Q1 2024 Nutrien Ltd Earnings Call
Okay.
[music].
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
As a reminder, this conference call is being recorded.
I'd now like to turn the conference over to Jeff Holzman, Vice President of Investor Relations. Please go ahead.
Jeff Holzman: Thank you operator, good morning, and welcome to nutrients first quarter 2024 earnings call.
As we conduct this call various statements that we make about future expectations plans and prospects contain forward looking information.
Jeff Holzman: Certain assumptions were applied in making these conclusions and forecasts. Therefore actual results could differ materially from those contained in our forward looking information.
Additional information about these factors and assumptions are contained in our quarterly report to shareholders as well as our most recent annual report MD&A and annual information form filed with Canadian and U S Securities commissions I will now turn the call over to Ken Seitz nutrients, President and CEO and our CFO Pedro Farrar for opening com.
Kenneth A. Seitz: Before we take your questions.
Kenneth A. Seitz: Good morning, and thank you for joining us today to review, our first quarter 2024 results and the outlook for our business.
Kenneth A. Seitz: Nutrient delivered adjusted EBITDA of $1 1 billion in the first quarter supported by improved crop input margins increased fertilizer production higher sales volumes and lower operating costs.
Jeff Holzman: Nutrient AG solutions adjusted EBITDA of $77 million was well above the prior year driven by strong grower demand and a normalization of margins in North America.
Jeff Holzman: Retail crop nutrient sales volumes were up 17% and per ton margins increased by more than 15% compared to the compressed levels in the first quarter of 2023.
Jeff Holzman: We continue to grow our proprietary crop nutritional and bio stimulant gross margins through differentiated product offerings and expanded manufacturing capacity.
Jeff Holzman: These high value products enhance margins for nutrients and improve quality and environmental performance for our growers.
Jeff Holzman: Okay.
Jeff Holzman: Gross margin for crop protection products increased by 12% in the first quarter as margins in North America recovered to normalized levels.
Jeff Holzman: <unk> continued to see pressure on crop protection margins in Brazil, due to the persistence of high inventory levels in the channel.
Jeff Holzman: We reduced our crop protection inventory in Brazil by approximately $150 million over the past 12 months.
Jeff Holzman: We'll continue to tightly manage purchases as the market stabilizes.
Jeff Holzman: Our Australian retail business delivered strong results and was a significant contributor to our first quarter retail earnings highlighting one of the advantages of serving growers in diverse geographies.
Jeff Holzman: First quarter earnings for potash nitrogen and phosphate were down from the prior year due to lower benchmark prices. However, our results reflect progress on a number of operational initiatives that contributed to higher operating rates increased sales volumes and lower costs.
Jeff Holzman: In potash, we increased production by 15% year over year and lowered our controllable cash cost of production to 50 is $56 per ton.
Jeff Holzman: We continue to advance automated mining initiatives that are providing safety and productivity benefits for our operations.
Jeff Holzman: North American potash sales volumes increased by more than 50% compared to the prior year supported by low channel inventories and more normal buying behaviors.
Jeff Holzman: We achieved this volume growth by flexing, our granular potash production capability and leveraging our extensive north American distribution network.
Jeff Holzman: Offshore potash sales volumes were up 18% in the first quarter driven by strong demand in key international markets and improved supply chain performance.
Jeff Holzman: Yeah.
Jeff Holzman: We increased nitrogen and phosphate production, despite some weather related outages, leading to higher sales volumes compared to the prior year.
Jeff Holzman: We adjusted our nitrogen production mix to optimize margins, resulting in increased downstream sales of urea and nitrogen solutions in the quarter.
Jeff Holzman: To summarize we are encouraged by the strength of demand and continued market stabilization that we saw in the first quarter.
Jeff Holzman: Results demonstrated the capabilities of our flexible low cost production assets and downstream distribution network to efficiently supply crop inputs to growers around the world.
Speaker Change: Now turning to the market outlook for the remainder of 2024.
Jeff Holzman: U S corn and soybean planting has progressed in line with historic average levels and fertilizer application rates have been strong.
Jeff Holzman: Wet weather has recently delayed field work in some parts of the corn belt and combined with production concerns and other key global growing regions has provided support for crop prices.
Jeff Holzman: And Brazil crop margins for 2023 plants in crop were compressed which impacted grower sentiment perspective, soybean margins based on 2024 prices and projected input costs are currently well above 2023 levels, which is anticipated to support Brazilian acres planted acreage and crop input demand in the second.
Jeff Holzman: Yeah.
Jeff Holzman: Global potash supply and demand is relatively balanced to begin 2024, and we maintained our full year global potash shipment forecast of 68 to 71 million tonnes.
Jeff Holzman: North American demand has been strong and we believe distributors will attempt to end the spring season with limited inventory, which would support healthy engagement in the second half.
Jeff Holzman: Resilient potash demand has strengthened in the second quarter and prices have increased by approximately $30 per ton over the past three months.
Jeff Holzman: We have seen good movement to South East Asian markets to start the year supported by lower inventory levels and favorable economics for key crops, such as palm oil and rice.
Jeff Holzman: Standard grade potash prices in this region have recently softened due to a seasonal lull ahead of anticipated contract settlements.
Jeff Holzman: In China, there has been a step change in potash consumption, reflecting strong affordability and as part of our long term strategy to increase domestic food production.
Jeff Holzman: China's potash consumption increased by around 2 million tons in 2023 to over 17 million tonnes.
Jeff Holzman: At the same time, China's domestic potash production declined by around 1 million tonnes.
Jeff Holzman: We believe these factors are behind the push to maintain higher port inventories and an increase in strategic reserves.
Jeff Holzman: Global nitrogen markets have fluctuated in 'twenty 'twenty, four driven by seasonal buying patterns production outages and uncertainty over Chinese urea export restrictions and India is important requirements.
Jeff Holzman: The U S nitrogen supply and demand balance remains relatively tight in particular for ammonia and UAS with net nitrogen imports down 21% on a fertilizer year basis compared to the historical average.
Jeff Holzman: We expect inland nitrogen prices to remain firm through the spring season, and then followed the typical seasonal reset for summer fill.
Jeff Holzman: North American gas prices are advantaged compared to Europe, and Asia and based on the forward curve. We anticipate this favorable position to continue on a multiyear basis.
