The Mosaic Company — Q3 2021 Form 10-Q
Business context and reporting period. Mosaic produces and markets phosphate and potash crop nutrients. This unaudited quarterly filing covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Dollar amounts are in millions unless noted.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $3,418.6 | $2,381.5 | $8,516.4 | $6,224.3 |
| Gross margin | $864.5 | $355.1 | $2,051.7 | $653.5 |
| Gross margin percentage | 25% | 15% | 24% | 10% |
| Operating earnings | $701.6 | $98.5 | $1,498.8 | $118.1 |
| Net earnings (loss) attributable to Mosaic | $371.9 | $(6.2) | $965.8 | $(161.8) |
| Diluted earnings (loss) per share | $0.97 | $(0.02) | $2.52 | $(0.43) |
- Cash flow: Nine-month operating cash flow was $1,756.6, investing cash outflow was $930.6, and financing cash outflow was $578.7. Capital expenditures were $925.8.
- Liquidity: Cash and cash equivalents were $842.8 at September 30, 2021. Mosaic reported $2.49 billion available on its $2.50 billion committed revolving facility and about $500 million available under uncommitted facilities.
- Debt and equity: Long-term debt, including current maturities, was $3,994.7; stockholders’ equity was $10,420.4 and total equity was $10,581.2. The company prepaid $450 million of 3.75% notes due November 2021. It reported compliance with credit-facility financial ratios.
- Working capital: Current assets were $4,599.1 and current liabilities $3,494.5. Inventory rose to $2,273.6 from $1,739.2 at year-end 2020.
Material changes versus the prior comparable periods
- Sales and profitability rebounded sharply, led mainly by higher phosphate, potash and Brazilian fertilizer selling prices amid strong demand and tight supply. Nine-month sales increased 37%; Q3 sales increased 44% year over year.
- Higher prices were partly offset by materially higher input costs, especially sulfur and ammonia, as well as lower sales volumes in several operations. Q3 gross margin rose to $864.5 million from $355.1 million.
- Nine-month 2021 results included $158.1 million of Esterhazy mine closure costs; the prior-year period recorded none. Other operating expense declined, while SG&A increased $46.4 million for the nine months, mainly due to long-term incentive compensation and professional fees.
- Foreign-currency results were volatile: Q3 included a $100.1 million transaction loss, versus a $5.8 million gain in Q3 2020. For the nine months, the loss narrowed to $34.8 million from $174.3 million.
- Operating cash flow increased by $412.4 million year over year, but working capital was a $173.9 million use of cash, including inventory and receivables growth. Capital spending also increased by $140.0 million.
Outlook, management commentary and notable items
- Management expects Esterhazy K1/K2 closures, partly offset by the reopened Colonsay mine and K3 ramp-up, to reduce 2021 potash sales volumes by approximately 600,000 tonnes. K3 was expected to reach full operational capacity by the end of Q1 2022.
- Management stated that available cash, expected operating cash flows and credit facilities should be sufficient for operations, capital spending, strategic initiatives and expected dividends over the next 12 months, while cautioning that future cash generation is not assured.
- The board authorized a new $1.0 billion share repurchase program; Mosaic repurchased about $21 million of shares during Q3. After quarter-end, the board approved a 50% increase in the annual dividend to $0.45 per share beginning in 2022.
- Hurricane Ida damaged Louisiana operations, and equipment damage at New Wales, Florida reduced production. Phosphate output was also affected by sulfur availability and maintenance; potash volumes were constrained by the Esterhazy shaft closures and low inventory.
- Asset retirement obligations were $1,695.2 million, up from $1,393.9 million at year-end 2020, including $364.4 million of upward revisions in estimated cash flows. The company also reported substantial financial-assurance obligations for phosphogypsum-stack closure and long-term care.
- Key risks include fertilizer price and demand changes, raw-material and energy costs, foreign-exchange movements, weather and operational disruptions, permitting and environmental regulation, mine brine inflows, and international political and legal uncertainty. The filing describes ongoing environmental proceedings, Brazilian claims and tax contingencies; estimated probable Brazilian legal losses were about $66.8 million, against aggregate alleged damages or fines of about $798 million.
- U.S. countervailing-duty orders on phosphate fertilizer imports from Morocco and Russia were in place for at least five years, but were subject to litigation and administrative reviews. The filing also notes uncertainty following the vacatur of the Navigable Waters Protection Rule and the agencies’ stated plan to pursue replacement rulemaking.
Most important facts for investors to verify
- Whether elevated fertilizer prices and demand persist, and how quickly higher sulfur, ammonia and other input costs affect margins.
- Actual production, sales volumes and costs following Hurricane Ida, New Wales equipment damage, and the Esterhazy K1/K2 closures; progress on Colonsay and K3 ramp-up.
- Cash conversion and working-capital needs, including inventory levels, customer prepayments and receivables, alongside the planned $925.8 million nine-month capital-spending pace.
- Changes to the $1.695 billion asset-retirement obligation estimate, required financial assurance, and potential environmental or permitting impacts.
- Developments in the phosphate import-duty litigation, water-rule changes, Brazilian legal and tax matters, and other proceedings whose ultimate outcomes remain uncertain.
- Execution of the capital-allocation plans, including the new repurchase authorization and the announced 2022 dividend increase.