Q4 2024 Mosaic Co Earnings Call
We will be making forward looking statements during this conference call the.
The statements include but are not limited to statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties.
Actual results may differ materially from projected results factors that could cause actual results to differ materially from those in the forward. Looking statements are included in our press release published today and in our reports filed with the Securities and Exchange Commission.
We will also be presenting certain non-GAAP financial measures our press release and performance data also contain important information on these non-GAAP measures.
Bruce: Now I'd like to turn the call over to Bruce Good morning, and thanks for joining our call I'd.
Bruce: I'd like to start by welcoming Luciano to his first call as mosaic CFO.
Bruce: We've known him for a long time through his service on mosaics board and we're thrilled to have him on our team.
Speaker Change: We're taking a different approach this quarter.
Speaker Change: During this first part of our call I'll cover our high level of business performance and strategic progress and Jenny Wang will give you an update on the markets followed by Luciano providing more context on our financial performance and capital allocation strategy.
Speaker Change: After that we'll take your questions.
Speaker Change: I'll start with our key messages for today.
Speaker Change: Agriculture markets have improved and we expect constructive egg and fertilizer fundamentals in 2020 five.
Speaker Change: Second at mosaic, we are making operational and strategic progress and the business is positioned well to benefit from good markets. This year.
Speaker Change: And finally <unk>.
Speaker Change: Our work to shed noncore assets and reallocate capital is taking shape.
Speaker Change: They cover the numbers fourth quarter net income was $169 million and adjusted EBITDA came in at $594 million.
We saw strong phosphate prices and stripping margins solid potash performance, despite low prices and excellent underlying business performance in Brazil.
Speaker Change: Let's talk about the segments first.
Speaker Change: In potash the yesterday easy complex, which is the world's largest potash mine and among the most efficient continues to generate strong cash flow across the commodity cycle and we are continuing to optimize it.
Speaker Change: Our Bell plain potash mine delivered 100% operating rate and record production in 2024.
Speaker Change: We resolved the electrical issues, we experienced in the third quarter and we were operating at full milling and hoisting capacity now, which will let us continue to drive costs down.
Speaker Change: It clearly benefits us to produce every ton we candidates are hazy and we're investing to do just that.
Speaker Change: Last year, we finished the project to increase our compaction capacity by 500000 tons and this year, we expect to complete the hydro fluid project to provide an additional 400000 tons of capacity per year.
Speaker Change: We expect potash demand.
Speaker Change: Given affordability and the trends in crop prices combined with supply reductions caused by recent news coming out of Laos, China, Belarus and Russia.
Speaker Change: There's a lot going on in geopolitics that could impact potash markets. There was quite a bit of uncertainty around Canadian tariffs and we're watching that situation closely.
Speaker Change: Even accounting for the impact of tariffs potash prices will remain affordable. Therefore, we expect no major demand destruction.
Speaker Change: The potential resolution of the war in Ukraine would have very little impact to the global potash supply.
Speaker Change: The same goes for Belarus sanctions very little impact on supply.
Speaker Change: Jenny will give you more detail about these dynamics in a few minutes.
Speaker Change: In phosphate supply remains tight and demand remains very strong, which has led to prices and stripping margins remaining significantly above historic levels for the past several years with no end in sight.
Speaker Change: I should note that we have secured our long term ammonia supply.
Speaker Change: We signed the last of three supply contracts late last year. So we have locked up a reliable supply at competitive rates.
Restoring our U S phosphate production to historical levels remains a top priority.
Speaker Change: Fourth quarter production was lower than expected because of a challenging recovery from hurricanes Helene and Milton.
Speaker Change: Most of our storm related downtime was in the fourth quarter.
Speaker Change: We've often said the pathway to higher levels is not straight up.
Speaker Change: Early this year, we have turnarounds at Bartow in new wells and we have more work to do to improve asset reliability in Florida and Louisiana.
Did this and we are accelerating capital spending to address these issues and expect that work to be finished by the middle of the year.
Speaker Change: Overall, we expect our production volumes to improve throughout the year and reached 7.2 to $7 6 million tons for the year.
Speaker Change: Our business in Brazil is performing very well, even with the market and credit headwinds our fourth quarter adjusted EBITDA for the Mosaiq for Liz Entrees segment of 82 million shows strong underlying business performance.
Speaker Change: Our margins in Brazil are healthy our distribution margin was at the high end of the annual normalized range and our production cost per ton trended down in the fourth quarter.
Speaker Change: With a constructive market dynamics, we see ahead in 2025, we feel good about mosaics business in Brazil.
Speaker Change: Our solid operating performance is supported by good cost discipline, we're making good progress toward our cost reduction targets, but I'll leave the details to Luciano.
Speaker Change: Now I'll talk about our strategic progress.
Luciano: We've told you before that we're analyzing our facilities on the basis of their returns on capital.
Luciano: The outcomes of that work are allowing us to find better owners of underperforming assets and redeploy capital for better returns.
Luciano: We've already announced several deals, including the pending sale of our pothos Dumminess site in Brazil, and the conclusion of the modern transaction.
Luciano: That deal gave us a transparent value for our investment.
Luciano: Which is about $1.5 billion as up to date as well as a $522 million gain and a long term capital redeployment possibility.
Luciano: We have other moves in the works, including our pursuit of strategic alternatives for our potash mine in Carlsbad, New Mexico.
Luciano: We're not just focused on making our portfolio stronger we're also investing in our strengths and growing in our core business in new areas.
Luciano: In addition to the compaction and hydro float project I mentioned earlier, our new 1 million ton blending plant in palmar raunchy, Brazil is almost finished.
Luciano: Our newest growth engine Mosaiq biosciences is accelerating with.