Jeff Holzman: I will now turn it over to Pedro type of providing more detail on our guidance assumptions and capital allocation plans for 2024.
Pedro Farah: Thanks, Ken.
Pedro Farah: Highlighted in our news release, we haven't pinned our 'twenty to 'twenty four retail earnings and fertilizer sales volume guidance ranges as market conditions and operational performance have progressed in line with our previous expectations.
Pedro: For retail.
Pedro: Full year adjusted EBITDA guidance is unchanged at $1 65 to $1 85 billion.
Pedro Farah: Midpoint of this range represents an increase of approximately 300 million compare to 2023.
Pedro Farah: Our outlook includes an expectation for increased crop nutrient sales volumes in margins for our North American retail business in the first half.
Pedro Farah: And improved crop input margins in Brazil during the second half of the year.
Pedro Farah: In April we initiated a process to divest our retail assets in Argentina, Chile and Uruguay.
Pedro Farah: This region accounts for approximately 3% of our global retail sales and around 2% of adjusted EBITDA.
Pedro Farah: The decision reflects our focus on core geographies and actions that enhance the quality of our earnings and cash flow.
Pedro Farah: Our 2020 forward retail guidance reflects a full year of earnings from these assets as we currently do not have a timeline for completion of the divestiture.
Pedro Farah: We maintain our annual potash sales volume guidance range of 13 to $13 8 million tons and expect a more even split between first and second half compared to 2023.
Pedro Farah: We are taking proactive measures ahead of potential Canadian rail and port strikes, but if there is a labor disruption, we could see an impact on second quarter sales volumes.
Pedro Farah: Our nitrogen sales volume guidance remains in the range of 10, six to $11 2 million tonnes.
Pedro Farah: At the midpoint. This represents an increase of approximately 500000.
Pedro Farah: Last year with the majority of this growth plan for upgrade products, such as urea nitrogen solutions.
Pedro Farah: We benefited from lower North American natural gas in the first quarter as we are likely hedged coming into the year.
Pedro Farah: With a softening in prices during the first quarter, we saw an opportunity to hedge a portion of our north American natural gas requirements for the remainder of 2024.
Pedro Farah: Total planned capital expenditures of $2 two to $2 3 billion is projected to be down $400 million compared to 2023.
Pedro Farah: This total includes investing capital initiatives.
Pedro Farah: Drive organic growth in retail and operational improvements in potash and nitrogen.
Pedro Farah: The focus in retail is to further expand our proprietary product portfolio drive retail network optimization and enhance our digital capabilities.
Pedro Farah: In addition, we will continue to evaluate tuck in acquisition opportunities in North America and Australia.
Pedro Farah: The majority of planned investment capital in our fertilizer operations are related to mine automation projects in potash and the completion of low cost brownfield expansions in nitrogen.
Pedro Farah: These investments support the achievement of our mid cycle sales volume growth scenario and improve the efficiency of our operations back to you again.
Speaker Change: Thanks Pedro.
Speaker Change: To reiterate we continue to see strong demand for crop inputs and increased market stability, we delivered solid operational performance in the first quarter and are maintaining our full year retail earnings and fertilizer sales volume guidance ranges.
Speaker Change: Our focus remains on strategic initiatives that enhance our ability to serve growers in our core markets maintain the low cost position and reliability of our assets and position the company for growth.
Speaker Change: We are hosting an investor day in New York on June 12 to where we planned to further outline our strategic priorities and capital allocation plans.
Speaker Change: Registration is open on our website and we hope to see many of you in person that day.
Speaker Change: We would now be happy to take your questions.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone.
Speaker Change: You'll hear a prompt that there hadn't been a race.
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Speaker Change: Your first question comes from the line of Joel Jackson. Please go ahead.
Speaker Change: Mr. Joel Jackson you are now open for asking a question. Please go ahead.
Joel Jackson: Hi, sorry, good morning, Thanks for taking my question.
Joel Jackson: Your guidance your midterm guidance as you can get to over $1 9 billion retail EBITDA guide.
Speaker Change: Commodity prices.
Speaker Change: Assuming commodity prices stay where they are now is that something you can get to in 2025.
Speaker Change: What do you have to do this year in the business to be.
Speaker Change: See that obviously, you're going to see it two or three per cent reduction maybe not if you do sell these non Brazilian and South American retail assets.
Speaker Change: Yeah, Thanks, Joe and good morning, Yeah, we've talked about sort of mid cycle. It really is.
Speaker Change: Can we talk about normalization of margins and growth in proprietary products in retail and that's where we talk about the one 9% to $2 1 billion.
Speaker Change: Of EBITDA in our retail business contributing to that 7% to seven and a half that we talked about on the mid cycle.
Speaker Change: Talking about prices and we can go commodity by commodity, but really where you're in some commodities, we're not that far to your point, we're not that far off mid cycle pricing today, a little bit lower than some nitrogen products today and depending on the region and potash as well.
Speaker Change: But then you know it is volume as well, where you have or are brownfield.
Speaker Change: And reliability projects that we're funding in our nitrogen business that from 2023 levels could add one and a half to 2 million tonnes ultimately getting to 12 million tons and that assumes some some better our gas reliability in Trinidad as well and as a as we've talked about we've also made the investments to add one to 2 million tonnes of potash.
Speaker Change: Over the mid cycle. So you put that altogether, you said $1 $92 1 billion and in our retail business some incremental tons of nitrogen and some gas in Trinidad that gets you to 12 million tons of nitrogen stabilization normalization of prices at the mid cycle and some extra tons in.
Speaker Change: In potash the one to 2 million tonnes, and that's where we say seven to seven 5 million as of mid cycle.
Speaker Change: Your next question is from the line of Mr. Andrew Wong from RBC capital. Please go ahead.
Andrew D. Wong: Hey, good morning, Thanks for taking my question.
Andrew D. Wong: So potash demand in China, it looks like it may have taken.
Andrew D. Wong: That change last year.
Andrew D. Wong: Peer Mosaiq also said something similar to your commentary. So what do you think is driving that growth.
Andrew D. Wong: They recently introduced more GMO seeds into the market could that be driving yields and demand from our potash and just given that when your positive view on China.
