The Mosaic Company 2026 Q2 Earnings Call

Welcome to our second quarter 2026 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer. Luciano Siani Pires, Executive Vice President and Chief Financial Officer, will review financial results. We will welcome Jenny Wang, 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'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 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 our most directly comparable GAAP financial measures can be found in our earnings release. I'd like to turn the call over to Bruce.

Good morning. Thank you for joining our call. Our message for you today is simple. Mosaic is working through a difficult market by successfully managing what is under our control and positioning ourselves for an eventual recovery. Sulfur affordability and availability remain key drivers. We know the situation will improve. We've curtailed production. We're relying on our strong balance sheet as a bridge to a more sustainable environment. Here are some key examples from the quarter. We've further curtailed phosphate production and minimized our purchases of high-cost raw materials. We've locked in a significant portion of our third quarter sulfur supply at reasonable prices that, while historically elevated, are still well below the current spot market. Across our business, we're aggressively managing our costs, which you can see in SG&A. These are real savings that we expect to be permanent.

We fortified our liquidity by terming out short-term debt. If this environment persists, we have full access to our untapped $2.5 billion revolver. We've addressed all of these near-term issues without sacrificing our long-term goals. We're reallocating underperforming capital away from non-core assets to support future opportunities. We continue to explore strategic opportunities for certain assets, including Araxá and Patrocínio, while investing in new areas like our fast-growing and resilient Mosaic Biosciences business. Before I get into our business performance, let's address the sulfur situation in our markets. The ongoing Strait of Hormuz closure and the more recent Kazakhstan blockade continue to impact the global flow of sulfur, and spot prices remain unsustainably high. We have curtailed production in the U.S. and Brazil simply because phosphate industry economics cannot accommodate current sulfur prices.

That said, Mosaic is in a better position to weather this storm than most of our competitors are. Our longstanding relationships with Gulf Coast refiners and other global suppliers give us reliable access to sulfur. In fact, we were recently able to negotiate third quarter U.S. sulfur supply at a price that is considerably below the spot market. We are producing to meet as much demand as possible while trying to preserve margins and avoid high-cost inventory building. The sulfur situation is more than just an inconvenience for our industry. We believe global phosphate production will fall well short of last year by up to 30 million tons. With last year's low application rates, especially in the U.S., and limited fertilizer availability this year, crop yields will suffer, which could lead to food security challenges around the world in the near term. We are already seeing evidence of challenges.

In Brazil, for example, despite significant acreage expansion, total crop production forecasts for the year have not kept up, suggesting significant yield impacts. Another season of under-application will only exacerbate the problem. Only recently have crop prices begun to acknowledge the reality of production challenges around the world. In the past month, major ag commodity prices have moved up, providing some relief from high input costs for the world's farmers. The outlook for farm incomes is improving, which should be a catalyst for fertilizer demand. We're seeing early signs of this in Brazil. While shipments remain below historical levels as a result of ongoing credit issues, over the past several weeks, fertilizer shipments to Brazil have been very strong as growers respond to improved crop pricing. We expect phosphate prices to remain at current levels.

With sulfur-driven supply challenges, as well as severely reduced Chinese exports, availability is likely to remain limited in many parts of the world. As we expected, the temporary suspension of the U.S. countervailing duties on phosphate imports from Morocco has not yet had an impact on NOLA prices. Phosphate prices remain higher in other key regions of the world, and producers can realize higher net backs selling in markets outside the U.S. There is little incentive for producers to send fertilizer to the U.S. In addition, as part of the ongoing sunset review, the U.S. Department of Commerce has determined that the illegal subsidies that led to the duties in the first place remain in place in both Russia and Morocco, and the U.S. Court of International Trade recently reaffirmed the International Trade Commission's determination that the subsidies cause injury in the U.S. market.