Luciano: We doubled revenues an acreage on which our products were applied in 'twenty 'twenty four and we expect a similar growth rate in 2025.
Luciano: We will have a lot more to say on Mosaiq biosciences at our analyst day in New York on March 18th.
Luciano: I hope, you'll join us whether in person or online.
Jenny Wang: Now I'll ask Jenny to give you her thoughts on agriculture and fertilizer markets Jenny. Thank you Bruce.
Jenny Wang: We expect 2025 to be a good year for agriculture commodities.
Jenny Wang: Let's start with crops.
Jenny Wang: Fundamentals are strong for most crops around ward.
Jenny Wang: Strong global corn demand in 2024.
Jenny Wang: Leading to expectations, so for much lower stocks to use ratio.
Jenny Wang: Which in turn has led to rising home prices since last September.
Jenny Wang: So it would be and prices have also moved off their lows set last year.
Jenny Wang: Animal protein market remain very strong and are expected to continue to drive robust demand for grand all seats product in feed ration.
Jenny Wang: In addition, palm oil prices have stayed in high range for some time now.
Jenny Wang: All in all the warts farmer have strong financial incentive to.
Jenny Wang: To maximize yield in 2025.
Jenny Wang: Of course that bodes well for phosphate and potash demand.
Jenny Wang: First the phosphate.
Jenny Wang: Higher crop prices mean phosphate well be more affordable we believe demand will remain very strong.
Jenny Wang: And remember phosphate fertilizer demand is driven by a combination of factors.
Jenny Wang: Including rising oil seeds production with the increase in global biofuel demand.
Jenny Wang: At the same time Raissi use of phosphates for battery production has created another pool on phosphate.
Jenny Wang: With limited new phosphate production colleagues into the market over the next few years and with ongoing Chinese export restrictions, we expect supply to remain tight and prices and stripping margins to remain elevated by historical standards.
Jenny Wang: Regarding stripping margins in the near term.
Jenny Wang: Anticipate that they will remain attractive even with sulfur prices increasing.
Jenny Wang: And your prices are expected to come to east and that's a matter of fact.
Jenny Wang: Spot ammonia price was concluded at $40 below from the last months.
Speaker Change: In potash as Bruce mentioned global demand has been strong and we expect that to continue.
Speaker Change: Palm oil prices are supporting another strong year for potash application in Malaysia and Indonesia.
Speaker Change: Well Chinese demand is expected to remain solid after two consecutive record shipment here in 2020, three and 'twenty 'twenty four with volume topping 18 million and 19 million tons respectively.
Speaker Change: In mind that shipment average, Jeff to 15 million tons in the preceding five years in China.
Speaker Change: In addition, Brazil has walked through March office inventories through the second corn crop.
And we have seen very strong demand for potash.
Speaker Change: So it being season.
Speaker Change: As a result, we expect 2025 shipments to set another record for potash.
Speaker Change: The pie is likely to be more constrained this year than last ditch.
Speaker Change: Due to the two largest producers in China guiding to lower output in 2025, and the bolus Alagoas Cali, and New York has announced that they would produce fewer tons.
Speaker Change: Additionally, there is significant uncertainty as to how much additional production will be available from mouse.
Speaker Change: Given continued issues with my inflows and singles.
Speaker Change: As a result, we believe potash market are improving are very constructive.
Speaker Change: Now I will pass the call over to Luciano for insight into our financial performance.
Luciano: Thank you Jenny.
Speaker Change: Thanks for you Bruce for your warm welcome.
Speaker Change: So I've been CFO of mosaic now for two months responsible for finance strategy I T.
Speaker Change: Oh coming in I think mosaic has a mature has a clear strategic direction strong financial Foundation I can I can give you several examples.
Speaker Change: The balance sheet is a good place B B b.
Speaker Change: At its most efficient to be.
Speaker Change: We have lots of funding options in place.
Speaker Change: Share count has been reduced by almost 20% over the past few years.
Speaker Change: I think that maybe the market doesn't fully appreciate.
Speaker Change: And yes. After a few years of cost inflation I believe theres good momentum in our cost control initiatives and the 150 million target you know I'm I'm confident we will reach it.
Speaker Change: And we'll discuss this in a moment cap.
Speaker Change: Capital expenditures are also under control.
Speaker Change: Mosaic delivered on its commitment to reduce capex by about 200 million of last year.
Speaker Change: This year, we're flat capex to address some reliability challenges.
Speaker Change: But we will continue to reduce capex in future years.
Speaker Change: So I'm privileged to step in with so much already accomplished.
Speaker Change: I'll give you some detailed comments and color on some of the most meaningful numbers on our financial statements and performance. This is a little new.
Speaker Change: But my goal is for you to be able to understand the drivers of our performance and to model it going forward.
Speaker Change: Like my comments with with net income.
Speaker Change: Obviously, it's it's complicated a lot some nonrecurring events first one we exchanged our stake in the M. W. S. P C joint venture.
Speaker Change: Or the shares of modern and you see a $522 million gain on this one and this is a difference between the market value of the shares on the date of the closing.
Speaker Change: The book value of our former stake on the joint venture.
Speaker Change: But then you have another gain of 28 million and this is now the increase in the market price of the stock between the closing date and December 31, and going forward, you'll see the mark to market of the value of those shares reflected in our financials. So this is gonna be recording.
Speaker Change: Net income.
Speaker Change: It was also impacted by this large balance sheet 390 million foreign exchange loss in the fourth quarter, which is in the notables table in our press release.
Speaker Change: That comes from the intercompany loans from the U S to Brazil and from the U S to Canada.
Speaker Change: They're both denominated in U S dollars.
Speaker Change: And the issue is that the Brazilian real weakened a lot during the fourth quarter by 14% worst performing currency in the world.
