The Mosaic Company — Q1 2022 Form 10-Q
Business context and reporting period
Mosaic produces and markets phosphate and potash crop nutrients. This unaudited filing covers the three months ended March 31, 2022, with comparisons to Q1 2021. Its reportable segments are Phosphate, Potash and Mosaic Fertilizantes. Management cautions that seasonal interim results are not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $3,922.3 million | $2,297.1 million |
| Gross margin | $1,439.1 million; 37% of sales | $434.9 million; 19% of sales |
| Operating earnings | $1,255.8 million | $313.2 million |
| Net earnings attributable to Mosaic | $1,182.0 million | $156.7 million |
| Diluted earnings per share | $3.19 | $0.41 |
| Operating cash flow | $506.2 million | $318.8 million |
| Capital expenditures | $290.5 million | $288.6 million |
Net sales rose 71% year over year. Higher fertilizer prices were the primary driver, while sales volumes declined in all three operating segments. Operating cash flow less capital expenditures was approximately $215.7 million; working capital movements reduced operating cash flow by $639 million.
- Phosphate: Sales were $1,496.0 million and gross margin $527.7 million, versus $1,001.0 million and $172.6 million. Average finished-product selling price increased 84% to $877 per tonne; finished-product volume fell 19%. Higher prices were partly offset by increased sulfur and ammonia costs, weaker volumes and higher conversion costs.
- Potash: Sales were $1,059.8 million and gross margin $578.9 million, versus $477.4 million and $140.2 million. Average selling price increased 145% to $591 per tonne; total segment volume declined 9%. Canadian resource-tax expense rose to $157.2 million from $35.0 million.
- Mosaic Fertilizantes: Sales were $1,488.6 million and gross margin $219.3 million, versus $763.4 million and $103.1 million. Average selling price increased 121% to $817 per tonne, while segment volume declined 12%. Higher input and production costs offset part of the price benefit.
Liquidity, debt and capital allocation
At March 31, 2022, cash and cash equivalents were $881.9 million. Short-term debt was $480.5 million; long-term debt, including current maturities, was approximately $4.0 billion. Total debt across these categories was approximately $4.46 billion. Total equity was $11.8 billion. The company reported $2.49 billion available under its $2.50 billion committed revolving facility and approximately $200 million under uncommitted facilities; it was in compliance with financial covenants. Management expects cash, operating cash flow and available borrowing capacity to fund operations, capital expenditures and expected dividends for the next 12 months, while noting cash generation is not assured.
Financing cash flow included $422.1 million of share repurchases, $40.6 million of dividends and $14.1 million of long-term debt payments. Mosaic also reported net proceeds from short-term borrowing and structured accounts payable arrangements. A $400 million accelerated share repurchase was completed in Q2 for an additional $54.2 million settlement payment. The board approved a new $1 billion repurchase authorization to follow the existing program and increased the annual dividend to $0.60 per share from $0.45, beginning in Q2.
Material changes, outlook and risks
Management attributed improved results chiefly to fertilizer price increases driven by tight global supply and demand, stronger grain prices and the Russia-Ukraine conflict, which disrupted fertilizer and agricultural commodity supply. Higher prices were partly offset by rising sulfur, ammonia and other input costs. North American rail constraints, weather and third-party labor issues limited shipments; adverse Brazilian weather also weighed on sales. Potash production was affected by the closure of Esterhazy K1 and K2 shafts and logistical containment. Management said K3 reached full operational capacity in early April and expected potash production to increase during the remainder of 2022 as capacity and logistics improved.
The filing does not provide a specific earnings or revenue forecast. Management’s liquidity statement is not a guarantee of future cash generation. Material exposures include volatile fertilizer and energy input prices and availability, foreign exchange, weather and transportation disruptions, permitting and environmental requirements, and operational incidents. The filing specifically notes uncertainty around Florida and Louisiana phosphogypsum stack closure obligations, the New Wales sinkhole and the Uncle Sam stack slope movement. Brazilian proceedings allege aggregate damages or fines of approximately $843.1 million; estimated probable losses of approximately $69.2 million were accrued. The company states that known environmental conditions are not currently expected to materially affect its business or financial condition, but future costs could be material.
Reported earnings also included significant period-specific items: a $310.7 million foreign-currency transaction gain, approximately $100 million of unrealized derivative gains, and a $9 million discrete income-tax benefit. The currency gain chiefly reflected the weaker U.S. dollar against the Brazilian real on U.S.-dollar payables and intercompany loans. Other operating expenses included asset-retirement cost revisions, environmental reserves and fixed-asset disposals. These items make reported earnings less directly comparable with underlying operating performance.
Most important facts for investors to verify
- Whether fertilizer prices and global supply conditions remain supportive, and whether higher input costs narrow segment margins.
- Whether sales volumes, rail logistics and production recover as management expects, including the ramp-up at Esterhazy K3.
- How much of reported earnings and cash flow is repeatable after foreign-currency and derivative gains and working-capital movements.
- Debt, seasonal liquidity needs, use of receivables and structured-payables arrangements, and progress on share repurchases and the higher dividend.
- Changes in environmental closure estimates, financial-assurance requirements, permitting, and the outcomes or costs of disclosed legal proceedings.