Andrew D. Wong: Okay.
Andrew D. Wong: Demand in China would be stronger than the guidance that you have in your outlook.
Speaker Change: Yeah no. Thanks for the question, Andrew and Yeah, we would.
Speaker Change: The primary driver point to food security in China and.
Speaker Change: Yeah.
Speaker Change: Alright.
Speaker Change: The Chinese know what potash does for Nielsen for.
Speaker Change: Plant health and for disease resistance and.
Speaker Change: I've, obviously been growing those volumes, but with this heavy focus on domestic food security and we see that in export volumes for other fertilizer and crop nutrition as well that yeah. There's this push on domestic food security, but I'll hand, it over to to adjacent new to talk more about that.
adjacent: Yeah, Good morning, Andrew.
Jason: Get it right with the concerns about food security and if we go back.
Jason: Eight years or so from from today, we saw relatively stagnant.
adjacent: <unk> growth for nutrients in China and subsequently also are plateauing.
Jason: Production and we've seen Chinese.
Jason: Supplies.
Jason: <unk> been at a large deficit.
Jason: <unk>.
Jason: Since 2020 margin pork volumes as a result, and since that time, the government put a priority on boosting crop production.
Jason: And we've seen strong demand across all nutrients and China chocolate step change potash that we saw in 2023 also saw 7% growth in Chinese urea consumption.
Jason: In 2023 and growth in phosphate as well and so we've seen the.
Jason: The increase in nutrient demand too.
Jason: Aimed to boost.
Jason: Production gains.
Jason: Moving back towards that historical.
Jason: Trend of nutrient demand growth in China.
Jason: Your next question is from the line of Jacob bout from CIBC. Please go ahead.
Jacob Jonathan Bout: Hi, good morning.
Jason: Yeah.
Jacob Jonathan Bout: Wanted to get your thoughts on the growth in potash volumes, both in North America and.
Jacob Jonathan Bout: And globally.
Speaker Change: Yes, I guess.
Speaker Change: Barring a striking north America's first talking about strength you saw in the first quarter does that extend into the second quarter into the second half.
Speaker Change: Maybe just talk a bit about your thoughts on in market inventory levels.
Speaker Change: Then internationally.
Speaker Change: You know with Belarus, and Russia fully ramped up.
Speaker Change: At or exceeding prewar levels.
Speaker Change: Do you expect them to be much more competitive as you move through the year.
Speaker Change: Keith.
Keith: Good morning, Jacob So yeah that's.
Speaker Change: With respect to.
Speaker Change: Growth in potash in North America and globally.
Speaker Change: I'll hand, it over to Mitch.
Mitch: <unk>, our head of retail to talk about what he's seeing on the ground there, but it really is owing to entering the year with very low inventories.
Mitch: And now a strong application rates, but I'll hand, it over to Jeff and then yes globally. We talked earlier this year about where we would see we thought we would see recovery and indeed, that's what we're seeing but I'll hand, it over to Mark to talk about the global piece, yes.
Speaker Change: Say on the FSC your volumes.
Speaker Change: Yes.
Mark: We are seeing and have been seeing those volumes come back into the market, but in terms of competitiveness, we are seeing a higher cost to serve and whether that is.
Speaker Change: The Belarusian volumes with a rematch port which has delayed that we take another $40 a ton or whether it's belorussian volumes by rail into China.
Speaker Change: We think if youre going to.
Speaker Change: To try and do that its probably $280 a ton on a delivered basis. So we can talk about a shift.
Speaker Change: Shifting trade flows and redistribute redistribution of potash on the planet, but actually we think it's the opposite of what you said, we think it is leading to a higher cost to serve.
Speaker Change: But yes just back on.
Speaker Change: What we're seeing in North America, Jeff, Yes, Jacob Thanks, and if I look at if I look at the North American market. The first quarter I, even go back to the fourth quarter of 2003, we saw strong demand in the fourth quarter. We continued to see strong demand in the first quarter as well and as I look at it across that.
Speaker Change: Really the U S.
Speaker Change: I think these I think pricing is attractive to growers and I think we've seen some really strong rates, that's not surprising because we all.
Speaker Change: We put a very large crop out in.
Speaker Change: In 'twenty three so we had a lot of replenishing to do and I know as well as we go forward, we're expecting volume to be up on a full year basis, and our margins to be up as well in North America on a full year basis with that Mark I'll hand, it over to you yeah. Thanks.
Mark: Thanks, Jeff Good morning, Jacob maybe I'll just come back to the top on your questions and kind of some of the messaging that can provide.
Mark: I think first.
Mark: At the global picture I think the most important factor here is that not a lot has changed in our view over the last three months. So we continue to see a very balanced market from a global perspective in 2024.
Mark: As we've said our view of global shipments in 2024 remains unchanged at 68% to 71 million tonnes on the demand side of the equation. We continue to expect about 2 million tons of growth over last year, and we see that coming from the same markets that we've been talking about the biggest contributor to that being southeast Asia.
Mark: Other Asian markets outside China, and other shipment gains coming in Europe, India, and Latin American markets outside of Brazil on the supply side not a lot has changed there either from our initial view coming into the year, we expect that 2 million tons of growth to be met from the FSU, Canada allow us and we'd see that sort of being split about 50.
Mark: 50% coming from the FSU and we've seen a little bit of variability month to month and the supply out of the FSU, but I'd say largely consistent with our expectations and then that other 50% being balanced between Canada and low so I think to reiterate overall with lower price volatility attractive price levels relative to nitrogen and <unk>.
Mark: Phosphates, and then just a more normalized supply demand balance and environment. We've seen the euro start strong from a shipment perspective, yes, I think back on your question about.
Mark: Starting Q1 strong I think as we said in our commentary and have talked about today already we see that first half second half balance being more evenly split this year. So we had a historically strong fill program in North America in Q1, one of our stronger in the last 10 years and I'd say, what we're seeing seasonally to pick up on Jeff's comments and <unk>.
Mark: Q2 is a strong demand at the retail level and the grower level and in those.
Mark: Tons are really going to ground in progress with planting activity, which is about an average pace silver watching weather closely and if weather cooperates, we expect it'll be a fairly normal second quarter. So overall, we are encouraged by what we see.