Speaker Change: And so the local Brazilian balance sheet debt also increased by a similar amount and the Canadian dollar also weakened by 6%. So the Canadian balance sheet also faced a loss. So these negative effects were huge in the quarter.
Speaker Change: And they go up into the consolidated financial statements of mosaic as a whole.
Speaker Change: Well, but the this foreign exchange story also goes into the adjusted EBITDA performance of our businesses and again, most importantly into mosaic for TD is not just in Brazil.
Speaker Change: The Brazilian distribution business by themselves finished product and at any given time, we have open payables in dollars.
Speaker Change: The payables now in Brazilian Reais are more expensive and as we pay the obligations.
Speaker Change: We recognize a loss in EBITDA in the local income statement.
Speaker Change: The difference between.
Speaker Change: The payables in U S dollars, the current exchange rates, which are more expensive than the older. One these goes into EBITDA.
Speaker Change: There are other smaller losses in FX hedging and all in all that reduced the adjusted EBITDA for Brazil by 35 million in this quarter.
Speaker Change: And may continue to have around 20 million impact in the first quarter of 25, just because we still have and working through the old payables.
Speaker Change: And why am I, saying all of this because I want to call your attention to the fact that our adjusted EBITDA.
Speaker Change: Brazil in the fourth quarter was 82 million.
Speaker Change: But that was after all these charges so to see our underlying performance you need to add back. This 35 million loss. So instead of 82 million of adjusted EBITDA.
Speaker Change: We are in the 120 million territory.
Speaker Change: And once these payables things it's gone that that's the number you were gonna see printed from the second quarter of 'twenty five onwards.
Speaker Change: So it's actually going to be even higher given the cost improvements are ongoing.
Speaker Change: So why we're now into this 120 million plus territory for EBITDA for two factors. So first cost performance is really strong.
Speaker Change: As part of the 150 million cost reduction program, we already captured a 35 million recurring savings only in Brazil.
Speaker Change: Just to give you some color one initiative for example.
Speaker Change: We changed the mine plans, we increase rock production and we seized importing phosphate rock, which is much more expensive.
Speaker Change: That only change reduces our operating costs in Brazil by $35 million to $40 million annually and about 15 million was already captured in 2024.
Speaker Change: The other factor is now that the FX rates provides a tailwind and costs.
Speaker Change: So altogether, if you compare fourth quarter of 'twenty four with fourth quarter was 23, you can see this in our performance data sheet, which is indeed a website.
Speaker Change: Phosphate rock costs are down, 15% and phosphate conversion costs are down 23% in that period.
Speaker Change: So very confident about particular branches going forward.
Speaker Change: So one another highlight as SG&A.
Speaker Change: $497 million in 'twenty 'twenty four is largely flat when you compare to $501 million in 2023.
Speaker Change: But 'twenty 'twenty four includes a 30 million loss on receivables you remember a significant Brazilian retailer that defaulted.
Speaker Change: But without this loss SG&A would have been like instead of for me unless would've been $34 million or 6% year over year reduction.
Speaker Change: And considering other nonrecurring noncash factors, we can say that $42 million have already being saved an intrinsic SG&A as part of the 150 million in cost savings.
Speaker Change: And by the way.
Speaker Change: We've got insurance on these $30 million debt so at some point.
Speaker Change: We expect to revert the majority of this loss and bad debt.
Speaker Change: How about potash and phosphates and potash MLP costs have been largely flat.
65 to $75 a ton in the past four quarters.
Speaker Change: But it should edge down.
Speaker Change: As we produce more tons from Mr. Hazy, which is our most efficient mine.
Speaker Change: We the hydrophobic project coming on line later this year.
Speaker Change: The margins will also improve as we make more granular products, which in average earned at about 20 to $30 more than standard products.
Speaker Change: In phosphates the costs actually increased in Q4 due to the plants being idled falling to hurricanes were discussed.
Speaker Change: But the recovering volumes are will in twenty-five will dilute the cost per ton.
Speaker Change: And we're already looking for more than 150 million and cost reductions. So we have this digital acceleration program that should bring about $70 million in benefit.
Speaker Change: 150 million is coming from a better mine planning mass recovery at our Petro senior and auto shark complex in Brazil.
Speaker Change: And we will discuss all of this in detail and we'll have additional news for you in our analyst day upcoming March a team, which I invite all of you to attend.
Speaker Change: I'm sure. We're gonna be also discussing capital location, the Q&A and I was very lucky to come in right in the middle of the conclusion of the one 5 billion deal with modern chairs.
Speaker Change: And I actually got my hands and worked in there I don't know 25 million Patos deal.
Speaker Change: I'm fully committed with a program to reallocate capital to the benefit of shareholders.
Speaker Change: And one final note.
Speaker Change: With decided to discontinue our monthly price and volume releases are we've received some feedback from you that these releases were not particularly helpful more noise than signal. So we're discontinuing it.
Speaker Change: With that I.
Bruce: I want to turn the call back to you Bruce.
Lousiana.
Bruce: To summarize mosaic delivered a solid year, despite considerable market weather and operational challenges.
Bruce: Our outlook for 2025 is positive with our improving operational performance lower cost profiles and excellent financial Foundation mosaic is well positioned to benefit from the strong market conditions, we see ahead.
Bruce: Now operator, we'd like to take questions from the audience.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you were using a speakerphone. Please pick up your handset before pressing the keys.
Bruce: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two in.
Bruce: In the interest of time, please limit yourself to one question and.
Speaker Change: And your first question today will come from Chris Parkinson with Wolfe Research. Please go ahead.
Bruce: Great. Thank you so much.
Speaker Change: In your press release, you mentioned that your beliefs at 700000 tons.
