02 August 2022,Florida: The Mosaic Company (NYSE: MOS), reported net income of $1.0 billion, or $2.85 per diluted share, for the second quarter of 2022. Adjusted EPS(1) was $3.64 and Adjusted EBITDA(1) was $2.0 billion. Gross margin was $1.8 billion.
“Mosaic’s second quarter results demonstrate the strength of the business,” said Joc O’Rourke, President and CEO. “We are expanding production to help meet global demand and returning significant capital to shareholders. We expect strong fundamentals will continue for the rest of the year and into 2023.”
Highlights:
Second quarter revenues were up 92 percent year-over-year to $5.4 billion. The gross margin rate in the quarter was 34 percent, up from 27 percent in second quarter of 2021.
Adjusted EBITDA totaled $2.0 billion, up from the prior year period total of $829 million. The company generated cash flow from operations of $1.6 billion and free cash flow of $794 million(1).
Potash operating earnings totaled $915 million, up from $49 million in the prior year period, and Adjusted EBITDA totaled $998 million, up from $285 million in the second quarter of 2021. Higher pricing was partially offset by higher input costs, royalties, and Canadian resource taxes.
Phosphates operating earnings totaled $578 million, up from $283 million in the prior year period, and Adjusted EBITDA totaled $758 million, up from $408 million in the second quarter of 2021. Higher pricing more than offset lower volumes, which were impacted by a compressed North American spring application season and plant turnarounds during the quarter.
Mosaic Fertilizantes operating earnings totaled $420 million and Adjusted EBITDA totaled $444 million in the second quarter of 2022. This compares to operating earnings of $170 million and Adjusted EBITDA of
$203 million from the prior year period. Second quarter results reflect higher pricing and improved market positioning.
The company remains committed to its capital allocation strategy:
Mosaic has returned $1.1 billion to shareholders during the first half of 2022, including $1.0 billion of share repurchases, which represents 87% of free cash flow(1). Mosaic expects to return 100% of 2022 free cash flow(1), after debt reduction commitments are met, to shareholders through a combination of share repurchases and dividends. As of the end of the second quarter, $555 million remained on the current share repurchase authorization, and the company has continued to repurchase shares in July. Based on the company’s outlook for continued strong free cash flow generation, Mosaic’s Board of Directors approved a new authorization of $2.0 billion. This will go into effect following the exhaustion of the current authorization, which will likely occur during the third quarter.
The company expects to complete its goal of reducing long-term debt by $1.0 billion later this year with the retirement of $550 million that matures in November. Mosaic has no plan to further reduce long-term debt.
Total expected capital expenditures in 2022 remain unchanged at $1.3 billion. Growth investments reflect the optimization of the Esterhazy complex, a restart of the second mill at Colonsay, reserve additions for a mine extension at South Fort Meade, and other high-quality, opportunistic projects throughout the business.
Second Quarter Segment Results
Potash Results
Q2 2022
Q1 2022
Q2 2021
Sales Volumes million tonnes*
2.3
1.8
2.3
MOP Selling Price(2)
$678
$582
$243
Gross Margin (GAAP) per tonne
$403
$323
$93
Adjusted Gross Margin (non-GAAP) per tonne(1)
$403
$323
$100
Operating Earnings – millions
$915
$563
$49
Segment Adjusted EBITDA(1) – millions
$998
$651
$285
*Tonnes = finished product tonnes
Net sales in the Potash segment totaled $1.6 billion, up from $663 million one year ago, due to higher prices. Gross margin was $928 million compared to $217 million for the same period a year ago. Gross margin per tonne was
$403 compared to $93 in the prior-year period.
Total potash production was 2.4 million tonnes, up from 2.1 million tonnes in the prior year period, reflecting the contribution from K3 and Colonsay. Sales volumes of 2.3 million tonnes were roughly in line with the prior year quarter as a result of the compressed application season in North America and rail delays experienced early in the quarter. Total potash production is expected to exceed recent historical levels for the remainder of 2022.
MOP cash costs were $78 per tonne, compared to $62 per tonne in the prior year period. Costs reflected the inclusion of production from Colonsay, higher natural gas costs at Belle Plaine, and higher price-related royalties and taxes.
Sales volumes in the third quarter are expected to be 1.9-2.1 million tonnes with realized MOP prices on an FOB basis $10-$20 per tonne higher than prices realized in the second quarter.
