Mosaic Company (The)

Good morning, and welcome to the Mosaic Company's first quarter 2026 earnings conference call. At this time, all participants have been placed in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Please note, this event is being recorded. And I'll now turn it over to Paul Massoud. Please go ahead.

Thank you, and welcome to our first quarter 2026 earnings call. Opening comments will be provided by Bruce Brodine, President and Chief Executive Officer. Luciano Ciani-Pierras, Executive Vice President and Chief Financial Officer, will review financial results. We will then welcome Jenny Wong, Executive Vice President, Commercial, to join Bruce and Luciano as we open the floor for questions. We will be making forward-looking statements during this conference call. 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 this morning 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 comparable GAAP financial measures can be found in our earnings release. Now I'd like to turn the call over to Bruce.

Good morning, and thank you for joining our call. Our message for today is straightforward. The business climate is challenging, but it is allowing Mosaic to differentiate itself by benefiting from our significant advantages and optimizing our capital. I'll touch on these topics to begin. First, the business environment was and continues to be very dynamic. Geopolitical events are driving volatility throughout the global phosphate supply chain. Many producers are struggling to secure raw materials, resulting in an already tight market becoming even tighter. Global phosphate prices reflect that shortage, and this has put additional pressure on farm economics. Second, the current environment has allowed Mosaic to differentiate itself. The investments we've made in our U.S. phosphate assets over the last two years are driving higher production rates, with three of our four facilities operating at targeted rates at the end of the first quarter. With a planned turnaround at our largest facility, New Wales, now behind us, our production capability has improved significantly. Mosaic maintains an advantage geographic position. as well as a greater diversity of sources relative to global peers when it comes to sulfur and ammonia supply. But we aren't without risk. Raw material prices and availability, especially for sulfur, are forcing us to revisit our production plan. We'll discuss this in more detail shortly, but our key message on this topic is that we are making tough but responsible decisions that maintain shareholder value through the current environment without sacrificing our ability to benefit when conditions improve. This leads into my third point, which is that Mosaic remains focused on a disciplined capital allocation and reallocation strategy. In addition to adjusting our operating plan, investing in our phosphate assets, and optimizing our strong potash business, we're also shifting capital away from underperforming assets toward better opportunities. Over the last few months, we sold three mines in idle production at underperforming assets, and we're continuing to invest in new opportunities. This is all happening as we manage through the current realities of our business with agility. We've reduced this year's capex and are adapting our production outlook to the current market environment and moving inventory built at the end of last year to improve our working capital position. Before we dive deeper into our business, I'd like to spend some time on the broader market. As all of you have seen, the conflict in the Persian Gulf has exacerbated an already stretched global fertilizer market. Roughly 20% of global phosphate, a third of urea, a quarter of ammonia, and half of seaborne sulfur volumes originate in the Middle East. When combined with the product that comes out of the Black Sea, Nearly half of all phosphate raw materials have been impacted by the conflicts in Ukraine and Iran. You can see these dynamics in current phosphate benchmark stripping margins, which are under severe pressure despite elevated finished product prices. Compressed margins and limited raw material availability have forced producers to curb production. For example, China has banned phosphate exports through August, and other competitors have significantly curtailed production primarily due to sulfur availability. To put it simply, there is not going to be enough phosphate to meet global demand. Demand for phosphate remains dynamic as well, with diverging trends around the world. In the U.S., farm economics remain challenging, leading to careful nutrient purchasing decisions that impacted spring demand. In Brazil, Farmer economics and access to credit remain significant headwinds, and availability of nutrients and raw materials is weighing further on Brazilian agriculture. In contrast, demand from key markets in Asia has been stronger. In India, for example, the government has signaled that it will continue to support phosphate imports at today's prices. For regions grappling with affordability, demand disruptions should be temporary. There are real agronomic consequences caused by persistent underapplication. There is no substitute for phosphate, and when application rates are reduced too far or for too long, soil nutrient balances drop and yields are impacted. While those effects may not appear immediately, they have historically been an important driver of demand normalization as growers respond. Shifting to potash, Last year's stability has continued in 2026. Market fundamentals remain balanced, with robust demand in all major markets consuming global supply. US growers see good value in potash at today's prices, and this is being reflected in spring demand. In Southeast Asia, attractive palm oil prices are driving strong application. In China, Imports set a record in the first quarter as the country replenishes low inventories. Last month, Campotex announced it was fully committed through June and on pace for a record 2026. As such, we expect inventories to be tight through the second quarter. With this market backdrop in mind, I'll shift our conversation to Mosaic's business performance and outlook. In phosphate, we sold 1.9 million tons in the first quarter as deferred demand from the end of 2025 returned. This was the highest quarterly sales volume total for the segment in five years and reflection of the broad market access that allows us to position product where it's needed. On the production side, our investments in our assets are yielding results as well. In the past, we've talked about reaching finished product volumes of 1.8 to 2 million tons per quarter. But one of the most significant production hurdles for us over the last few