Bruce: Our sacrificed in 'twenty four for.
Bruce: For your processed phosphate and you mentioned some of this in your prepared remarks, so that would leave you about seven one at the midpoint for 25, so at the midpoint for 25 guidance, it's about 300000 tonnes.
Speaker Change: Just a fast acid turnarounds get used that number anyway or what's the best way to think about that.
Speaker Change: And if you could throw in some half on half comments that would be very helpful. Thank you so much.
Hey, Thanks, Chris Yeah, it's about 700000 tons due to kind of those extraordinary events due to weather and some other things that are you know we had to deal with in 'twenty 'twenty four get you to that kind of seven 7.1 as you said.
It's the faas hasn't turnarounds at it really the sulfuric turnarounds that we've been focused on.
Speaker Change: For the last several years coming out of the pandemic that really got upside down on our sequencing.
Speaker Change: And we've been talking about that in the catch up work and I think that might be where you're going Chris if I understand right.
Speaker Change: So yes, so if Europe is back as we've said kind of on those three year turnaround cycles, but what we found as we went into December.
And actually if you were to add in kind of the hurricane impacts orders December production. We would have had one of the best production years, our quarters and maybe the last two years.
Speaker Change: So we had a chance to kind of put the accelerator down given that some of our sulfuric issues are largely behind us and we.
Speaker Change: We did find a couple of bottlenecks in fast acid.
Particularly at new wells are that we need to address in part of the reason that our Capex is staying flat. This year is we're putting a little more money in the first half of the year to deal with some of these.
Speaker Change: Lingering effects on downstream of sulfuric in some of our facilities here in central Florida, and Louisiana. So.
Speaker Change: That is maybe the half over half a different state you're talking about Chris and what to look forward. So as we announced quarter. One was always going to be kind of a challenge quarter, given the bartow turnaround, which should be wrapping up next week.
Speaker Change: And then we've got some other turnaround work that was in our normal schedule, but now we're accelerating forward.
Speaker Change: Some additional reliability work and phosphoric acid at New Wales, that's going to suck up a little bit more capital. This year in order. So that the second half of the year is at that Max capacity run rate. So you will see a difference between first half second half.
Speaker Change: Given that pull forward of some work that we're doing to really address those lingering reliability issues in phosphoric acid.
Speaker Change: And your next question today will come from Andrew Wong with RBC capital markets. Please go ahead.
Andrew Wong: Hey, good morning.
Andrew Wong: Question. So mosaics I'll just have some very interesting monetization of assets with modern and that doesn't mean us just wondering what other assets might be considered you'd mentioned Carlsbad is there anything else that might be notable that we should be thinking about and then just regarding the modern transaction.
Andrew Wong: Are there ways to monetize that investment before the lockup period.
Andrew Wong: Yeah, Andrew no. Thanks.
Speaker Change: I think we've been pretty consistent now I'm going to turn it over to Luciano in a minute to talk about some of the details he kind of highlighted that on the prerecorded section.
Speaker Change: As we're looking at every asset within our portfolio to see if it generates returns that are acceptable.
Speaker Change: Some examples as you mentioned that the modern transaction was the you know kind of tip of the iceberg Ah that Ah. This as we close 2024, but even if you go back to stream song into in 2020 three.
Speaker Change: That was another example of looking at our portfolio the petals Dumminess mine, which was an idled mine.
Speaker Change: <unk> had an opportunity to sell that for you know something that contributes very positively and as you said, Andrew we do have a process ongoing and are optimistic that we may have some news in the upcoming weeks to announce at Carlsbad. So every asset is being looked at and if we.
Speaker Change: We've got opportunity to think differently about that opportunities to you know maybe even considered divesting of that those are things that we're going to continue to look at and we'll be talking a lot more about that in detail in our analyst day on March 18th, but Luciano I'll turn it over to you.
Speaker Change: No Bruce we said it all we ask for patients from you on the street because it's there's a lot of studies ongoing no stone is gonna be left unturned.
Speaker Change: There will be specifics being given at the analyst Investor day.
Speaker Change: And as Bruce pointed out we're very optimistic with the Carlsbad the way that things are going so we should expect some some news important news for you.
Speaker Change: Maybe as early as Q2.
Speaker Change: And as regards the modern shares yes, there are ways to monetize it beforehand.
Speaker Change: We are looking into it but you shouldn't expect something I would say.
Speaker Change: On the size of the entire shareholding because simply because there are constraints.
Speaker Change: Liquidity constrains to do with like third parties to do it lots of ideas.
Is that something that we're looking at very very carefully.
Speaker Change: But again as as news comes out we're going to let you know as soon as we have a decision was made.
Speaker Change: Your next question today will come from Steve Byrne with Bank of America. Please go ahead.
Speaker Change: Steve Your line may be muted.
Steve Byrne: Yes, sorry about that.
Speaker Change: Oh, I'm, sorry, I'm struggling to understand your your outlook for global phosphate shipments of the chart you have in slide 20.
Speaker Change: You look at that and you look at the 10 year period before 2022.
Speaker Change: And you would project you know.
Speaker Change: Something much greater than the low end of your forecast for 25, so what what has happened in these last few years, it's not like you know these growers.
Speaker Change: Use of phosphate is discretionary.
Speaker Change: If it's being removed with the crops.
Speaker Change: Is this a case, where there has just been excess material in most soil has there been greater application rates than they needed.
Speaker Change: Why isn't there you know.
Speaker Change: Yield drag from this and then and one more by extension.
Speaker Change: Is there potential for this curve to really flatten longer term.
Speaker Change: From your bio paths and power cot products, which can release, the the immobilized phosphate in soil.
