ICL Group Ltd. 2026 Q2 Earnings Call

I'm Peggy Reilly Tharp, Vice President of Global Investor Relations for ICL Group. I'd like to welcome you and thank you for joining us today for our earnings conference call. This event is being webcast live on our website at icl-group.com. There will be a replay available a few hours after the live call, a transcript will be available shortly thereafter. Earlier today, we filed our reports on our presentations with the securities authorities and the stock exchanges in both Israel and the U.S. Those reports, as well as the press release and our presentation, are available on our website. Please be sure to review the disclaimer on slide two of the presentation. Our comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based on management's current expectations and are not guarantees of future performance. The company undertakes no obligation to update any information discussed on this call at any time. With that, we will begin with a presentation by our CEO, Mr. Eyal Aharonson, followed by Mr. Asaf Alperovitz, our CFO. After the presentation, we will open the line for the Q&A session. I would now like to turn the call over to Eyal.

Thank you, Peggy. Welcome everyone to a review of our second quarter 2026 earnings. We delivered another quarter of strong results with sales of $2.1 billion, which were up 17% year-over-year. Adjusted EBITDA of $448 million also showed meaningful improvement and increased 28% versus the prior year, as you can see on slide three. Before we go into greater detail about the quarter, I would like to take just a few minutes to review our new segments and to discuss our enterprise-wide cost savings and efficiency measure initiative, Elevate. First, I would like you to turn to slide five for a quick review of our three new strategic principles, which we first shared with you on our third-quarter earnings call last November. The first is to drive profitable growth by targeting Specialty Crop Nutrition and Specialty Food Solutions.

The second is to maximize and improve the businesses that we have identified as core to ICL, and this includes our phosphate, potash, and bromine resources. The third is dedicated to portfolio optimization and cost efficiency. All three of these principles will benefit from our willingness to embrace new technologies like AI and our deep history of innovation. To drive profitable growth, we identified two distinct businesses, which you can see on slide six. We believe Specialty Crop Nutrition and Specialty Food Solutions have the potential to be significant growth engines for ICL. These are two areas where we already have deep experience and broad exposure, and the future looks bright. As you know, ICL's Growing Solutions segment is already a global leader in Specialty Crop Nutrition. On slide seven, you can see that in 2020, our Specialty Crop Nutrition sales were $1 billion, with EBITDA of approximately $60 million.

In 2025, we delivered Specialty Crop Nutrition sales of $2 billion, and EBITDA increased in excess of three times to more than $200 million. Our research indicates that there is still meaningful runway for growth in this business, which will allow us to further strengthen our leadership position in these markets. Turning now to slide eight and our second growth engine, Specialty Food Solutions, which is currently part of the Phosphate Solutions segment. We are already leading a $1.5 billion phosphate food specialties market. However, this represents a small piece of the total food ingredients pie. In order to accelerate our growth, we are extending our focus into functional food ingredients. This sizable market provides exposure to approximately $35 billion in value, with an expected average five-year growth rate of approximately 6%.

We are strongly positioned in this market with a clear ambition to double our sales and reach $1.5 billion in revenues by 2029. As we have begun executing our strategy, it has become increasingly clear that aligning our corporate structure with our end markets is the right approach for the future. As a result, and after a careful review, which is shown on slide nine, we have decided to embrace a new organizational structure. This new structure will include dedicated food segments and will consolidate all of our industrial activities into one segment. It will also bring our potash and phosphate fertilizers together. We believe this new market-oriented organizational structure will strengthen management's focus on our key growth engines and align the business with our strategic priorities.

We expect this update to our reporting structure to provide investors with enhanced visibility into the performance, growth drivers, and value creation potential of our businesses. On slide 10, you can see each of our four segments. Nutrition Solutions will bring together all of our food and beverage, health, nutrition, and wellness offerings into one place. This will include our existing food specialties business along with the food and pharma solutions that previously resided in Industrial Products. Industrial Products will be focused on performance and safety solutions for industrial markets, primarily electronics, energy, and construction, and will now include the industrial phosphate solutions that were formerly under Phosphate Solutions segment.

