact of lower selling prices. The gross margin rate in the first quarter was 14.9 percent, down from 18.6 percent in the year ago period.

• Net earnings in the first quarter totaled $45 million, compared with $435 million in the year ago period. Current period results reflected the after-tax impact of notable items totaling $165 million, mainly from a foreign currency transaction loss, an unrealized loss on derivatives, and an adjustment to environmental reserves. Adjusted EBITDA⁽¹⁾ totaled $576 million, compared with $777 million in the first quarter of 2023. Cash from operating activities totaled $(80) million and free cash flow⁽¹⁾ totaled $203 million. This compares to $149 million and $191 million, respectively, in the year ago period.

• Potash operating earnings were $198 million in the first quarter, compared to $402 million last year. Adjusted EBITDA⁽¹⁾ totaled $281 million, compared to $474 million in the same period last year, reflecting the impact of lower prices, partially offset by higher volume and lower Canadian resource taxes.

• Phosphate operating earnings were $40 million in the first quarter, compared to $266 million in the prior year period. Adjusted EBITDA⁽¹⁾ totaled $277 million, compared to $382 million in the first quarter of 2023. Segment results reflect the impact of lower prices, lower sales volume, a higher mix of third party produced fertilizers, and higher planned turnaround costs, partially offset by lower raw material costs.

• Mosaic Fertilizantes reported operating earnings of $42 million in the first quarter, compared to $(32) million in the prior year period. Adjusted EBITDA⁽¹⁾ totaled $83 million during the quarter, increasing from $3 million in the first quarter of 2023, reflecting higher distribution margins, partially offset by lower sales volume.

Portfolio Highlights:

• In April, Mosaic announced a transaction with Ma'aden to receive approximately $1.5 billion in Ma'aden common shares in exchange of Mosaic's 25% share of the Wa'ad Al Shamal Phosphate Company. When completed, this transaction will provide a defined value for Mosaic's investment and improve Mosaic's capital flexibility over time.

• The Colonsay potash mine was curtailed in March and will remain idle until market conditions improve.

• Mosaic completed repairs caused by a fire at its Riverview facility in late April.

Capital Allocation Highlights:

• Mosaic is executing high-return and low-capital-intensity projects

• An 800,000 tonne MicroEssentials capacity conversion is completed and production is expected to commence in May;

• The Esterhazy Hydrofloat project, which will add 400,000 tonnes in milling capacity, is on track to be completed by mid-2025;

• A one million tonne blending facility in Palmeirante, Brazil is on track to be completed in 2025

• Mosaic's cost reduction plan announced last year is progressing well. Mosaic expects to drive $150 million in run rate cost reductions by the end of 2025.

• Mosaic has returned $178 million of capital to shareholders through the first quarter of 2024, including share repurchases totaling $108 million. 

First Quarter Segment Results

Net sales in the Potash segment totaled $643 million, down from $907 million one year ago. Gross margin was $212 million compared to $413 million in the first quarter of 2023, driven by lower average selling prices. Gross margin per tonne was $98 compared to $216 in the prior-year period.

Total potash production was 2.3 million tonnes, up from 1.9 million tonnes in the prior year period. Sales volumes totaled 2.2 million tonnes, up from 1.9 million tonnes in the prior year quarter.

Sales volumes in the second quarter are expected to be in the range of 2.2-2.4 million tonnes. Mosaic expects realized mine-gate MOP prices in the range of $210-$250 per tonne.

Net sales in the Phosphate segment were $1.2 billion, down from $1.4 billion in the prior year period. Gross margin was $159 million, compared to $259 million for the same period a year ago. Higher conversion costs, a higher mix of low margin third party produced finished products and higher turnaround costs impacted the profitability. Gross margin per tonne was $97 compared to $141 in the prior-year period.

Production of finished phosphates totaled 1.6 million tonnes, down 14 percent year-over-year, and sales volumes totaled 1.6 million tonnes, down from last year. Production volumes during the quarter were impacted by higher planned maintenance turnaround activities.

Mosaic expects sales volumes in the second quarter to be 1.6-1.8 million tonnes. DAP prices at the plant are expected to be in the range of $530-$580 per tonne. Second quarter realized stripping margins are expected to moderate from the first quarter but remain above historical levels. Conversion and turnaround costs will remain elevated in the second quarter as Mosaic continues to work to increase production volume. 

Net sales in the Mosaic Fertilizantes segment were $886 million, down from $1.3 billion in the prior year period due to lower pricing. Gross margin was $75 million, compared to $(1) million for the same period a year ago.

The distribution business profitability improved significantly from the same period in the prior year as high priced inventory destocking was completed in the first half of 2023. Production margin per tonne also improved from the same period of 2023, driven by strong co-product sales and margins.

Mosaic expects distribution margins to be in line with the normal historical range.

Other

Selling, general, and administrative costs (SG&A) were $107 million, down from $128 million in the year-ago period as cost reduction plans are progressing well. The effective tax rate during the quarter was 24.6 percent. Mosaic recognized earnings from equity investments of $38 million.

Market Outlook

Agricultural fundamentals remain constructive, with grains and oilseeds stock-to-use ratios expected to remain pressured for the foreseeable future. While corn and soybean fundamentals and prices have softened recently, growers around the world remain profitable. Constructive long-term agriculture fundamentals and favorable economics incentivize growers to maximize yields. In 2024, the El Nino weather pattern is expected to shift to La Nina, creating a favorable backdrop in Southeast Asia, India and Brazil. Certain parts of the world have gone through two years of under-application of fertilizers, and growers are seeking to replenish soil nutrients.

For fertilizer demand, as North America is transitioning out of a robust spring planting season, the rest of the world is set to pick up in the coming months. In Brazil, despite the credit and liquidity challenges in the region, low inventory and a favorable demand outlook sets the stage for peak or near peak fertilizer shipments in 2024.

Global potash supply constraints are likely to continue to abate this year as Mosaic sees higher exports from Belarus and Russia. However, Mosaic also expects strong palm oil fundamentals to drive demand recovery in South East Asia. 

Despite the temporary resumption of China phosphate exports, the favorable overall picture has not changed as domestic agriculture and industrial demand will continue to be prioritized over fertilizer exports in the long term.

These factors suggest the global potash market is balanced and the phosphate market will remain tight in 2024.

2024 Expectations and Key Assumptions

The Company provides the following modeling assumptions for the full year 2024:

⁽¹⁾See ″Non-GAAP Financial Measures″ for additional information and reconciliation

⁽²⁾Average MOP Selling Price (fob mine) 

⁽⁴⁾Average DAP Selling Price (fob plant)