Speaker Change: Yeah, Steve Thanks for the question and I'm going to end up I'll kick it off and say a couple of opening remarks, and then give it over to Jenny.
Speaker Change: Get into the specifics on the yield.
Speaker Change: And application in phosphate and then.
Speaker Change: The complement of your question on Biosciences, but.
Speaker Change: I think.
Speaker Change: What we see is that it's actually a supply side limitation on demand growth for phosphates are there theyre just as limited supply in the marketplace, which is why stripping margins have stayed so constructive for so long and we're seeing that kind of $6 30 to $6 50 price point and north of <unk>.
Speaker Change: $400 stripping margins realized stripping margins for mosaic are even above that by 20 to $40 a ton given our advantages are so it really is the constructive in this and the tightness of the market.
Speaker Change: Largely driven by a the export constraints and the discipline on exports coming out of China. So we don't see that changing much Stephen and actually you know competition for phosphate molecules outside of just pure play agriculture.
Speaker Change: We're going to continue with our L. F. P. And this is probably where biosciences actually are complementary to that supply constraint to actually allow farmers to continue to get good yield improvements even with the supply constraint on phosphates until such time that there is significant new greenfield capacity announced which.
Speaker Change: Isn't the case.
Speaker Change: So you know a one to one and a half ponca compound annual growth rate in phosphates I think is what we would expect going forward through the decade, but Ginny I'll turn it over to you.
Ginny: Sure. Thanks, Steve.
Ginny: Steve I think you've raised a very good question and we actually have protected the demand growth for phosphate globally.
Ginny: Should stay at the train line between 1% to 2%, but you're exactly right. It didnt happen over the last couple of years as Bruce mentioned, it's really constrained by supply as a result of that is quite supportive to the stripping margin and prices.
Ginny: I would like to also to mention to answer your questions are related to the phosphate to hum application rate.
Ginny: The impact of the yen.
Ginny: As many people know I'll, probably don't know phosphate if there's one of the least efficient applied nutrients.
Ginny: In general only 50% after phosphorylase applied on the ground.
Ginny: Actually uptake in all used by pound how crops. So I mean, there's a big amount of phosphate being applied and stayed in the soil.
Ginny: With reduced application rates over the last couple of years, we may see some of the underlying impact to the year with some of.
Ginny: The biological products like you mentioned and thank you for calling out the two flagship brands that we have pop culture and.
Ginny: Bypass this are two good examples that microbial what's the potatoes actually could help to generate organic asset, which help to to make the phosphorous tied to the failure to be more valuable for the crops to us which in turn to make the phosphate.
Ginny: Use efficiency are much higher which help to yield increases so more to come on apart from this two flagship brands that we have and we actually have even more advanced product.
Ginny: Product in the pipeline and stay tuned we're going to talk more on our analyst day on March 18.
Speaker Change: Your next question today will come from Joel Jackson with BMO capital markets. Please go ahead.
Speaker Change: Good morning. This is Anthony on for Joel maybe just a question on potash what could maximum potash production look like compared to the.
Speaker Change: The guidance range you provided this global demand surprises to the upside this year.
Speaker Change: Yeah. Thanks Anthony.
Speaker Change: I think there is probably limited upside on maximum production at least from.
Speaker Change: From us and I I think even on the Canadian producers I mean, you'll have to talk to nutrient about what they think and I think that probably happened on prior call last week, but.
Speaker Change: We're running it at kind of full rate of Astra hazy full rate at our bell plane.
We use colonsay as our swing facility it will be running and is running right. Now are we always continue to you know.
Speaker Change: Analyze that but if there was upside I think it gets down to can the supply chain getting out of Canada.
Actually take a significant more tons.
Speaker Change: For sure there's more incremental you know on the fringes and that's probably on the high side well, it's not probably it is on the high side of our range.
But there is a limit.
Speaker Change: Given our rail fluidity capacity at the ports are to get a significantly more capacity out of Canada. So I think that becomes the limiting constraint.
Speaker Change: And that would you know as I said the high side of our guidance really assumes that supply chain works very well and demand is on the higher end of the.
Jenny Wang: Of trend Jenny anything to add to that.
Jenny Wang: Hmm I think you've covered the sector.
Jenny Wang: Yes, Hmm Canadian producers.
We do not really see any major spare capacities in the rest of the ward as we mentioned.
Jenny Wang: <unk> on our earlier commentary the major producers the two largest producers in China have lost their.
Jenny Wang: There are production cuts this year due to very low inventories that they had last year in that pond and then we also have seen the announcements out of FSU on their reduction after production due to this long needed kind of Rand and lastly, the addition of the supply out of.
Jenny Wang: Laos H interest very uncertain, how much more they can push out of the country due to the issues around the single and water inflow. So all in all we do not see really any meaningful extra capacity are really for potash to be able to get out for this year.
Jenny Wang: Okay.
Speaker Change: And your next question today will come from Vincent Vincent Andrews with Morgan Stanley. Please go ahead.
Speaker Change: Thank you and good morning, everyone I could just ask on Capex and working capital.
Speaker Change: I know you've been in the seat for a couple of months.
Speaker Change: Can you talk about sort of how you view the capex level now obviously, it's down versus the last few years, but do you think this is the right level are you comfortable if our maintenance Capex is.
Speaker Change: And do you think Capex will stay flat at these levels over the next few years.
Speaker Change: And then if I could just ask on working capital whether you think there are any opportunities there and in particular, maybe you could talk about how much working capital to fertilize on tapes business consumes.
Speaker Change: So Vincent thank you starting by Capex.
Speaker Change: We're not happy with the level of Capex, where it is and we do have a target to reduce specialty sustaining capex throughout the years.
Speaker Change: Weekend trade probably over the next few years, maybe two to 300 million of the level that we are today.
