The Mosaic Company — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022. Mosaic produces and markets phosphate and potash crop nutrients and operates Phosphate, Potash, and Mosaic Fertilizantes segments. Management cautions that seasonal interim results are not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Net sales | $3.604 billion | $3.922 billion; down 8% |
| Gross margin | $670.4 million; 19% of sales | $1.439 billion; 37% of sales |
| Operating earnings | $544.6 million | $1.256 billion; down 57% |
| Net earnings attributable to Mosaic | $434.8 million | $1.182 billion; down 63% |
| Diluted EPS | $1.28 | $3.19; down 60% |
| Operating cash flow | $149.0 million | $506.2 million |
| Capital expenditures | $321.5 million | $290.5 million |
Interest expense, net, was $41.1 million, compared with $39.3 million. The effective tax rate was 21.7%, versus 24.4%; Q1 2023 included a $13.9 million discrete tax benefit. A $51.4 million foreign-currency transaction gain was substantially below the prior-year $310.7 million gain.
At March 31, 2023, cash and cash equivalents were $464.8 million. Short-term debt was $854.6 million; long-term debt, including current maturities, was approximately $3.4 billion. Current assets were $5.853 billion and current liabilities were $5.168 billion. Equity was $12.057 billion. Cash, cash equivalents, and restricted cash fell by $277.1 million during the quarter to $477.0 million.
Operating cash flow declined year over year as lower earnings and working-capital movements weighed on cash generation. A $841.6 million reduction in accounts payable and accrued liabilities was partly offset by cash inflows from lower receivables ($310.7 million) and inventories ($241.2 million). Financing activity included $456.0 million of share repurchases and $152.4 million of dividends. The company reported $2.49 billion available under its committed revolver, approximately $475 million under uncommitted facilities, and $2.1 billion available under its commercial-paper program, which is backed by and reduces revolver availability.
Material changes and operating drivers
- Management attributed weaker results across segments primarily to lower fertilizer selling prices as global markets softened and buyers delayed purchases. The prior-year period benefited from tight supply and demand and market disruption following Russia’s invasion of Ukraine.
- Phosphate: Gross margin fell to $259.3 million from $527.7 million. Lower prices and higher raw-material, conversion, maintenance, and turnaround costs more than offset higher finished-product volumes.
- Potash: Gross margin fell to $413.3 million from $578.9 million. Lower prices were partly offset by higher sales volumes and reduced Canadian resource taxes. Production operating rate was 69%, compared with 80%; the Colonsay mine was temporarily idled.
- Mosaic Fertilizantes: Gross margin was a loss of $1.1 million, compared with $219.3 million of income. Lower prices and lower sales of products including gypsum and acids outweighed higher finished-product volumes and lower costs.
- Consolidated sales declined 8%, while cost of goods sold increased 18%. Average finished-product selling prices were lower in all three operating segments; reported segment data also show increased sales volumes in Phosphate and Potash and higher finished-goods volumes in Fertilizantes.
Outlook, commentary, risks, and unusual items
- The filing provides no specific consolidated earnings or revenue guidance. Management said it expects the temporarily idled Colonsay mine to restart in the second half of 2023, subject to market conditions.
- Management said available cash, expected operating cash flows, and borrowing facilities should be sufficient for operations, capital expenditures, strategic initiatives, debt repayments, and expected dividends for at least 12 months, while cautioning that future cash flows are not assured. Its stated priorities include investment-grade financial metrics, sustaining and growing the business, and returning excess cash to shareholders.
- The January sale of Streamsong Resort and approximately 7,000 acres generated net proceeds of $158.4 million and a gain of approximately $57 million. Mosaic also acquired the remaining 50% interest in Gulf Sulphur Services for $41 million, giving it full ownership.
- Environmental exposure includes the New Wales phosphogypsum-stack repair project. Phase I stabilization was complete; Phase II work was underway and expected to conclude in Q4 2023. Mosaic had a $55.4 million reserve but said it could not estimate potential additional financial impacts or a range of loss.
- Other disclosed exposures include substantial asset-retirement and gypstack-closure obligations, Brazilian legal claims, Brazilian tax contingencies, and ongoing environmental and regulatory matters. The filing describes an estimated probable loss of $66.5 million for Brazilian legal claims against maximum alleged damages or fines of approximately $801.9 million; it states that probable reserves for Brazilian tax matters are immaterial, although maximum potential liability is estimated at $569.7 million before applicable indemnification.
- Key business risks include fertilizer price and demand volatility, raw-material and energy costs, transportation and labor constraints, seasonality and working-capital needs, foreign exchange, mine and facility disruptions, environmental regulation, and litigation. The 2022 federal WOTUS rule was subject to litigation and preliminary injunctions, including an injunction covering Florida.
Most important facts for investors to verify
- Whether fertilizer prices and demand stabilize, and whether higher sales volumes can offset lower realized prices.
- Whether Mosaic Fertilizantes returns to positive margins and whether Colonsay restarts in the second half of 2023.
- Seasonal liquidity and working-capital needs, including short-term borrowing, commercial paper, inventory financing, and supplier-payment arrangements.
- The scope, timing, and potential cost of New Wales repairs and broader gypstack closure and financial-assurance obligations.
- Whether share repurchases and dividends remain consistent with the company’s investment-grade leverage objectives and cash-generation capacity.