We are confident that the duties should continue once the suspension ends. While phosphate and sulfur markets are quite volatile, the potash supply and demand picture is much more balanced. With product moving freely around the world and global supply meeting strong demand in all major potash-consuming regions. In fact, our summer fill program was fully subscribed. Strong farm-level economics and inventory replenishment in China bode well for ongoing good potash demand. Overall, we expect the potash market to remain constructive through this year. Longer term, we continue to believe that announced potash capacity expansions will be absorbed by steadily growing demand. Let's move on to our business, which is performing well, all things considered. Our global market access remains an important advantage. During the second quarter, we produced and sold 1.4 million tons of phosphate, despite all the turmoil in the market.

We were able to achieve these numbers because we have strong customer relationships across key agriculture markets, and we optimize our product mix to meet shifting demand. In addition, our ability to flex production and manage through the cycle is supported by the extensive work we completed over the past 18 months to fortify our assets. We're prepared to ramp back up to full production rates when market and raw material conditions improve. Potash remains a steady earnings and cash flow contributor, and our recent investments, including the Hydrofloat Project at Esterhazy, will provide meaningful benefits. In Brazil, where we have curtailed all phosphate production except for high-margin products due to sulfur availability, our business continues to perform well. Given the overall market conditions, our $60 million of EBITDA for the quarter highlights the resilience of our Fertilizantes franchise.

Capital allocation remains an important pillar of our strategy, and we continue to make good progress. We closed the Carlsbad sale. We're optimizing our Brazil portfolio with the advancing process to divest our Air Shaw complex, and we're allocating capital in pursuit of promising growth opportunities. The Rainbow Rare Earth Elements project in Brazil continues to show good potential, and our Mosaic Biosciences business is on track to double its revenues once again this year. I want to note that Biosciences growth is strong despite current farm-level economics, a clear indicator that growers are finding real value in our proven products. To summarize, we are attacking a difficult market situation by doing all we can to keep the company strong and preserve our ability to benefit from improving markets. Now, over to Luciano for more detail on our financials.

Thank you, Bruce. If there is one takeaway for investors regarding our financials is that we are effectively managing factors under our control as we wait for a more sustainable market environment. In phosphates and Fertilizantes, our operating costs were impacted by reduced absorption due to curtailed volumes. We're now doing two things simultaneously. First, we're aggressively removing fixed costs where we can, especially in Brazil, to better cope with the temporary curtailments and to enable us to come back leaner when we restart. Second, we're maintaining our focus on asset health so that we can return to full production rates when the time is right. In the near term, however, ongoing curtailments are expected to result in limited fixed cost absorption and elevated idle expenses in phosphates and in Fertilizantes in the third quarter.

This is temporary and does not represent what this business is capable of in normal operating conditions. In our U.S. phosphate business, we've shown an ability to manage our input costs. In quarter two, our raw materials cost averaged $522 per long ton for sulfur and $621 per ton for ammonia, resulting in an average realized stripping margin of $422 per ton. For quarter three, as Bruce discussed, we settled a sulfur contract at $705 per ton. While much of this new contract price will be reflected in fourth quarter sales, we do expect some impact later in the third quarter. Given the dynamic nature of the market, we have chosen to once again provide some guidance for near-term raw materials costs. Therefore, for the third quarter, we expect realized sulfur costs of approximately $700 to $710 per ton and ammonia costs of approximately $610 to $620 per ton.

Combining this with our DAP FOB pricing guidance of $820 to $840 per ton yields an implied realized stripping margin well above historical averages, which is a good result. In potash, we successfully completed Esterhazy's annual turnaround during the second quarter. Looking ahead, the segment should see lower unit costs, especially with the additional volumes from Esterhazy's Hydrofloat Project. Second quarter MOP costs of $84 per ton reflected a production mix that was more heavily weighted towards Colonsay volumes. We expect to revert lower in the second half of the year. To offset some of the second quarter's curtailment impacts, we've become more aggressive in our review of corporate spending. You can see in our results that we've brought SG&A costs down by 20% year-over-year, despite persistent inflation.