The Mosaic Company

Good morning, and welcome to the Mosaic Company's third quarter 2026 earnings conference call. At this time, all participants have been placed in a listen-only mode, and this conference is being recorded. After the company completes their prepared remarks, the lines will be open to take your questions. And now, I'll turn it over to Luciano Siani Pires, Executive Vice President and Chief Financial Officer.

Thank you and welcome to our third quarter 2026 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer. We will then welcome Jenny Wong, Executive Vice President, Commercial, to join Bruce and myself as we open the floor to questions. We will be making forward-looking statements during this conference call. The statements include, but are not limited to, statements about future financial and operating They're 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 yesterday afternoon and in our reports filed with the Securities and Exchange Commission. Please note, in today's presentation and in our press release and performance data, we will refer to and provide various financial measures, including adjusted EBITDA, adjusted earnings per share, free cash flow, cost per ton, and adjusted effective tax rate, either on a total company or segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found in our earnings release. Now, I would like to turn the call over to Bruce.

Good morning, and thank you for joining our call. Our message to investors remains unchanged. Mosaic is navigating a difficult phosphate market by managing all that is within our control. I've lived through many cycles over my 30-year career in the industry, and while certain aspects of today's environment seem unprecedented, One important constant to remember is that markets bounce back. The strongest companies are built to withstand markets like this by taking decisive actions, preserving financial flexibility, and positioning themselves to benefit as conditions improve. Allow me to summarize a few of the steps we've taken. We've temporarily adjusted our phosphate production across our portfolio to match the availability of affordable sulfur. This includes curtailments at Bartow, Louisiana, and in Brazil. We've also idled mining at South Fort Meade and Miskimayo to reduce unnecessary buildup of rock inventory, preserve cash, and better align mining activity with current production levels. For the production that remains online, our strategic relationships with U.S. Gulf Coast refiners continue to provide an important sulfur sourcing advantage. For the fourth quarter, we've secured supply at $615 per ton. We're continuing to review spending across the enterprise. We've reduced corporate SG&A significantly and expect 2027 SG&A to be below $500 million. We're also continuing to optimize our capital budget and now target 2027 CapEx of below $1 billion, $200 million lower and where we expect to finish 2026. We're continuing to pursue several portfolio actions to improve capital efficiency, strengthen financial flexibility and invest in the opportunities that offer the greatest strategic value. This includes completion of Canadian land sales last month netting $36 million, advancing the sale process of Arishaw in Brazil and evaluating other non-core assets. Finally, we've taken important steps to maintain the strength of our balance sheet. In early August, we refinanced and extended all long-term debt maturities that were previously due in 2027 and 2028. We have no long-term obligations over the next two years and access to liquidity remains available should we need it. Together these actions ensure a strong foundation for any market and we're already seeing results. Even with production curtailments in the US and Brazil, we expect to generate positive free cash flow in the second half of this year. Before going deeper into the business, I'd like to address broader markets. Long-term agricultural fundamentals remain favorable and near-term dynamics in our key markets are also starting to improve. After two years of under application and now unfavorable weather, yield impacts are becoming more visible around the world. At the same time, grain and oilseed prices have risen from their lows earlier in the year, which is supportive of better farm economics and nutrient affordability. Better nutrient affordability is coming at an important moment. Yield impacts in Brazil have become quite pronounced and growers in North America have likely exhausted most residual soil nutrients. Under application cannot go on indefinitely and growers understand that. Phosphate supply remains constrained with sulfur availability and affordability continuing to limit production and margins across the industry. For those still producing, spot sulfur prices are resulting in unsustainably low stripping margins. Fortunately, We're starting to see some improvement in prices, which is driving incremental production, but current economics remain insufficient for meaningful recovery in global supply. Some producers in Asia have begun exploring non-traditional sources of sulfur, including reclamation from jib stacks and the restart of long dormant sulfur mines. These are longer term solutions that could provide the industry with additional raw material supply options over time. In the near term, however, global phosphate shipments are expected to be down approximately 20 million tons from last year, and we expect this trend to carry over into 2027. Despite limited supply, we're seeing some indications of improving phosphate demand in our key markets. North America's net max moved higher toward the end of third quarter after lagging other regions for much of the year. Customer engagement has continued to improve in the fourth quarter ahead of fall application and winter fill in North America, and our tons are largely committed. In Brazil, fertilizer inventories are low, particularly for phosphate. While it's still too early to call it a recovery, we are seeing green shoots emerge as appetite returns. Higher soybean prices supported stronger demand during the third quarter, and farm economics in Metagrosso in the third