Speaker Change: As Bruce said, we are spending perhaps 100 million more this year to fix their reliability issues.
Speaker Change: And and that reduction will mostly come over the next few years on maintenance Capex that that's what we are targeting we would like to continue to have about.
Speaker Change: Maybe 100 $150 million every year put forward into very accretive opportunity projects like the ones, which were already discussed like the hydro floats compaction of micro essentials.
Speaker Change: But maintenance Capex is where we need to do some work.
Speaker Change: As for working capital.
Speaker Change:
Speaker Change: There will be.
Speaker Change: A buildup in working capital this year, especially in the second half just because the business is resuming its growth. So the lot of the larger volumes in phosphates and potash.
Speaker Change: We'll point in that direction.
Speaker Change: And the same thing in Brazil, with Providencia coming in and the second half.
Speaker Change: We have our target for sales this year is much greater than last year, Brazil will continue to grow.
Speaker Change: So all in all it will be a consumer of working capital so.
Speaker Change: And actually the this plays out in our outlook for cash flow. This year, we you should expect I would say.
Speaker Change: Given the same levels of production stronger cash flows in 'twenty six.
Speaker Change: Even more strong than the second half of 'twenty five just because of this our working capital a buildup.
Speaker Change: That's an intrinsic I.
Speaker Change: I would say part of the business.
Speaker Change: It is well financed so we have access to a lot of short term options to fund it.
Speaker Change: So that that that's the way it is like we we buildup.
Speaker Change: In the first half we generate cash in the second half, but this year. Despite the cash flow generation in the second half, there's just still a little bit more of a build up because of the growth which is a good thing.
Speaker Change: Your next question today will come from Richard <unk> with Wells Fargo. Please go ahead.
Richard: Alright, thanks, good morning.
Speaker Change: Solid progress on the cost savings and the structure for Lasalle tests.
Richard: See you soon.
Richard: And $75 million or the $150 million coming from that in 'twenty four.
Speaker Change: Just wondering for 2025 the remaining.
Richard: Cost savings.
Richard: The 150, how much of that is going to be coming from fertilize on tests.
Richard: Is the rest going to be from SG&A and then just on the Brazil market in general.
Richard: If you could give some.
Richard: Some color in terms of what your what you've been doing to ensure that credit issues that you saw in 'twenty four won't continue.
Richard: That you've done that maybe.
Richard: Protects you from potential further downside.
Richard: Great. Thank you.
Richard: Hey, Richard.
Richard: Thanks, just on the I appreciate the recognition on the cost reduction.
Richard: You know as we said half of that has already been delivered from a run rate standpoint, and the remainder of that is going to come from a number of different areas. As you said SG&A still got some cost savings to capture we're going to see some fixed cost absorption benefits as that we get there.
Richard: That extra 1 million tonnes of production and then growing to a million tons of production in our phosphates in North America the improvements in production volume.
Richard: Volume and reliability in South America are going to start to bring fixed costs absorption benefits as well.
Richard: And then there's the hard savings that Luciano just talked about.
Richard: But I think Luciano is gonna I'll turn it over to him to talk more but we're really looking at a doubling down on even more cost reductions in and turning more stones over in all corners of the business. So I'm more that we'll talk about there and I'll turn it over to him.
Richard: But and then maybe over to Jenny <unk>.
Richard: Luciano doesn't answer it first on the credit issues in Brazil Luciano.
Luciano: Well, thank you Bruce.
Luciano: <unk> hundred and 50, it's going to be pretty much in the bag just by cost dilution and phosphates and potash and in fact anything else in the photo Lucentis side will probably be on top of that.
Luciano: And so we are already crafting.
Luciano: What can we achieve in addition to the 150.
Luciano: And you will put some aggressive numbers are coming from coming to them.
Luciano:
Luciano: We also appreciate the this I think the performance of facilities that just was a little clouded because of these FX effects. So pardon me if I spent too much time discussing it at the initially.
Luciano: But I've got to reemphasize that we are really really confident in the performance of this business going forward is precisely because of the cost performance.
Luciano: And I'm I'm I'm going to go back to one of the things, which I mentioned in the briefing.
Luciano: For example, we have this mine out of Shah proscenium.
The the mine life is up to 2062.
Luciano: So by changing the mine plan for example, and yes, shortening my life by maybe 10 years from 62 to 52, we're actually seeing much better high grade areas. The improvement in mass recovery is substantial so all the at this particular site.
Luciano: We're going to get another 50 million U S run rate starting in January.
Luciano: 24 hours, so there's a lot to extract from the first of those ventures business I encourage you to watch out for the performance of this line of business going forward.
Luciano: Yeah.
Luciano: And your next question today will come from Lukas <unk> with UBS. Please go ahead.
Chris Perrella: Hi, Good morning, everyone, It's Chris Perrella on for Lucas.
Luciano: Okay.
Luciano: Following up on the <unk>.
Luciano: Potash commentary prices were up in the first quarter, there's a pop ahead of potential tariffs.
Luciano: Could you just expand a bit on what you think a potential tariffs on Canadian potash would have.
Luciano: On pricing and demand in trade flows and with the with the price up in the first quarter do you realize that benefit in <unk>.
Lucas: Hey, Lucas.
And Ah I got your question down I'm going to answer because we have a mic issue here didn't get to answer the second half of Richards question on credit in Brazil. So, let let's do that first and then we'll hit your tariffs demand and trade flows are issue.
Lucas: Jenny you want to talk about our credit in Brazil, Yes. Thank you others, which adds to your question on the credit to risk issues in Brazil, we've been very diligent in managing our business in Brazil or made some tough choices between volume and margin and the credit risk as a result of that we have.