Mark: Your next question is from the line of Ben Isaacson from Scotiabank. Please go ahead.
Benjamin Isaacson: Thank you very much and good morning, everyone and congrats on the quarter.
Benjamin Isaacson: Ken in your press release, you called out twice actually about enhancing the quality of our earnings and free cash flow can you talk a little bit about what that means how do you define quality what is the strategy to achieve this and is the sale of these noncore assets and Latam ex Brazil is that part of that.
Speaker Change: Thank you.
Kenneth A. Seitz: Yeah, absolutely Ben.
Kenneth A. Seitz: Do intend to talk more about exactly that at Investor day, but.
Kenneth A. Seitz: And we say quality of earnings it is something that we talk about as being sustainable and that's hence the focus on reliability in nitrogen you'll have seen that we took a I would say somewhat painful outage at our Burger facility last year.
Kenneth A. Seitz: Because of some reliability concerns that's paying dividends for us today, we have.
Kenneth A. Seitz: We have changed our operating model at Trinidad so that we can optimize guys see utilization when its available that's paying dividends for us and you'll see that reflected in our operating rates in the first quarter. This year and we're going to seek to to focus on that to continue and make that a ratable thing for shareholders.
Benjamin Isaacson: You see us, making the investments in mine automation in potash and really that is obviously see a safety benefit, but there's a productivity benefit as we continue to expand our underground footprint that we're focusing on that cash cost of production you saw in the first quarter at $56.
Benjamin Isaacson: Quite a competitive outcome in and we're going to continue to focus on that.
Benjamin Isaacson: Examples that you provide on.
Benjamin Isaacson: On on Argentina is a great one.
Benjamin Isaacson: Jacob where it's a stable business, but with the currency controls in the macroeconomic environment, there and for something that represents 3% of our retail sales 2% of retail EBIT.
Benjamin Isaacson: It really is focusing on quality at converting quality of earnings, but but our ability to convert to cash as well because we know the ultimate importance of <unk>.
Benjamin Isaacson: <unk> cash so.
Benjamin Isaacson: Focusing across the network maintaining conviction around capital allocation priorities and we could talk about the things that we're doing and as well in terms of proprietary products network optimization and digital investments those investments are returning quite high quality earnings proprietary products with its 1 billion.
Benjamin Isaacson: And gross margin contribution in 2023, and then a 15% five year CAGR on our bio stimulants and crop nutrition Theyre very high quality earnings that we can also convert to cash so.
Speaker Change: I just said a number of things there Ben but we'll talk more about that at Investor day, but really those are the types of things that we're just absolutely focused on to.
Speaker Change: To have ratable high quality earnings that we can convert to cash because of course, we know the importance of cash.
Speaker Change: Okay.
Speaker Change: Your next question is from the line of Adam Samuelson from Goldman Sachs. Please go ahead.
Adam L. Samuelson: Yes. Thank you good morning, everyone.
Adam L. Samuelson: Was hoping to maybe dig a little bit more on on the potash side and just the cadence.
Adam L. Samuelson: Geographic mix of shipments over the balance of the year.
Adam L. Samuelson: Just given your own sales in the first quarter.
Adam L. Samuelson: There is effectively no growth left and I. Appreciate that you had a very strong North America fill program in <unk> and.
Adam L. Samuelson: <unk> last year is probably not because it can be tough to repeat in North America, but also canpotex is mix of sales to other Asia, which should be the predominant source of global demand growth. This year was lower year on year.
Speaker Change: So just help us think about how we should think about that progression.
Adam L. Samuelson: Through the year.
Adam L. Samuelson: Kind of the likely.
Adam L. Samuelson: Likelihood that we and the U S season for the North America season with inventories empty that.
Adam L. Samuelson: Could could draw in another.
Adam L. Samuelson: Another strong fill program in the second half or risk that that.
Adam L. Samuelson: Maybe carries over and you see weaker wholesale shipments domestically kind of over the balance of the year. Thank you.
Speaker Change: Yes. Thanks for the question Adam So yeah, we are maintaining our guidance with the midpoint of $13 4 million tonnes and that's because we are as we look out into the balance of the year yet there is some.
Speaker Change: There is a risk of strike and those sorts of things, but as we go market by market and as we see what's happening on the ground. We have maintained that guidance range and by the way that does include some strike risk as well, but I'll hand, it over to Mark here. So maybe talk through though what we're seeing region by region. Thanks.
Mark: Thanks, Ken Good morning, Adam So look I think maybe just to again to start at the top as I mentioned earlier in the call we'd see that first half second half split being relatively balanced and even this year and so again on the first half we did see a very strong fill program in Q1 and continuing to see good demand in Q2, but we see that being a <unk>.
Mark: <unk> normal first half picture, assuming that weather cooperates I think if you step back and you look at kind.
Mark: Of the total picture in terms of offshore shipments for us in domestic I think a 35% domestic 65% offshore is a good way to think about the business for the full year and there's nothing that we've seen that would change our expectations around that if you zoom in on a couple of markets in terms of how we've started the year just to get to your question on geographic mix.
Mark: We saw very strong granular demand to start the year and so Brazil has been a very strong pull on product and as we just talked about North America has been strong as well and so when youre looking at those end market shipments and the proportion of offshore shipments certainly granular markets have started off on a stronger foot I would say in southeast Asia that <unk>.
Mark: Shipments are up to start the year over last year, which is very important because we see that as being the single largest contributor by market to the growth in global demand. This year and I think as we move through the year. Our expectation is that as we see even one of the international contracts get settled and we expect that India would be <unk>.
Mark: We will see further momentum in demand out of southeast Asia, which should provide firming in standard great demand and and potentially some firming in.
Mark: This stability in those markets moving into the latter part of the year I think just to finish off on North America and your question on inventories I think you've heard Jeff talk earlier in the call about the position that nutrient AG solutions is taking and I'd say, that's very consistent with the rest of our customers demand has been very healthy for potash in North America. This spring for the reasons that we talked about.
Mark: But our expectation is that the channel's going to attempt to end the season very MTR as empty as they can.
Mark: So again, we think that's very healthy and normal that's returned to normal behavior and the buying channel and so we think again that would set us up for a second half demand in North America that would once again be healthy given all the factors that we've talked about.
