- Minimal Negative Impacts from COVID-19
- Agriculture Deemed Essential Business in Company's Major Markets
- Strong Spring Season in North America
The Mosaic Company (NYSE: MOS), reported net sales of $1.8 billion and a year-over-year finished goods sales volume increase of 14 percent. The company reported a net loss of $203 million for the first quarter of 2020, including $295 million of noncash foreign currency losses, which were primarily offset in other comprehensive income on the balance sheet. Adjusted net loss was $21 million, a decrease of $119 million from the prior year, as lower finished goods prices were partially offset by lower phosphate raw material costs and strong sales volumes. The loss per share was $0.54, adjusted loss per share was $0.06 and adjusted EBITDA was $214 million.
“Mosaic's products are critical to ensuring that the global food supply remains sufficient and we appreciate the efforts of governments, our supply chain partners, our customers and Mosaic's employees to support farmers' needs,” said Joc O’Rourke, President and Chief Executive Officer. "We are all moving forward to capture the opportunity before us: meeting ever-rising demand for food."
Cash flow provided by operating activities in the first quarter of 2020 was $190 million, compared to operating cash flow of negative $176 million in 2019 and negative $71 million in the same period of 2018. The first quarter typically reflects a seasonal inventory build that increases working capital. The working capital decrease of $194 million during the first quarter of 2020 primarily reflected significantly stronger sales volumes, up 14 percent from the prior year period, declining company inventories, and diligent management of other working capital items. Capital expenditures totaled $264 million in the quarter, down from $314 million in the prior year period. Mosaic’s total cash and cash equivalents, excluding restricted cash, were $1.1 billion compared with $385 million a year ago, and include $400 million drawn from a $2 billion committed line of credit in March 2020, for the sole purpose of prudently increasing cash-on-hand. During the first quarter, the company also accessed approximately $575 million under short term working capital facilities and reduced outstanding structured payables in Brazil by $241 million. Long-term debt was $4.6 billion as of March 31, 2020.
Net sales in the Potash segment totaled $442 million for the first quarter, down from $504 million last year, driven primarily by lower prices. Volumes were flat with the year-ago period, as improving North American sales were offset by the global impacts of a lack of a Chinese contract. Gross margin was $109 million for the first quarter compared to $185 million for the same period a year ago, as lower prices more than offset lower costs per tonne.
The actions the company has taken to lower costs through the optimization of production and the accelerated development of K3, has driven the net cash costs of production, excluding brine management costs, to $59 per tonne, below the company's 2021 target of $62 per tonne at an 85% operating rate and the lowest cost per tonne since the fourth quarter of 2018 which had a 99% operating rate. Cash brine management costs declined to $21 million from $28 million in the year ago period, as the company continues to benefit from the risk mitigation effects of K3.
Mosaic Fertilizantes delivered its best first quarter since formation in terms of sales volumes and gross margin. Net sales in the Mosaic Fertilizantes segment were $731 million for the first quarter, up from $698 million in the prior year first quarter despite a softer pricing environment. Gross margin was $66 million, compared to $52 million for the same period a year ago. The year-over-year increase in gross margin was driven by improved margins and volumes in the distribution business coupled with a significant currency tailwind.
Mosaic Fertilizantes delivered $17 million in transformational benefits in the quarter, ahead of plan. For the full year 2020, the company continues to believe it will achieve $50 million in Mosaic Fertilizantes' transformational benefits. Mosaic Fertilizantes' cash costs of phosphate rock per tonne were R$312, ahead of the 2021 target of R$320. Cash costs of phosphate conversion per tonne were R$309 in the first quarter, down from R$321 in 2019 and on a path to the 2021 target of R$275.
Phosphates sales volumes improved from the same period one year ago as North America experienced a late fall application surge, which drove strong sales early in the first quarter of 2020. Net sales in the Phosphates segment were $619 million for the first quarter, down from $806 million in the prior year first quarter, primarily driven by lower sales prices. Gross margin in the first quarter was $(83) million, compared to $55 million in the prior year first quarter, as lower prices and the cost impact of a lower operating rate were only partially offset by improved raw material costs. Gross margin per tonne was $(43), including $2 per tonne incremental costs from the COVID-19 related temporary idling of Miski Mayo phosphate mine. Cash gross margin, excluding the Miski Mayo idling impact, was $18 per tonne.
The cash cost of mined rock in Florida fell to $36 per tonne from $43 per tonne in the prior year first quarter, due to transformational efforts and favorable geology in the current mining areas. The cash cost of conversion increased slightly year-over-year, due to the January and February curtailment of operations at the Bartow facility.
The company recorded a total of $295 million in unrealized foreign currency losses in the first quarter. Of this amount, $239 million resulted from the normal quarter end accounting process for U.S. dollar denominated payables on non U.S. subsidiaries' balance sheets. This amount was offset in the consolidated balance sheet under other comprehensive income. The remaining $56 million reflects the mark-to-market on normal course hedging activity.
Selling, general and administrative costs (SG&A) were $68 million, down from $94 million in the year-ago period. The decline reflects lower total shareholder return (TSR) based long-term incentive payments, primarily due to the company not meeting the performance hurdles for vesting in fiscal 2019.
In addition to cash generated from earnings, the company expects up to $170 million in cash proceeds from both U.S. and non-U.S. tax refunds and the unwinding of an interest rate swap in 2020. These cash tax refunds are in excess of those factored into the company's previously disclosed cash tax estimate for 2020.
The tax rate during the first quarter of 2020 was 42 percent due to the pretax loss and changes in the mix of earnings from various tax jurisdictions. The full year 2020 effective tax rate is expected to be in the mid-to-high 30 percent range. Net cash income tax in 2020 is expected to be a refund of approximately $15 million, compared to prior expectations of a net payment of $60 million.
Brazilian growers are benefiting significantly from the weak Brazilian currency, with fertilizer demand on path to set another shipment record. In North America, fertilizers applications are in the peak spring season, and demand is running high. Mosaic’s retail distribution customers are reporting that demand is out-pacing even their high expectations.
Their April shipment volumes were robust, and North American prices through April have responded positively. They are seeing phosphate cargos that will arrive in May, too late for spring application, pressuring price quotes for May delivery. They believe this dislocation is temporary, and market conditions remain good overall. The impact of COVID-19 in North America has pushed Mosaic’s customers to try to accelerate deliveries where possible, but otherwise the season is playing out like many other normal springs.
In the back half of 2020 there is risk to global shipment volumes if the negative impact of COVID-19 on biofuel and related crop prices continues. Farmers are receiving substantial governmental support globally, which could mitigate the potential negative impact on fertilizer demand.