The Mosaic Company (NYSE: MOS), reported net income of $435 million, or $1.28 per diluted share, for the first quarter of 2023. Adjusted EPS was $1.14 and Adjusted EBITDA was $777 million. Gross margin was $670 million.
″Mosaic delivered another strong first quarter,″ said President and CEO Joc O’Rourke. ″While fertilizer prices have pulled back from last year's peak levels, they remain constructive. At the same time, North American fertilizer demand has accelerated as growers are being incented to maximize yields.″
• First quarter revenues totaled $3.6 billion, down 8 percent from the year ago period, reflecting the impact of lower prices somewhat offset by higher volumes. The gross margin rate in the first quarter was 18.6 percent, down from 36.7 percent in the year ago period.
• Net Income in the first quarter totaled $435 million, compared with $1.2 billion in the year ago period. Adjusted EBITDA totaled $777 million, compared with $1.5 billion in the first quarter of 2022. Cash from operating activities totaled $149 million and free cash flow totaled $191 million.
• Potash operating earnings were $402 million in the first quarter, compared to $563 million in the prior year period. Adjusted EBITDA totaled $474 million in the first quarter, compared to $651 million last year. The last of Esterhazy's thirteen underground miners is expected to enter service in the second half of 2023. With production now sufficient to meet current market demand, the restart of the Colonsay mine has been deferred to the second half of 2023.
• Phosphate operating earnings were $266 million in the first quarter, compared to $493 million in the prior year period. Adjusted EBITDA totaled $382 million, compared to $632 million in the first quarter of 2022. Segment results reflected the impact of lower prices, somewhat offset by higher volumes. Production returned to normal operating rates in February of 2023.
• Mosaic Fertilizantes operating earnings were negative $32 million in the first quarter, compared to positive $187 million in the prior year period. Adjusted EBITDA(1) totaled $3 million during the quarter, down from $233 million in the first quarter of 2022. Destocking of high-cost raw materials and distribution inventories impacted results, but that is now largely complete. Looking ahead, margins in the segment are expected to return to more normalized mid-cycle levels beginning in the second quarter of 2023.
• Mosaic recognized earnings from equity investments of $31 million. In February, Mosaic received a $25 million dividend distribution from the MWSPC joint venture in Saudi Arabia.
2023 Capital Allocation Strategy
The company remains committed to its capital allocation strategy:
• Mosaic returned $608 million to shareholders during the first quarter of 2023 through share repurchases and dividends. Mosaic continues to expect to return largely all of 2023 free cash flow(1) to shareholders.
• The company expects to refinance $900 million of long-term debt that matures later this year.
• Total expected capital expenditures in 2023 remain unchanged at $1.3-$1.4 billion. Growth investments include the expansion of MicroEssentials capacity at our Riverview facility, construction of the new Palmeirante blending and distribution facility in Brazil, construction of a purified phosphoric acid test plant in North America, and extending production from the Taquari potash mine in Brazil.
First Quarter Segment Results
Net sales in the Potash segment totaled $907 million, down from $1.1 billion one year ago. Gross margin was $413 million compared to $579 million for the same period a year ago, as lower pricing was partially offset by lower royalties and Canadian resource taxes. Gross margin per tonne was $216 compared to $323 in the prior-year period.
Total potash production was 1.9 million tonnes, down from 2.2 million tonnes in the prior year period, reflecting the impact of idled production at Colonsay. Sales volumes totaled 1.9 million tonnes, up from 1.8 million tonnes in the prior year quarter. MOP cash costs were $81 per tonne, in line with the prior year period.
Sales volumes in the second quarter are expected to be 2.0-2.2 million tonnes with realized mine-gate MOP prices in the range of $325-$375 per tonne. Shipments in the second quarter are expected to reflect a higher percentage of lower-priced export sales.
Net sales in the Phosphate segment were $1.4 billion, down from $1.5 billion in the prior year period. Gross margin was $259 million, compared to $528 million for the same period a year ago, as lower pricing was somewhat offset by higher volumes. Gross margin per tonne was $141 compared to $318 in the prior-year period.
Production of finished phosphates totaled 1.8 million tonnes, up 5 percent year-over-year, and sales volumes totaled 1.8 million tonnes, up 11 percent year-over-year. Production has recovered from the disruptions that impacted operations in the second half of 2022.
Mosaic continued to benefit from its advantaged ammonia cost position during the first quarter. The price of ammonia realized in cost of goods sold averaged $605 per tonne, well below the $785 per tonne average first quarter spot price.
Sales volumes in the second quarter are expected to be 1.8-2.0 million tonnes with DAP prices on an FOB basis averaging $550-$600 per tonne. Lower raw material prices are expected to provide a sequential benefit in the second quarter.
Net sales in the Mosaic Fertilizantes segment were $1.3 billion, down from $1.5 billion in the prior year period. Gross margin was $(1) million, compared to $219 million for the same period a year ago, primarily as a result of a concerted effort to destock high-cost inventory in the distribution business. Gross margin per tonne was about breakeven in the first quarter, vs. $120 in the prior year period.
Destocking of high-cost raw materials in the production business and inventory in the distribution business is now largely complete and margins are expected to return to more normalized mid-cycle levels in the second quarter.
Selling, general, and administrative costs (SG&A) were $128 million, down from $132 million in the year-ago period. The effective tax rate during the quarter was 21.7 percent. The company expects an effective rate for full year 2023 in the mid-20 percent range under current tax laws and regulations.
Mosaic recognized earnings from equity investments of $31 million. In February, Mosaic received a $25 million dividend distribution from the MWSPC joint venture in Saudi Arabia.
In January of 2023, Mosaic divested Streamsong Resort for gross proceeds of $160 million.
Grain and oilseed markets are expected to remain tight through 2023 and likely beyond. The disruption to Ukraine's agricultural production caused by war, coupled with reduced fertilization and sub-optimal weather in major growing regions like the Americas, Europe and China, threaten global agricultural production. This suggests that global stocks-to-use ratios, already projected at 25-year lows, will remain under pressure.
Historically elevated crop prices coupled with fertilizer pricing that has moderated from the post-Ukraine-invasion spike justifies a return to normal nutrient applications. In North America, sentiment has improved significantly from the second half of 2022, and spring nutrient application rates are trending toward normal levels. In Brazil, an attractive fertilizer-to-soybean barter ratio suggests a significant recovery in fertilizer shipments in 2023.
For both potash and phosphates, supply constraints remain. In potash, we expect annual shipments from Belarus will be down 5-6 million tonnes from pre-sanction export rates. In phosphates, China's exports are expected to see only a modest recovery from the recent lows in 2022 but remain well below shipments seen in 2021. In both phosphates and potash, the fundamental tightness in global markets is expected to persist well into 2023 and likely beyond.