Mark: So I think you step back from that and then the North American market wed actually expect the market size in North America quite similar to what we saw last year. So all of those factors again points us to the fact that the market is playing out largely as we had expected so far.
Mark: And we are encouraged by the stability we've seen.
Mark: Yeah.
Mark: Your next question is from the line of Steve Byrne from Bank of America. Please go ahead.
Stephen V. Byrne: Yes. Thank you I have a couple for Jeff <unk>.
Stephen V. Byrne: Last fall I believe your business had a significant amount of soil sampling and nutrient testing.
Stephen V. Byrne: My question for you is with.
Stephen V. Byrne: With the.
Stephen V. Byrne: Strong fourth quarter in the first quarter application rates would you assess.
Stephen V. Byrne: Nutrient levels in all of the regions, where you have a retail business.
Stephen V. Byrne: Is it back.
Stephen V. Byrne: Back to more normal fertility levels or do you think there is there is more to go here after a couple of years or so.
Stephen V. Byrne: Below normal applications and then just secondly, if.
Stephen V. Byrne: If you would comment on how you would rank.
Stephen V. Byrne: The levers that you can pull to drive the EBITDA growth in retail or is it more.
Stephen V. Byrne: U S bolt ons or is it more on your proprietary side of crop chems and seeds in biologicals.
Speaker Change: Thanks, Steve and good morning, and from the from your question pertaining to.
Speaker Change: The soil sampling and I think I've said this before for many many years, we always try to figure what percent was not what percent was a science and today I would say that 90% of our applications are science based off the soil sample and we did have extensive sampling last fall and we had.
Speaker Change: We're a good early break earlier in the year, we continued to see very very healthy sampling coming in in the first quarter as well and so I do think that we're getting back to much more normal buying patterns and I think you heard that mentioned a little bit before by Mark I'll see that from our from a growth perspective as well.
Speaker Change: I think that we continue to pull out really high crop yields.
Stephen V. Byrne: And anytime we're pulling up higher crop yields and we're going to be replenishing that solo with E&P at Kay and so I think we probably are getting we'll get much closer to normal than we were two years prior.
Stephen V. Byrne: Higher prices scared some growers are up again, I said, a little bit earlier. This morning, I think the prices that we sit at today are attractive to growers and <unk>.
Stephen V. Byrne: I would expect with the.
Stephen V. Byrne: Somewhere in line with what USDA is forecasting for crop yields this year I would expect again for a very healthy fall application season, as well as it relates to North America, and Brazil from that standpoint, as well when you talk about the labors in retail I think we have several labors and retail I know.
Stephen V. Byrne: What's its closest EMR hard as always organic growth because that's to me. That's one of the easiest things we can achieve.
Stephen V. Byrne: So trying to increased customer share of wallet.
Stephen V. Byrne: We still we've worked hard to grow our seed portfolio and we're still in that process of growing net business and so I still think we have opportunity. There obviously, we have ample opportunity across our loveland products land, we're very fortunate to have that platform within our retail organization.
Stephen V. Byrne: We think it creates significant opportunities for us.
Stephen V. Byrne: If I look at how we've started the quarter this year of around level of product. Our margins are up across our ships are about just under 8% globally and over 14% from a U S perspective our.
Stephen V. Byrne: Our bio stimulant nutritional segments continue to grow at a double digit pace.
Stephen V. Byrne: We're really excited about what that what that ship provides for us and we're seeing our crop protection margins coming in a lot stronger as well and so I think what you'll see and we'll share more of this at Investor day as well as some of our plans to grow that shape of our proprietary business in.
Stephen V. Byrne: In international markets, where we don't have a retail presence and that excites me a lot.
Stephen V. Byrne: Ian mentioned network rationalization and <unk>.
Stephen V. Byrne: We continue to strive to rationalize our network with some of the work we do around our growth ex project, where we're taking.
Stephen V. Byrne: She is in building one and closing the other Orient, we think that brings a lot of efficiency to our business and then we have we're still going to very opportunistically look at tuck in acquisitions. Those are those have worked really well for us, particularly in North America, and Australia, and we'll continue to look at that.
Stephen V. Byrne: These opportunities and then the last thing I'm going to mention and this is always at the top of our radar is controlling our controllable from an expense standpoint, So I hope ive touched on what you asked there Steve.
Michael Topham: Your next question is from the line of Michael Top home from TD Cowen. Please go ahead.
Michael Topham: Thank you you spoke earlier in the call about numerous operational initiatives within your fertilizer segments is benefiting the quarter's results can.
Michael Topham: Can you provide an update as to where youre at with some of those.
Stephen V. Byrne: <unk> initiatives.
Michael Topham: What you are still working on and how we should think about the impact on costs in potash and nitrogen specifically as move through the balance of the year.
Stephen V. Byrne: Yeah.
Stephen V. Byrne: Yes, no definitely Mike. Thank you so yeah, I'll hand, it over to Trevor to just provide an update on one the reliability work that we've done but then also status of.
Trevor: Our brownfield investments that we're making to add capacity and then maybe Chris Reynolds.
Speaker Change: Talk about mine automation, but the other work that we're doing.
Trevor: At our operations to reduce costs.
Speaker Change: For example, we increased our ORC Titans cut by automation about 40% last year. So we are certainly on a journey here to move to sort of full autonomous or <unk> mining, which again contributed to cost and productivity. In addition to safety, but trevor over to you.
Trevor: Hey, good morning, and thanks for the question.
Trevor: A couple of things and I'm going to take you back to our Q3 earnings call last year, when we really talked about some of the challenges we had in some of the more specific actions were taken to really drive both reliability improvements as well as reliability or sorry utilization.
Trevor: Type activities across our fleet.
Speaker Change: Merely focused on Trinidad and border as we talked about last year and really happy to be able to talk to the fact that as a result of those actions that we took last year and Ken mentioned that earlier on in terms of one of his responses is we did see a step change improvement in terms of both capacity utilization.
Speaker Change: With respect to our turned out asset and that really is related to the availability and how we utilize gas at that facility as well as didn't get Ken mentioned, we did invest some money. We took the we took the time and invested a significant amount of energy into our borger facility and we're really starting to see those those pay off in terms of in 2024.