Phosphate Results
Q2 2022
Q1 2022
Q2 2021
Sales Volumes million tonnes*
1.7
1.7
2.0
DAP Selling Price(4)
$920
$785
$544
Gross Margin (GAAP) per tonne
$383
$318
$156
Adjusted Gross Margin (non-GAAP) per tonne(1)
$383
$318
$156
Operating Earnings – millions
$578
$493
$283
Segment Adjusted EBITDA(1) – millions
$758
$632
$408
*Tonnes = finished product tonnes
Net sales in the Phosphate segment were $1.8 billion, up from $1.2 billion in the prior year period, due to higher year-over-year prices, partially offset by lower volumes. Gross margin was $642 million, compared to $309 million for the same period a year ago, as improved pricing was partially offset by lower volumes and higher raw material costs. Gross margin per tonne was $383 compared to $156 in the prior-year period.
Production of finished phosphates totaled 1.6 million tonnes, down 10 percent year-over-year, and sales volumes totaled 1.7 million tonnes, down 15 percent year-over-year. Lower production was a result of plant turnarounds during the quarter and led to cash conversion costs of $86 per tonne, up from the year ago level of $68 per tonne.
Mosaic continues to benefit from its advantaged ammonia cost position. The price of ammonia realized in cost of goods sold increased to $591 per tonne, up $209 per tonne from the prior year period, but was well below the
$1,350 per tonne average spot price in the quarter.
Sales volumes in the third quarter are expected to be 1.7-2.0 million tonnes. Recent published DAP prices have moderated down to levels that are consistent with Mosaic’s expectations for the full third quarter average price.
Mosaic Fertilizantes Results
Q2 2022
Q1 2022
Q2 2021
Sales Volumes million tonnes*
2.3
1.8
2.3
Finished Product Selling Price
$974
$817
$442
Gross Margin (GAAP) per tonne
$194
$120
$78
Adjusted Gross Margin (non GAAP) per tonne(1)
$194
$130
$81
Operating Earnings – millions
$420
$187
$170
Segment Adjusted EBITDA(1) – millions
$444
$233
$203
*Tonnes = finished product tonnes
Net sales in the Mosaic Fertilizantes segment were $2.3 billion, up from $1.0 billion in the prior year period due to higher year-over-year prices, partially offset by lower volumes. Higher costs of goods sold reflect higher prices for purchased nitrogen and potash products for distribution and sulfur and ammonia for phosphate production.
Gross margin was $450 million, compared to $185 million for the same period a year ago, primarily as a result of improved pricing and transformation benefits, partially offset by higher raw material costs, inflationary pressures on production costs, and lower volumes. Gross margin per tonne was $194 in the second quarter, up from $78 in the prior year period.
Other
Selling, general, and administrative costs (SG&A) were $108 million, roughly in line with the year-ago period.
The effective tax rate during the quarter was 26.8 percent. The company expects an effective rate for full year 2022 in the mid-20 percent range under current tax laws and regulations.
Market Outlook
Tight grain and oilseed markets are expected to persist through the remainder of 2022 and into 2023. The war in Ukraine, high temperatures in North America and Europe, and developing drought conditions in parts of South America highlight the risk for reduced yields globally. This suggests that global stocks-to-use ratios, already at 20- year lows, will remain under pressure.
In North America, Brazil and China, domestic crop prices continue to justify nutrient application to drive higher yields, despite elevated input costs. In India, the government continues to indicate support for importers to ensure adequate domestic supply. Domestic inventories in India remain at historically low levels, but shipments have increased in recent weeks.
For both potash and phosphates, supply constraints remain. In potash, the shortfall in supply from Belarus will only be partially mitigated by increased production from other producers. In phosphates, China export restrictions appear likely to be extended through the remainder of the year and into 2023. Industry stripping margins have declined from their highs reached at the end of the first quarter, but are expected to remain well above their historical range for the rest of the year.
2022 Expectations and Key Assumptions
The Company provides the following modeling assumptions for the full year 2022:
Modeling Assumptions
Full Year 2022
Total Capital Expenditures
$1.3 billion
Depreciation, Depletion & Amortization
$870 – $890 million
Selling, General, and Administrative Expense
$420 – $450 million
Net Interest Expense
$140 – $150 million
Non-notable adjustments
$100 – $110 million
Effective tax rate
Mid 20’s %
Cash tax rate
Low 20’s %
2022 Expectations and Key Assumptions
Sensitivities Table Using 2021 Cost Structure
The Company provides the following sensitivities to price and foreign exchange rates to help investors anticipate the potential impact of movements in these factors. These sensitivities are based on 2021 actual realized pricing and sales volumes.