years has been in our U.S. phosphoric acid rates. And this is where we're seeing real improvements. In the first quarter, Bartow, Riverview, and Faustina had phosphoric acid operating rates at or above 80%, which is in line with our targets. Our largest facility, New Wales, completed a very extensive planned turnaround in March. which should allow for higher phos acid rates from that plant in the future. Keep in mind that our finished product volumes will ultimately be driven by a combination of phos acid operating rates and the type of product our customers need, as some finished products like DAP and MAP require more acid than micro-essentials. The recovery in our U.S. operating rates combined with our structural advantages for raw materials have helped us thus far. Roughly 80% of our US ammonia needs are supplied by our own plant in Louisiana and below market domestic supply agreements, some of which are tied directly to natural gas. And roughly 80% of our sulfur needs come from the US Gulf oil refineries in molten form, which we've been able to source through the second quarter with no constraints. That said, we're not immune to the current environment as strong global sulfur demand competes for limited available supply, including product from our own backyard in the US. Today's spot sulfur prices imply compressed third quarter stripping margins that are well below our realizations in the first half of the year. Given this environment, we're reviewing our 2026 global production plan for phosphates and taking initial steps to curtail production. As part of these efforts, we're partially reducing production rates at Bartow and Louisiana and scaling back additional fertilizer production in Brazil. This is a temporary move that allows us to limit the need for incremental sulfur at today's prices and wait until the market normalizes. Our second quarter sales volume guidance reflects these actions, but we're prepared to restart operations quickly when conditions improve. We're committed to staying nimble and adapting as needed over the coming quarter. Fortunately, our potash business has been unaffected by recent geopolitical turmoil and continues to produce strong results. Our Belle Plaine solution mine benefited from low-cost natural gas, and volumes from Esterhazy trended higher from the fourth quarter. With the strength of global demand, we've continued to run Colance, which is a higher cost mine that can have an impact on our per ton production costs. That said, the ramp for Hydroflow project and other optimization projects at Esterhazy are expected to drive costs meaningfully lower as we move through the year. And this should offset the cost impact of Colance. In Brazil, we've managed the business to adapt to the difficult credit environment We've been selective in how we deploy capital, prioritize higher quality counterparties, and adjusted sales pace where appropriate, while continuing to support growers and maintain our market presence. In the short term, as we just discussed, raw material availability will have an impact on near-term operating rates. However, long-term fundamentals in Brazil remain promising, and we're positioned to respond as conditions improve. As we think about the enterprise as a whole, we remain committed to optimizing our portfolio, reallocating capital to our key assets, and investing in high return opportunities. Free cash flow remains a key focus for us as we manage through the industry seasonality and the global trends we just discussed. Deferred fourth quarter phosphate demand meant we started the year with elevated inventories that we're now managing lower. Our phosphate finished goods inventory declined by roughly $120 million in the first quarter, although this was offset by product positioning in Brazil ahead of seasonal demand later this year. In addition to managing our working capital, we're taking a harder look at our CapEx profile and supporting costs. After a thorough review of our project plans, we've lowered our 2026 CapEx guidance by $250 million to $1.25 billion. Our new outlook optimizes our portfolio of projects and defers any less time-sensitive projects to future periods. Our new plan will not have an impact on our longer-term production targets. In addition, we are moving deliberately to streamline the organization's support functions. In April, we initiated a workforce reduction that is expected to generate annualized expense savings of $50 million. of which $15 million will be realized this year. This is in addition to the $100 million value capture program announced last year. We also continue to make significant progress in our efforts to address non-core assets as part of our capital reallocation strategy. Last month, we announced the idling and demobilizing of SSP production at Arishaw in Brazil, along with related mining activity at Patrocinio. We're assessing strategic alternatives for both sites, including a potential sale of the assets and the development of a niobium project at Patrocinio. In April, we completed the sale of our Carlsbad potash mine in New Mexico to International Minerals Carlsbad. These efforts to control costs and reduce future capital and ARO requirements create space for us to invest in new opportunities. Mosaic Biosciences continues to grow rapidly despite the financial pressure on farmers, a clear indication that our products are delivering on their value proposition. We expect to launch eight to 10 new products in 2026, including two new products that were launched during the first quarter. We expect Mosaic Biosciences revenues to double again in 2026. I also want to touch on our work on rare earth elements. which represents a long-term growth opportunity for Mosaic. In March, we announced a project development agreement with Rainbow Rare Earths following a positive economic assessment of the Ubaraba gypstack in Brazil. The project would recover rare earth elements from phosphogypsum rather than through traditional hard rock mining, leveraging existing byproducts from our operations. We are evaluating similar opportunities for rare earth extraction in the U.S., and early findings are encouraging. This is a long-term opportunity, and we are advancing it in a disciplined, phased manner consistent with our investment criteria. To conclude, clearly, we and the rest of the industry are operating in a challenging climate. Overall, we are managing with speed and agility, taking actions that are required by our current environment without sacrificing the long-term opportunities of our business. We believe we are well positioned to take advantage of the inevitable better market conditions when they arrive. Now, I'll ask Luciano to provide more details on our financials.