Speaker Change: We also talked about a little bit in terms of as Ken mentioned, while we did see some minor weather impacts this year in terms of earlier Q1 again the focus we put on <unk> really setting our assets up for success here late last year again really paid some dividends and in terms of in terms of where we are.
Speaker Change: So a simple example, if you look at just in terms of our strategy in Trinidad and we are operating at about a 10% increase in terms of overall gas utilization capacity utilization, which is a big step change.
Speaker Change: So in terms of the Debottleneck side in terms with respect to some of our growth side. So we did complete several smaller de bottlenecks in Q4 late Q3 early Q4 of last year, primarily at Geismar and a little bit of Borger and those in combination with the reliability items that I talked about and Ken mentioned, we're going to add a boat.
Speaker Change: A little over 1 million tonnes over the course of the next several years and in terms of capacity and reliability additions.
Speaker Change: So with that I'll pass it over to Chris for some comments on the potash side, yes. Good morning, Mike. Thanks for the question and as Ken mentioned, we've been really pleased with our progress in terms of the automation of our mines.
Chris: Felix and even an increase in the oil that we cut in 2023 compared to 2022, and we've seen that progress continue here in the first quarter as well.
Chris: That's one of the benefits when you have six low cost low emission mines across our network and we spread that automation across the five conventional underground mines. The learnings that you can get across the network, which accelerates.
Chris: That performance and that experience and so that's one of our main areas of concentration for improving our cost. But then there are numerous continuous improvement projects, we have again spread across that network of six mines and so the biggest one is the automation, but then there's a number of other smaller continuous improvement projects, we're focused on as well.
Chris: Okay.
Chris: Your next question is from the line of Vincent Andrews from Morgan Stanley. Please go ahead.
Vincent Stephen Andrews: Thank you and good morning, everyone would love to hear your thoughts sort of on a reconciliation of the nitrogen market year to date in particular in North America, just sort of how you think through the movement in prices recently with the.
Vincent Stephen Andrews: Sort of factual data on the on the.
Vincent Stephen Andrews: Reduction in imports year to date versus versus normal so I would just like to hear your.
Chris: Thoughts on how and why that played out and also what do you think the shape of the rest of the year will look like.
Speaker Change: No that's great Vincent Thanks for the question there are a number of moving parts there to be sure.
Speaker Change: I'll hand, it over to Jason Newton to talk about sort of the macro and fundamentals in the near term and then over to Mark to talk about the market.
Jason Newton: Sure Good morning Vincent.
Jason Newton: Mentioned that dynamics differ product by product of nitrogen we are seeing.
Jason Newton: Various movements through the year to date, if we look at ammonia to start.
Jason Newton: That's where you mentioned that if we look at the U S trade balance the ammonia market has been tight we stopped soft early strong.
Jason Newton: <unk> ammonia applications in the U S.
Jason Newton: And those two factors led to in combination with production outages in.
Jason Newton: In the U S largely tied to client demand for ammonia and support for.
Jason Newton: U S.
Jason Newton: On your prices. In addition, if we look globally.
Jason Newton: Trade East Eastern West of Suez has been impacted by <unk>.
Jason Newton: Challenges shipping through the Red Sea and so shipments from the middle East.
Jason Newton: Western U S markets as being constrained because of that and so to some extent, we've seen stronger ammonia pricing than we would've expected through the year, it's relatively flat.
Jason Newton: Overall.
Jason Newton: <unk> I would say, we see relatively normal price seasonality, we started the year relatively strong and you can see if you look on slide 26 in our deck.
Jason Newton: Of the three major nitrogen products that urea trade balance has been most balanced in the U S and <unk>.
Jason Newton: In our minds is evidence of buyers are proactive in positioning so spring.
Jason Newton: And we have seen in the last.
Jason Newton: Couple of them.
Jason Newton: Application and.
Jason Newton: And planting progress has slowed with the weather that we've seen and so that in combination with.
Jason Newton: Weaker than expected Indian tender result in anticipation of Chinese supply, which is kind of.
Jason Newton: And often on.
Jason Newton: Some uncertainty there in terms of Windows biologics will be available that put some pressure on urea prices, which at this time of year as northern hemisphere demand is wrapping up in the time to get into market.
Jason Newton: Is drawing to a close is pretty normal and.
Jason Newton: And just.
Jason Newton: Finish on urea, we do see that.
Jason Newton: Oil prices have moved seasonally lower but in market prices within North America maintained a large premium to two.
Jason Newton: The important benchmarks, which is typical for this time here.
Jason Newton: Yes.
Speaker Change: It's mark Thanks for the question Jason cover the macro really well so maybe just talk for a minute about what does it mean for us.
Speaker Change: Enter the spring from our order book or commercial perspective, when we look at our <unk>.
Speaker Change: Total expected mix for Q2, we would anticipate about 60% of our nitrogen volumes go into the AG market and the remaining 40 going to industrial customers.
Speaker Change: As we've talked about many times that industrial volumes, either under contract or length of formula pricing and so really when we're talking about what's left for us. It's in the AG order book and <unk>.
Speaker Change: Today, we would be about 60% sold across all products for the second quarter than we did layer in a decent portion of this volume before we saw more volatility at NOLA urea I think just to pick up on one of the points that Jason mentioned in our business.
Speaker Change: When you look at that pricing dynamic for urea in North America inland pricing has held at more stable premium levels.
Speaker Change: Due to tighter supply demand balances in those regions and and this is a point where the geographic mix of our business. The location of our plants the product mix flexibility that we have really is a benefits and of course as Trevor just talked about enhanced reliability and completion of the brownfield is giving us flexibility to move between products and really optimize margin.
Speaker Change: <unk> in these more volatile environments and so as Jason said, we do expect a typical post spring reset for our business but.
Speaker Change: This disposition of our tons in how we've approached the market has probably provided some buffer versus the volatility we've seen at NOLA area.
Speaker Change: Your next question is from the line of Christopher Parkinson from Wolfe Research. Please go ahead.
Speaker Change: Great. Thanks. This is Harris fein on for Chris.
Speaker Change: Just a quick one for me on the retail side, maybe if we can just discuss a little bit more.
Harris Fein: How would the regional performances are kind of stacking up against each other U S versus Australia versus Brazil, and what Youre hearing on the ground in each region that maybe differs from the others.