Lucas: We have been we've been really focusing on margin focusing on lower risk customers and Oh, we have shifted our business away from traditional retailers in Brazil and more towards two eight and he was first mega farmers B traders. The green traders, who has very good parts of our businesses.
Lucas: The pharmacy lastly on the co ops. So this is a very solid the customers with solid credit have give us a lot of reinsurance and assurance on the business quality and we will continue to do so in this year.
Lucas: So Lucas on the tariff question, obviously, that's a topic du jour in many corners of the globe, it's a dynamic situation one that well.
Lucas: We're watching very closely I know even as of yesterday.
Lucas: Now reconfirm the March 25% tariffs, but.
Lucas: We have numerous teams across our organization and in all functions and facets you know working on this and paying attention to it.
Lucas: Listen at the end of the day, if tariffs are imposed or wind.
Lucas: We see that it's going to be borne by downstream customers of mosaic. So you.
Lucas: That's unfortunate.
Lucas: But it is the reality of that situation with 80% to 85% of the potash demand in the U S coming from Canada, It's just hard to replace.
Lucas: That and so again, the downstream customers going to bear the brunt of that cost and.
Lucas: The good news if you want to look at good news or silver lining is that given the affordability of potash today and the increase in corn.
Prices and wheat prices in the in the general affordability of commodity on the AG side in general.
Lucas: Affordability is not that significant of an issue for potash, even with a 20, 25% tariff on top of it.
Lucas: The other advantage is that spurring tons are you know spring season demand is pretty much already baked in in place in space in North America and in the U S. So don't see any immediate impacts for spring are on the downstream side.
Lucas: And.
Lucas: Just to reinforce that Jenny and I were with one of our large customers out of Ohio.
Lucas: Cooperative.
Lucas: And we asked and had a large a lot of discussion around the tariff impact and sentiment of farmers and to be honest.
They're not even concerned.
Lucas: The additional cost is not something that they're worried about.
Lucas: And again, it gets down to the affordability, which to be honest surprise me a little bit but it just goes to show the confidence in the market and the farm gate on the pricing and affordability and that that transfer of cost.
Lucas: Breaker basis at the farm is not that significant in the big scheme of things.
Lucas:
Lucas: Don't see the tariffs, having a huge impact on demand.
Speaker Change: And anything to do with the profitability for mosaic now in the marketplace to your point prior to any tariffs we have seen good price appreciation.
Speaker Change: A greater than $40 a ton up in the U S and Brazil on potash since December of 'twenty four.
Or the turn of the year and even higher than that if you look at domestic prices in China. So there is good price momentum around the globe and in some of the first good price momentum we've seen of this magnitude.
Speaker Change: And a couple of years.
Speaker Change: So.
Jenny Wang: Where we'll realize that I will turn that over to Jenny from a Rev Rec standpoint.
Jenny Wang: Sure Lucas I I believe the price momentum as separate mentioned some of them will be reflected in Q1 and much more will be reflected in Q2, it's just because of the settings.
Selling cycle between Canpotex and ourself in domestic market are very different. So you should see from our guidance that we are guiding a higher price in Q1 and more to come in Q2.
Speaker Change: Your next question today will come from Jeff Zekauskas with J P. Morgan. Please go ahead.
Jeff Zekauskas: Thanks very much.
Speaker Change: Your cash flows in the fourth quarter and for the year end 2024 were quite low.
Speaker Change: And that your EBITDA was almost 600 and you generated roughly $2 20 in cash.
Speaker Change: You Werent able to cover your dividend and your Capex this year from operating cash flow.
Speaker Change: Was there something in the large currency events that pushed cash flow down and do you expect to cover.
Speaker Change: Capex and dividends next year with operating cash flow.
Jeff Zekauskas: Yeah, Jeff.
Jeff Zekauskas: Good question and it's something we've had a lot of discussion around ourselves I'm going to turn it over to Luciano.
To get into the details of that.
Jeff Zekauskas: Yeah.
Jeff Zekauskas: Jeff.
Speaker Change: Indeed, the shortfalls in volumes and production volumes and sales generated a shortfall in cash flows, especially in the second half which was not in the forecast.
So yes, it's true that the cash flows it didn't cover.
Speaker Change: The dividend and the Capex.
Speaker Change: You can estimate the shortfalls at perhaps around 300 million.
Speaker Change: Just by multiplying.
Speaker Change: The shortfalls in production by the margins and with the additional cost involved. So give you. An example, just arrow's.
Speaker Change: I could spend another 20 million in the fourth quarter just to remove the water brought by the Hurricanes and you see an uptick in aero and in a quarter as well.
Speaker Change: But for this year the situation is different yeah, we do expect to cover the minimum dividend capex and even have some some excess cash in order to distribute to shareholders or rolled back some of the working capital funding additional that we did.
Speaker Change: And your next question today will come from Edlin Rodriguez with Mizuho. Please go ahead.
Edlin Rodriguez: Thank you and good morning, everyone.
Edlin Rodriguez: First of all just a clarification in terms of the modeling assumptions you provided you gave production volumes of potash and phosphates like what do you expect sales volume to be for mosaic.
Edlin Rodriguez: The same number that we should think of but for my.
Speaker Change: Real question. So again in the potash outlook, you talk about farmers, I mean, potash when women or affordable and everything else. Despite the tariffs. If that's the case if farmers can and are willing to pay more for potash.
Speaker Change: Hi, Dan producers pushed towards those price increases.
Speaker Change: A couple of months ago last year, when corn prices. If you look at the December corn 25, it's almost the same level as it is now so even if corn prices are not a factor. So what inputs just push for higher potash prices farmers, who are willing to pay for it essentially.
Speaker Change: Okay.
Speaker Change: Yeah, yeah. Thanks.
