The Mosaic Company — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Mosaic produces and markets phosphate and potash crop nutrients, with operations in North America, Brazil and other international markets. Amounts are in U.S. dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $5.35 billion | $3.42 billion | $14.64 billion | $8.52 billion |
| Gross margin | $1.50 billion | $864.5 million | $4.79 billion | $2.05 billion |
| Gross margin percentage | 28% | 25% | 33% | 24% |
| Operating earnings | $1.15 billion | $701.6 million | $4.08 billion | $1.50 billion |
| Net earnings attributable to Mosaic | $841.7 million | $371.9 million | $3.06 billion | $965.8 million |
| Diluted earnings per share | $2.42 | $0.97 | $8.50 | $2.52 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $2.98 billion | $1.76 billion |
For the nine months, capital expenditures were $906.8 million and cash used in investing activities was $916.5 million. Cash used in financing activities was $2.11 billion, including $1.60 billion of share repurchases and $163.3 million of dividends. Cash, cash equivalents and restricted cash totaled $722.5 million at September 30, 2022; cash and cash equivalents on the balance sheet were $702.8 million.
At September 30, total debt was approximately $4.16 billion, comprising $200.6 million of short-term debt and $3.96 billion of long-term debt including current maturities. Cash and total current liabilities were $702.8 million and $5.13 billion, respectively. Mosaic reported $2.49 billion available under its $2.50 billion committed revolver, approximately $652 million under uncommitted facilities, and a $2.5 billion commercial paper program with no notes outstanding. The company said it was compliant with its credit-facility financial ratios.
Material changes and operating drivers
- Q3 sales increased 56% year over year; nine-month sales increased 72%. Management attributed the strong results primarily to higher fertilizer prices amid tight global supply and demand, including reduced exports from Russia and Belarus and Chinese phosphate export restrictions.
- Potash was the strongest segment: Q3 segment sales rose to $1.43 billion from $589.3 million and gross margin to $798.7 million from $236.0 million. Higher prices and increased Q3 volume contributed; higher Canadian resource taxes and royalties, plant spending and natural gas costs partially offset gains.
- Phosphate Q3 sales rose to $1.58 billion, but gross margin slipped to $357.9 million from $364.2 million. Higher selling prices were offset by substantially higher sulfur and ammonia costs, lower sales volumes, conversion costs and maintenance. North American finished-product sales volumes fell 10% in Q3 and 15% for the nine months.
- Mosaic Fertilizantes Q3 sales rose to $2.63 billion and gross margin to $348.3 million. Price increases were partly offset by higher input and product costs and lower volume; segment sales volume declined 16% in Q3 and 10% for the nine months.
- Share repurchases reduced outstanding shares: Mosaic repurchased 29.4 million shares for approximately $1.6 billion during the first nine months. A new $2.0 billion authorization was approved in Q3. The annual regular dividend was increased to $0.60 per share beginning in Q2.
Outlook, risks and unusual items
- No specific earnings or sales guidance is provided in the filing. Management expects available cash, operating cash flows and borrowing facilities to be sufficient for operations, capital spending, strategic initiatives, debt repayments and dividends for at least the next 12 months, while cautioning that future cash generation is not assured.
- Management cited customer purchase deferrals, adverse weather and Hurricane Ian-related delays or downtime as volume pressures. It also identified volatile fertilizer prices, sulfur, ammonia and energy costs, seasonal working-capital needs, foreign exchange, supply-chain disruptions, permitting and regulatory matters as key risks.
- Q3 included $357 million of pretax notable impacts, including $146 million of increased asset-retirement estimates, $76 million of unrealized derivative losses, $71 million of increased Florida environmental reserves, and $61 million of foreign-currency transaction losses. Nine-month results included $350 million of pretax notable items, including asset-retirement and environmental reserve increases.
- Total asset-retirement obligations were $1.94 billion at September 30, up from $1.75 billion at year-end, including $272.4 million of upward revisions to estimated cash flows during the nine months. Florida phosphogypsum-stack obligations and environmental matters remain significant contingencies.
- A $65 million reserve was recorded for repairs following a cavity and liner tear at the New Wales, Florida stack; potential additional impacts were not estimable. The company also disclosed a separate EPA notice alleging Risk Management Plan Rule violations at the Faustina plant and stated it intended to confer with EPA.
- CF Industries gave notice that it would end the ammonia supply agreement in its current form effective January 1, 2025. Mosaic said it expects adequate ammonia supply at competitive prices, including from CF; replacement terms and future costs remain relevant to monitor.
Important facts for investors to verify
- Whether fertilizer selling prices and demand remain strong, and how quickly lower prices or customer deferrals would affect results and inventory values.
- Whether higher sulfur, ammonia, energy, distribution and Canadian resource-tax costs continue to offset pricing benefits.
- Progress, final costs and potential permitting effects of the New Wales stack repairs, other Florida environmental remediation and asset-retirement estimate revisions.
- Cash conversion and working capital: nine-month operating cash flow included a $1.1 billion unfavorable working-capital change, notably from receivables and inventory increases.
- Liquidity and capital allocation after substantial repurchases, including the pace of further buybacks, dividends, capital expenditures and debt repayment.
- Future ammonia sourcing and pricing after the current CF agreement form ends in 2025, and developments in the disclosed EPA, environmental, tax and legal proceedings.