quarter were at their highest level in the last three years. Customer credit remains constrained, and we continue to be selective in extending credit, but improving farm economics and low inventories provide a more constructive backdrop for demand in 2027. In India, Phosphate imports have been robust for most of the year. While purchasing has slowed seasonally in recent weeks, additional import demand is expected through year end. The global potash market continues to be constructive with strong demand driven by good value and inventory replenishment. China continues to be an important source of demand as it supports domestic consumption and continues to build strategic reserves. Against this backdrop, negotiations for the 2027 contract have already begun earlier than in prior years. On the supply side, logistic constraints in Russia and Belarus have disrupted roughly 1.5 million tons of potash shipments from the Baltic Sea in the fourth quarter. Overall, we see a constructive potash supply and demand picture. Turning to our business, I will start with phosphate. As previously announced, we curtail production at Bartow in Louisiana to align with the affordable sulfur available to us through our U.S. Gulf supply agreements. In the third quarter, our realized sulfur price of $715 was well below the market average of $1,100 per ton. Looking ahead, our fourth quarter contract was recently signed at $615 per ton, once again below current market price. The volumes at that price are not enough to run our US assets fully, and while spot prices have begun to move lower, they're still not low enough to restart curtailed production. In the meantime, we're focused on meeting our customers' needs as best we can, while optimizing netbacks and managing inventory responsibly. For this reason, we began curtailing operations at South Fort Meade and Miskimayo to avoid building unnecessary rock inventory while concentrate plants are running below rate. Despite lower operating rates, we've begun seeing improvements in our production costs. Cash costs of conversion per ton saw a meaningful sequential decline, reflecting in part the idling of phosphate production in Louisiana, which is our highest conversion cost facility. and we expect these improvements to continue in the fourth quarter. Looking ahead, our lower sulfur contract price settlement will have an immediate benefit to fourth quarter cash flows, while the benefit to earnings will take longer as higher cost inventory moves through the system. Because of the volatility, we've again decided to provide some guidance on raw material costs for the fourth quarter. For sulfur, we expect realized prices and cost of goods sold to be in the range of $800 to $850 per ton. For ammonia, we expect costs to be in the range of $590 to $610 per ton, and this will result in realized stripping margins in the mid-300s per ton. As lower-cost raw materials flow through inventory and our cost actions gain traction, We expect the underlying economics of the phosphate business to improve as we move into 2027. Potash continues to be a strong performer and an important cash generator. Third quarter cash cost of production declined $11 per ton sequentially as the production shifted toward lower cost esterhazy volumes. During the quarter, production at esterhazy was affected by lower ore grades Associated with geology in the current mining area. This is temporary, and we anticipate the ore grades to improve as we continue mining. We continue to target annual potash production of more than 9 million tons over the longer term. In Mosaic for Lizanche's, third quarter results reflected a full quarter of production curtailments across most of the business, while higher margin animal feed production continued. Distribution margins were within our normalized annual target range of $30 to $40 per ton, supported by normal seasonality and commercial execution. We also made meaningful progress reducing finished goods inventory during the quarter, and collections associated with stronger third quarter sales are expected to support cash generation in the fourth quarter. Mosaic Biosciences continues to deliver strong growth. Year-to-date net sales have more than doubled year-over-year, and we remain on track to generate nearly $135 million in 2026. We expect to launch a total of 8 to 10 new products this year and deliver positive EBITDA, a strong step toward our goal of generating $200 million of EBITDA from the business by 2030. I'd like to spend a moment on our recent cost reduction actions and strategic capital allocation priorities. We're taking more aggressive actions to align our cost structure with current operating conditions. These decisions have been difficult, but they're necessary to position the business for long-term success. These actions include removing fixed costs from idle and underutilized operations, reducing SG&A, and concentrating resources on the areas that create the greatest long-term value. We expect 2026 SG&A to be $510 million to $530 million, but our cost reduction initiatives suggest 2027 SG&A to be below $500 million. Capital spending remains an important lever. We have reduced our 2026 capital expectations over the course of the year and sharpened our focus on maintenance, reliability and high return projects. Based on our current plans, we are targeting below $1 billion of capital expenditures in 2027, roughly $200 million below where we expect to finish 2026. We remain focused on optimizing our portfolio of assets. Over the last few years, we've divested non-core assets that have allowed Thank you. Thank you. Thank you. and we're continuing to explore additional divestitures of non-core and underutilized assets that will further ease our CapEx burden and enable us to focus our resources on our opportunities. Let me close with this. The environment remains challenging, but we are acting decisively and seeing increasingly constructive signals across our markets. These actions have strengthened our underlying business and have positioned us to generate strong cash flow and returns as markets normalized. With that, we'll open the call for questions.