Speaker Change: Thanks for the question I'd say, good nuanced catch on our guidance and we don't provide sales guidance and aren't providing sales guidance for the full year. We did decide to give production guidance as something for you all to have better clarity on where we are.
But I'll leave it at that.
Speaker Change: For the time being on the pricing thing a couple of things change I mean, one is the price of corn continues to appreciate.
Speaker Change: As well as some of the other grain commodities, but the other one was the late announcements since December of significant production supply side constraints and.
Speaker Change: That has tightened the market.
Speaker Change: So as.
Speaker Change: As much as you'd say why didn't you know prices get pushed it really was.
Speaker Change: Global supply and demand a.
Speaker Change: Phenomenon that changed from where it was saying going into.
Speaker Change: September October November and what changed December to now is about a million and a half tons or more have come out from the supply side, particularly in our forecast with the announcements in China on domestic production going down with the announcement and issues with the sink holes in Laos in what.
Speaker Change: Could be the effects of that are with the announcements from your Kelly and Belarus galleon.
Speaker Change: There are significant maintenance outages. So it really comes back down to fundamentals on S. N D. On why we've seen that price appreciation.
Speaker Change: Over the last several weeks.
Speaker Change: Your next question today will come from Ben Theurer with Barclays. Please go ahead.
Ben Theurer: Yeah. Good morning, Thanks for taking my question I, just wanted to follow up Luciano on some of the items you flagged for Lucentis down in Brazil, I was just wondering about the cost you've talked about that you've that you've taken out and obviously you expect some of it to come back from the losses in the third quarter with Astral Galaxy, but if we think about.
Ben Theurer: 2025, and the modeling go forward just that SG&A run rate how much right now if that low level that we saw in <unk> was really just FX related.
Ben Theurer: And what would be call. It a more normalized level or should we expect something in the five and a half to fix and not maybe beyond fix as we've as we've seen it in fourth quarter.
Ben Theurer: And then to the timing of these insurance for claims if you can comment anything on like how you think to gain back that was $30 million. Thank you.
Ben Theurer: Yeah.
Ben Theurer: Okay, well thanks for the question I would say if you look at our performance sheet data.
Speaker Change: We do provide our unaudited non gap.
Speaker Change: Costs mining costs, and phosphate conversion costs, and even potash costs in Brazilian real.
Speaker Change: So whatever exchange rate you want a model just think.
Speaker Change: Think of those as I would say the.
Speaker Change: The ceiling levels going forward. So you you have a parameter here, but as I said before we're trying to reduce those even in the Brazilian reais, So that's where want as far agro galaxy.
Speaker Change: I'm pretty confident that we will recover it this year.
Speaker Change: Cannot be precise about the quarter, but for sure. These types of processes. They they don't take as long. So we're confident that we're going to have the cash flows back this year.
Speaker Change: Your next question today will come from Christian Owen with Oppenheimer. Please go ahead.
Christian Owen: Hi, Good morning. Thank you for taking the question sort of a follow up kit to deferred Alexander asked a question here a little bit more granular than the $120 million quarterly run rate that you outlined as sort of the underlying performance of that business can you give us a little bit of color first half second half and then from an underlying demand perspective.
Christian Owen: <unk>, how you're thinking about recovery in the back half of the year given some of these distribution challenges and your shift toward larger customers or our direct to co ops is there an opportunity to refill the channel or or should we just think about instead of a gradual increase in the back half of the year. Thank you.
Speaker Change: Kristen Thanks for the question, let's unpack that a little bit on two sides. One journey may be a timing of.
Christian Owen: How things shape on cash flows and then I'll turn it over to Luciano on anything on the.
Speaker Change: The underlying financial performance effects.
Speaker Change: Sure. Thanks to your question on the customer collection on all move between different segments of course that has happened. So we actually are we over the last year. We we've made that move and we think we are in a good place.
Speaker Change: Yeah towards two other customers that we are a we're going to.
Speaker Change: New business was with a much more solid.
Speaker Change: Oh profile, so I don't necessarily see a major volume change from Q1, two from first half to the second half I would say the volume growth.
Speaker Change: Gross this year, it's pretty much going to depend on a if the mortgage market is going to go as what we are forecasting that we anticipate the market is going to hit a new record from from shipment point of view from demand point of view be from customers.
Speaker Change: Credit card type profile upon feel we feel comfortable as Oh, where we are today and so just just to summarize we don't see major change from first half to the second half.
Speaker Change: And on the cost side are the yes, yes, you're right that that's exactly the message we want to convey that the one 'twenty run rate is a floor for the performance opportunities answers going forward and again I. Just gave you. An example in the prior question about something that is not in that 120. So you should expect upside from there and we're positive that well.
Speaker Change: Ill start showing those results.
From Q2 onwards.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Bruce Bodine for any closing remarks.
Bruce Bodine: Well, thank you operator, and I'll close the call by reiterating.
Speaker Change: Few of our key messages first the market backdrop is promising.
Speaker Change: Global Agriculture fundamentals have improved providing plenty of incentive for farmers to maximize yields second.
Speaker Change: Second yeah mosaic, we're making meaningful strategic progress are.
Speaker Change: Our work to restore phosphate production to historic levels is proceeding well and we've completed low cost high return projects to enhance our production and distribution in all segments of our business and.
Speaker Change: And third our efforts to reallocate capital in pursuit of better returns.
Speaker Change: Is coming to fruition and we're excited about that we've announced or completed several transactions and we expect to have more news in the near future.
Speaker Change: All in all we have a strongly positive outlook for 2025, and a well defined path to benefit from good market conditions.
Speaker Change: Thank you all for your joint call and have a great and safe day.
Speaker Change: Vince has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].