Harris Fein: And then on the U S. Just any concerns you might have on on U S farmer profitability in the context that we've been hearing that.
Harris Fein: Maybe they've been a little bit slower to monetize the crop and theres, a little bit more grain than normal.
Harris Fein: On site that they're holding onto still if you can just touch on that thanks.
Speaker Change: Yeah. So thanks this is Jeff.
Jeff Holzman: I'll answer those questions and first of all I would characterize the first quarter from a neutral in AG solutions perspective, as a very normal quarter.
Jeff Holzman: With very solid results and.
Jeff Holzman: What was really impressive to me is our EBITDA was up $100 million year over year with the with really a return to strong margins in fertilizer.
Jeff Holzman: In fertilizer volume, but our chemistry as well.
Jeff Holzman: Showed remarkable recovery from a GP standpoint, we're at historical to above historical.
Jeff Holzman: If I look at it across geographies I would tell you that North America performed.
Jeff Holzman: Very strongly and that was without a whole lot of activity in Canada through the first quarter and I would tell you that Australia was very consistent right in line with where we thought they would be through the first quarter. I think we mentioned several times that the recovery in Latin America, and particularly in Brazil is taking a bit longer than most people anticipate.
Jeff Holzman: <unk>.
Jeff Holzman: We still think we will see some recovery in the second half of the year, if I look at listen to most of our suppliers. Most of them are talking for more of that recovery too.
Jeff Holzman: To come in in.
Jeff Holzman: In early 2025, but.
Jeff Holzman: Again, if I'm looking at it by geography extremely pleased with North America very consistent in Australia.
Jeff Holzman: Slow or slower recovery in Latin America.
Jeff Holzman: I think it's fair to say, Jeff that in terms of the health of the grower, we're coming off a couple of good years here, where balance sheets continue to be strong on the farm and we have seen some strengthening in corn soybean prices over the last week, given some weather concerns and crop input prices are competitive obviously, they've come off so well.
Jeff Holzman: While affordability and margins.
Jeff Holzman: What they were.
Jeff Holzman: Sorry, what margins were or a few years ago there is still.
Speaker Change: Still going to be a relatively good year, yes.
Speaker Change: Look we'll see in <unk>.
Speaker Change: Barry Southern extremes of the North American market will see some crop shift there and I think that's reflective in the looking at 90 million acre projected corn acres.
Speaker Change: We've seen a pretty good shift from corn to soybeans.
Speaker Change: In that geography and.
Speaker Change: But I think we'll be fairly normal when we look into look across the corn belt areas, we don't ever see a lot of drastic shift in acreage.
Jeff Holzman: Matt standpoint, as Ken just mentioned the last week, we've seen some recovery in commodity pricing, which comes at a great time when were really engaged.
Jeff Holzman: And putting our inputs across these acres and as Ken mentioned, our growers coming out really three to four years of very healthy environment.
Jeff Holzman: Agriculture, we still see balance sheet is extremely strong and.
Jeff Holzman: As indicative of the activity in the first quarter, we think that growers are very engaged in in putting the inputs needed to produce.
Jeff Holzman: Top crops.
Jeff Holzman: Okay.
Speaker Change: Your next question is from the line of Richard Guard Quito Arena from Wells Fargo. Please go ahead.
Speaker Change: Good morning, and nice quarter.
Speaker Change: So just sticking to the retail business.
Speaker Change: I'm wondering if you could just give us some color on what you are assuming for the year in terms of crop protection volumes and pricing we've heard from your peer.
Speaker Change: Crop protection peers pricing is going to be down year over year, and then in terms of the volume recovery.
Speaker Change: Are you expecting been betting in your forecast.
Speaker Change: Back half of this year and then just.
Speaker Change: On a related note pricing in general you talked about nitrogen and what are you seeing on the supply demand side.
Speaker Change: On potash are you assuming flat pricing in the retail business as well thanks.
Speaker Change: Yes, so quickly.
Speaker Change: Quickly hand, it over to Jeff I mean, you have to go different differentiate between what we're seeing in North America in crop protection, certainly in Brazil, where.
Speaker Change: Slagging and we still see a lot of high priced volumes in the channel, but yes, Jeff over to you on crop protection and then maybe a few words about potash from a retail perspective, as I mentioned a bit earlier.
Jeff Holzman: Look at crop protection and look at first quarter number one I was quite pleased again with the recovery in our margin rates GP on the crop protection side of things I think.
Jeff Holzman: Globally, we were up about 300 basis points quarter over quarter.
Jeff Holzman: With crop protection margins, even though water variances I look at the North American market when I look at it from a revenue perspective, I think we were we were off slightly maybe 4% for the quarter.
Jeff Holzman: Globally on a crop protection standpoint, a lot of that has to do with lower priced glyphosate glucosamate.
Jeff Holzman: From a from a unit standpoint, a volume standpoint, it would probably be.
Jeff Holzman: Very similar look we've worked extremely hard, especially in a high interest rate environment. We've worked extremely hard to bring our inventory down and if I sit here today on a on a total perspective.
Jeff Holzman: From an inventory side of things, we're all just under a billion and half dollars of inventory and that's equally split pretty much so by crop protection and fertilizer and so that puts us in a good position we want to run inventories are extremely low.
Jeff Holzman: From a balance sheet standpoint, and.
Jeff Holzman: And that will give us some very opportunistic we hope buying opportunities in the power from that standpoint, I think I mentioned earlier, if I look at Australia, and the EU and.
Jeff Holzman: In North America crop protection.
Jeff Holzman: Bit of a different picture from the Latin America, and Brazil market again crop protection is real drag today in that Brazilian market and but what I am very pleased with net market I think Ken mentioned earlier that we were down about $150 million of inventory. That's just don't crop protection when we brought our overall.
Jeff Holzman: Inventory down there are $300 million. So we're really working to get ourselves in a better inventory position, we don't see a recovery in the crop protection margins higher but when we see the whole industry get to that same inventory level.
Jeff Holzman: Going forward and I think you asked some questions about how we see pricing in <unk>.
Jeff Holzman: Powell and stuff.
Jeff Holzman: They consume and fairly stable potash market and pricing.
Jeff Holzman: <unk>.
