Mosaic Company (The)

completes their prepared remarks, the lines will be open to take your questions. Your host for today's call is Jason Tremblay. Jason, you may begin.

Thank you, and welcome to our second quarter 2024 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer, followed by a fireside chat, then open Q&A. Clint Freeland, Executive Vice President and Chief Financial Officer, and Jenny Wong, Executive Vice President Commercial will also be available to answer your 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 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 yesterday 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. Now I'd like to turn the call over to Bruce.

Good morning. Thank you for joining our second quarter earnings discussion. Before we begin, I want to acknowledge that we have recently experienced some serious safety incidents. We take safety extremely seriously, and we are working to further improve our culture to ensure our people go home safe after every shift. Moving on to our earnings discussion. This morning, I will add some color to the information we've published, and then we'll get to your questions. This was another solid quarter for Mosaic, both in terms of our results and our operational progress. For the quarter, Mosaic delivered adjusted EBITDA of $584 million on revenues of $2.8 billion, compared with adjusted EBITDA of $744 million and revenues of $3.4 billion a year ago. Adjusted earnings per share for the quarter were $0.54, compared with $1.04 in 2023. We're making good progress across our strategic initiatives, both to grow the company and manage costs. and our market outlook remains constructive. I'll start with the actions we're taking to strengthen the business for the long term. We are hyper-focused on managing costs, and we're making good progress across G&A, operating, and capital expenditures. Since the announcement of our $150 million expense reduction program between SG&A and cost control measures implemented in Brazil, We have already achieved more than one-third of the annual run rate cost savings target. This does not include phosphate fixed cost absorption resulting from higher production volumes in the second quarter. We have also executed phase one of our third-party contractor reduction plan in Brazil and expect to begin seeing the benefits in the second half of this year. With several projects winding down and careful CapEx management, We are on track to achieve our targeted $200 million reduction in capital expenditure. Our work to improve our operations and driving operating efficiency is paying off. Phosphate production volume in the second quarter increased by almost 100,000 tons over the first quarter. This is a significant improvement on an annualized basis. Efficiency improvement is also seen in our potash and mosaic for lasagna segments, where unit production costs improved meaningfully across the board. Our growth projects are proceeding well. Our micro essentials expansion at Riverview is operating and ramping up. Our potash compaction project at Esterhazy is complete. And the new Pomerantse blending facility in the northern region of Brazil is on track to be completed in 2025. Our mosaic biosciences business is making significant progress. In fact, We have launched our biological products in North America, Brazil, China, India, and nine other Central American markets. Our products are now in use on 5 million acres in North and Central America, which highlights the competitive advantage our brand, customer relationships, and distribution strength provide as we introduce new and innovative products. We completed and successfully launched our global digital acceleration program, which is driving improved customer service, cost reductions, and many other benefits. The strength of our business and our cost controls have allowed us to continue to return significant capital to shareholders. We have returned almost $300 million to shareholders, including $160 million of share repurchases in the first six months of this year. Our business improvements are complemented by the positive signs we're seeing in fertilizer and broader agriculture markets. Strong global phosphate demand drove higher prices through the second quarter as seasonal sentiment improved. We believe the long-term outlook for phosphate, with increasing demand for food, fiber, fuel, and industrial use, is compelling. Potash contract settlements in China and India established a price floor and brought buyers back to the markets. In-season fertilizer demand in Brazil is strong, and we continue to execute well amid the recovering ag environment there. Mosaic for Los Angeles results are solid, and our cost position demonstrates improvements. Let's take a deeper look at our progress in the U.S. phosphate business, where our goal is to return to a run rate of 8 million tons per year by the end of 2024. We're making good progress as demonstrated in our second quarter production volumes, which advanced 98,000 tons from the first quarter. On a run rate basis, some of our facilities, specifically Bartow and New Wales, have achieved about 90% of the production levels we