This segment will lead our effort to unlock the full potential of high-growth markets such as advanced electronics, semiconductors, AI infrastructure, data centers, and next-generation computing, positioning us at the forefront of some of the most dynamic and rapidly expanding industries worldwide. There will be no change to Growing Solutions, which will remain focused on specialty plant nutrition for agriculture, turf, and ornamental markets. Essential Minerals will include potash and phosphate fertilizers from our upstream mineral production sites, including our potash resources in the Dead Sea and in Spain, and our phosphate resources in the Negev and in China, and will continue to serve the global agriculture markets. This change will take effect in the first quarter of 2027. However, 2025 pro forma snapshot of each of the new segments is shown on slide 11.

We believe this new structure will allow us to amplify our growth engines as we move ahead with our strategic priorities. If you will now turn to slide 12, I would like to take just a few moments to introduce you to Elevate, our new cost transformation program. We have initiated this effort in order to reduce our cost base, support our margin expansion, improve cash generation, and strengthen our earnings power. Elevate is a corporate-wide effort to increase efficiency and productivity by realigning our cost structure to build a lean and agile company poised on growth. In addition, we'll be leveraging AI to accelerate innovation, drive efficiency, and improve decision-making. Taken together, these initiatives are expected to deliver more than $150 million in annual EBITDA improvements by the end of 2027, growing to more than $350 million annually by the end of 2028.

On slide 13, you can see our targeted savings. We expect approximately 50%-60% of the projected EBITDA improvement to be driven by productivity gains and operational efficiencies. A reduction in external spend expected to deliver 30%-40% of our goal, while SG&A optimization efforts are forecasted to contribute the remaining 10%-20%. While this is an ambitious effort, I know everyone at ICL is committed to taking the necessary steps to make this cost transformation program a reality over the next two years. Now, let's turn to slide 15 for a more detailed review of the second quarter. As discussed, we delivered sales of $2.1 billion, which were up 17% year-over-year. These results exceeded expectations, and each of our four businesses contributed to this solid sales performance, as higher prices for potash, bromine, and phosphate contributed to the year-over-year improvement.

Adjusted EBITDA of $448 million increased 28% versus the prior year. This growth was achieved even as we observed $100 million of higher raw material costs and more than $40 million of exchange rate impact. We also reported a 35% improvement in adjusted net income of $149 million, which translates to adjusted earnings per share of $0.12, an increase of 33%. Operating cash flow of $290 million improved 8% on an annual basis, and free cash flow of $94 million was up 34% in second quarter. Despite continued volatility in global markets during the second quarter, we stayed focused on disciplined execution, managing the factors within our control, and responding decisively to changing market conditions. We also benefited from our distinctive global presence with regionally diversified operations and from higher prices across the fertilizer, food, and industrial markets we serve.

Let's turn to our business segments and begin with Industrial Products. On slide 16, you can see second quarter sales of $440 million were up 30% year-over-year, while EBITDA of $130 million was up 88%. This was the segment's best quarterly performance since the end of 2022, and it was mainly driven by higher bromine prices and increased volumes. For flame retardants, overall sales increased. Bromine-based products benefited from higher prices and improved electronics end market demand. Sales of phosphorus-based flame retardants were stable despite muted demand in the construction end markets. For our clear brine fluids, which are used by the oil and gas industry during well completion, business remained solid. While sales decreased slightly due to timing shifts, demand in Europe and South America increased in the second quarter.

Specialty minerals, which includes magnesia, calcium carbonate, and salt products, reported increased sales with strong magnesia demand across a wide array of end markets. Overall year-over-year improvement was also driven by growth in food and pharma demand, and this trajectory is expected to continue throughout the remainder of 2026. Turning to our Potash division on slide 17. For the second quarter, sales of $468 million were up 22% year-over-year. EBITDA of $154 million was up 34%. Our average potash price for the second quarter was $376 CIF per ton. This amount was up 13% year-over-year and 4% sequentially. Potash production volumes came in at 1,058,000 metric tons in the second quarter and were up 11%, or more than 100,000 metric tons versus the prior year.