Jeff Holzman: Both Mark and Kian responded to earlier, we see that pricing pretty stable.
Jeff Holzman: Again, if we if we pulled the type of crop up that we think we're going to pull out. This year. Then we should see strong demand is power.
Jeff Holzman: Okay.
Jeff Holzman: Okay.
Jeff Holzman: Our next question is from the line of Steve Hansen from Raymond James. Please go ahead.
Steven P. Hansen: Yes, good morning, Thanks for the time.
Steven P. Hansen: I'm just curious you're sticking to the theme of reliability I'm curious how you feel about the resiliency of your logistical export capabilities.
Steven P. Hansen: I recognize you can't control strike actions of course across your supply chain, but including one that might come this months.
Steven P. Hansen: But I am thinking just about the terminal issue at the Asia Pacific Northwest last fall.
Steven P. Hansen: The Linky strike in Vancouver last year.
Steven P. Hansen: Youre welcome talked about a third export valves in the U S. Gulf in the past is that still in it.
Steven P. Hansen: Do you want to pursue it just any broader commentary around how you think about that reliability that the extra network. Thanks.
Speaker Change: Thank you Steve Thanks for the question and I would say for the things that are in our control we feel very good about the resilience and reliability of our network and in fact, we would consider it to be the most extensive and competitive in the world.
Speaker Change: And to that is obviously, our load out capabilities at our mine sites.
Jeff Holzman: As our capabilities across our network.
Jeff Holzman: North America nitrogen network.
Jeff Holzman: It's our capabilities right through warehousing trucks.
Jeff Holzman: Into our.
Jeff Holzman: Our customers in North America, and then offshore through terminals as you say.
Jeff Holzman: With Canpotex, we do have access to multiple terminals. Obviously the main one is on the north shore of Vancouver, Neptune terminals, but we spent a lot of volumes to the Portland, and we have an outlet in Saint John New Brunswick, as well and in fact well.
Jeff Holzman: Well, that's a long journey via rail depending on what's happening in the Panama Canal that is a great outlet for us for the East Coast of Latin America. So we do have optionality and we have that optionality as well for ports off the Gulf Coast and we have used in fact used.
Jeff Holzman: Those terminals, including our own.
Jeff Holzman: In North Carolina and so.
Jeff Holzman: We continue to maintain that optionality that we believe that we've proven that so that when we do have these things that are out of our control we can write through that value chain preposition.
Jeff Holzman: Fill the channel to the extent that we can and minimize the impact of the things that are out of our control we've proven that time and time again. Indeed, that's the work that we have done.
Jeff Holzman: Today in preparation for what might be over the coming weeks with some of the challenges with.
Jeff Holzman: Rail, so we'll see about that but hence maintaining our guidance range, including some of those things that are out of our control because we have that extraordinary and extensive and competitive network.
Speaker Change: Operator, we have time for one more question.
Speaker Change: Thank you.
Speaker Change: Last question is from the line of Edlin Rodriguez from Mizuho Group. Please go ahead.
Edlain S. Rodriguez: Thank you good morning, guys.
Edlain S. Rodriguez: Just one quick one.
Edlain S. Rodriguez: For you guys you don't think the potash contracts with China, and India are as important as they used to be in the past, but somehow they still loom large.
Edlain S. Rodriguez: Given the recovery in the menu as seen in the global market would you be disappointed if those contracts.
Edlain S. Rodriguez: At a lower price.
Edlain S. Rodriguez: And then they look on questions that they may have.
Edlain S. Rodriguez: Now.
Edlain S. Rodriguez: Yes.
Edlain S. Rodriguez: Yes.
Edlain S. Rodriguez: We're watching those markets closely obviously lane. Thank you for the question those are standard grade markets.
Edlain S. Rodriguez: Right that while we have.
Edlain S. Rodriguez: Sort of reduced reliance on those contract markets, particularly China. It is also true to your point that we've seen a bit of a seasonal pause and standard grade markets as some of the other spot markets for standard grade watch the contract process, So I'll hand, it over to Mark.
Mark: Who sits on the Canpotex board and is watching the evolution of the inventory levels in the contract markets and how those discussions are going.
Mark: Yes, Thanks, Ken Good morning, Atlanta, Yes, So I think again as Ken mentioned and I mentioned earlier in the call. We've seen really good growth momentum in certain markets, including some of the standard markets to start the year, but.
Speaker Change: Again, as you mentioned, while those contracts, particularly China is less meaningful both from a canpotex sales mix and just overall global volumes than it was previously we still think Thats one of a number of indicators at all our standard volume to keep moving.
Speaker Change: The remainder of the year I think just a bit of color in terms of how we're thinking about those if you look at India first.
Speaker Change: And in India shipments and the vessel lineup are off to a stronger start in 2024, so far versus last year, and we would view the inventory levels in India is actually being below historically average level. So consistent with what we've said before we do still think India is going to be the first to conclude an offshore contract and we see the potential for <unk>.
Speaker Change: Import economics to remain favorable we do see the potential that any reduction in contract price. The positive of that would be that that could be passed along by the government in the form of the maximum retail price, which would again stimulate demand down.
Speaker Change: Down at the farm level. So when we look at all those factors combined with expectations for more favorable rainfall all of these factors support our view that we do think theres going to be growth in an Indian shipments this year, which would be a positive overall for demand and then I think just from a China perspective to reiterate some of the points that Ken made earlier in the call.
Speaker Change: Through Q1, we've actually seen very strong shipments to China.
Speaker Change: And there does appear to have been a step change in consumption and demand and that's continued and that underscores the importance of potash and crop nutrients for the agricultural market there.
Speaker Change: With those new higher levels of consumption and lower domestic production.
Speaker Change: The doubling of the strategic reserve target of 3 million tons, we do think that higher absolute inventories will become more normal in China to meet the country's needs.
Speaker Change: Probably can't speculate on the timing of the contract at this point, but we've seen good demand out of China without a contract and we continue to believe that our global demand estimates going to hold for the year.
Speaker Change: There are no further questions at this time I would like to hand, the call back to Jeff Hoffman for some closing remarks. Please go ahead.
Jeff Hoffman: Alright, Thank you for joining us today, and we look forward to seeing you on June 12 for our Investor day have a great day.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Yeah.