need to reach our system-wide goal. Our turnaround work is clearly paying off. For example, in New Wales, following the turnarounds we executed in March and April, we saw a significant step up in production for the second quarter. In Louisiana, our production run rate has improved after several unplanned outages last year and has reached 85% of the target production level. Several projects are scheduled for the remainder of the year, which will further close the gap to the target rate. Riverview performance in the quarter was lower than target rate due to the outage caused by a brush fire earlier this year and a normal pace of production ramp-up after a major capacity conversion, which was completed in May. The outlook for the rest of the year is solid. All in all, we are pleased with the progress we have made in our production ramp, and our hard work will continue to pay off for the remainder of the year. Higher production brings lower unit costs, as you can see in our second quarter results. The majority of our turnaround activity will be complete by the end of the year, resulting in significant production improvements and a $20 to $30 per ton conversion cost savings. Now, let's move on to a brief look at the markets. Ag commodity markets have diverged around the world, with corn and soybean prices softening and other crop prices, notably for palm oil, rising. The important factor for Mosaic is that crop nutrients remain affordable for most of the world's farmers. which leads to strong fertilizer demand and application. In phosphate, our long-term positive outlook continues. Rising demand for grains and oilseeds to support both increasing food and fuel demand combines with soaring demand for industrial uses to create competition for limited phosphate supply. Chinese exports remain subdued, and major new supply is years away. In the short term, The seasonal price reset that we saw in the first and second quarters of this year was shorter and less severe than expected. Prices have rebounded given strong demand and tight supply. North American demand is particularly strong, with buyers seeking summer fill after emptying their bins this spring. Brazil demand is also good, with growers concerned about limited availability. In India, where grower demand is very strong, importers are still awaiting a more compelling government subsidy. While Chinese exports have resumed, recent news indicates that government restrictions could tighten given rising in-country phosphate prices. Due to the positive dynamics and sentiment, as well as subdued raw material costs, stripping margins remain well above historical averages, and we expect strong margins to continue. The potash market remains balanced. After a very strong North American spring planting season, our summer fill program was very well received. In fact, the recent contract settlements in China and India signaled a floor for prices and, as usual, stimulated buying activity all over Asia, resulting in Campitex being sold out through quarter three. We restarted Calance in early July to make sure we have enough product to meet our customer commitments while Esterhazy is in turnaround. Keep in mind, we need to run Calance for approximately five months to offset one month of Esterhazy production. We will continue to flex Calance as needed. Now, I'll provide some color to our segment results. In phosphate, we reported adjusted EBITDA of $308 million on revenue of $1.2 billion. Sales volumes were solid and higher than first quarter, and prices were strong. Margins were up from the first quarter due to strong pricing, fewer tons purchased from third parties, and our lower conversion costs. We expect sales volumes to increase sequentially in the third quarter. Hot ash adjusted EBITDA. was $271 million on revenue of $663 million. While second quarter prices declined from the first quarter, sales volumes were solid and costs were down. We remain highly efficient in our operations. In fact, production unit costs improved again in the second quarter with MOP cash production costs per ton declining 11% from the first quarter. Our third quarter pricing expectations reflect a higher mix of international sales compared with the second quarter. In Brazil, we recorded adjusted EBITDA of $96 million and sales volumes of 2.2 million tons. Our results were solid due to our strategy of prioritizing margin and cash flow over volume. Our distribution margin was within our normalized $30 to $40 per ton range. and we expect similar margins in the third quarter. Our production margins improved from prior year. Cash unit costs of mined rock and phosphate in potash production all came down due to our focus on cost reductions. In addition, we had another strong quarter in coproduct sales. Finally, a brief word on capital allocation. Our strategy has not changed. We're investing in the business, conserving capital where we can, and returning excess cash to shareholders. To conclude, Mosaic is executing well across our strategic initiatives, and we are generating solid results. And our outlook for the remainder of 2024 and beyond is positive. Now, let's move on to the first set of questions.