To The Moon

$Mosaic(MOS)$ 3rd quarter 2024 was challenging due to weather and production issues, yielding $2.8 billion in revenue and $122 million in net income. Lower potash prices and delays in Brazil impacted results, yet phosphate operations showed resilience. Mosaic is on track to meet its cost management and production targets, with biosciences growing, leveraging global reach and partnerships. Mosaic’s portfolio initiatives, such as Esterhazy and Riverview projects, continue to strengthen its operational base.

Earning overview

Mosaic sees strong near-term fertilizer demand due to increased nutrient replenishment needs worldwide. Global potash and phosphate markets are stable with demand expected to grow, particularly in Southeast Asia and India. Mosaic’s potash segment faced production losses from electrical issues and rail strikes but expects a recovery in Q4. The phosphate segment benefitted from steady production and favorable ammonia supply agreements.

Mosaic Fertilizantes’ adjusted EBITDA dropped due to reserves for a Brazilian customer’s bankruptcy, though recovery is anticipated. With global operations restored and demand looking strong for 2025, Mosaic aims to build shareholder value by optimizing its portfolio and focusing on Mosaic Biosciences.

Free cash flow

$Mosaic(MOS)$ In recent quarters, Mosaic has demonstrated strong cash generation, despite challenges such as hurricanes and production issues. The company has been making significant investments, including projects at the Esterhazy mine and Riverview micro-essentials conversion, which impact FCF due to capital outlays.

Mosaic also returned $415 million to shareholders in the first nine months of the year, including $210 million in share repurchases, indicating a solid free cash flow position. Specific FCF figures can be found in Mosaic's quarterly or annual reports, but overall, the company has balanced reinvestment in its business with shareholder returns, reflecting strong financial health.

Challenges in Q3 2024

Weather-Related Impacts, The company dealt with the effects of Hurricanes Francine, Helene, and Milton, which caused disruptions in operations, particularly in Florida and Louisiana. These storms led to temporary production delays and shipping issues, though Mosaic managed to recover quickly, and there were no major safety or environmental incidents.

Electrical Issues at Potash Mines, Mosaic experienced electrical problems at its Esterhazy and Colonsay potash mines, which resulted in a loss of approximately 250,000 tonnes of production. These issues, along with a rail strike in Canada, affected the ability to transport products, further exacerbating the production disruptions.

Lower Potash Prices, The potash market faced a decline in prices during Q3, which negatively impacted revenue from the potash segment. While the market is expected to recover, the lower prices in Q3 created a drag on overall performance.

Delayed Agricultural Recovery in Brazil, The agricultural recovery in Brazil, particularly for corn and soybeans, was slower than anticipated, which resulted in a delay in fertilizer demand recovery in the region.

Bad Debt Reserves, Mosaic had to book $32 million in bad debt reserves due to the bankruptcy filing of a Brazilian customer. This impacted earnings for the quarter, although the company expects to recover most of this amount through an insurance claim.

Investment Thesis

Mosaic's Q3 2024 Investment Thesis is centered around its strong recovery post-disruptions, its ongoing strategic investments, and the overall positive outlook for the fertilizer industry, despite short-term challenges. Key elements of this investment thesis include:

Resilient Operational Recovery:

Despite challenges in Q3 2024 (including hurricanes, electrical issues at potash mines, and market disruptions), Mosaic demonstrated its ability to recover quickly. The company restored full production capacity at its operations and mitigated risks from weather-related and logistical disruptions.

Mosaic's operations in Florida were fully restored within two weeks after Hurricane Milton, showcasing its effective recovery process.

Strong Long-Term Agricultural and Fertilizer Market Fundamentals:

Fertilizer demand is expected to remain solid, driven by global agricultural needs and increased nutrient replenishment after years of under-application. Mosaic is positioned to benefit from this demand, particularly in regions like Southeast Asia and Brazil.

Potash prices are anticipated to recover after a challenging period, with broader global shipments expected to reach near-record levels in 2024 and set to hit record-breaking numbers in 2025.

The phosphate market remains strong due to supply constraints, solid demand for fertilizer, and industrial uses, particularly as China continues to restrict phosphate exports.

Strategic Investments and Cost Management:

Mosaic is making strategic investments, including its ongoing projects such as the compaction project at the Esterhazy mine and micro-essentials conversion at Riverview, which will enhance operational efficiency.

The company is on track to achieve its $150 million cost savings target by 2025 and expects to reduce CapEx by $200 million this year.

The continued focus on cost management and efficiency improvements positions Mosaic well to navigate market fluctuations.

Financial Strength and Shareholder Returns:

Mosaic has demonstrated strong free cash flow generation, allowing it to return $415 million to shareholders in the first nine months of the year, including $210 million in share repurchases.

The company’s focus on capital allocation, including strategic reallocation of assets and shareholder returns, signals strong financial health and a commitment to delivering value to investors.

Q3 2024 Market Sentiment

Recovery from Operational Disruptions:

Positive Sentiment, Mosaic’s quick recovery from natural disasters (e.g., Hurricanes Francine, Helene, and Milton) and production disruptions at its Esterhazy and Colonsay potash mines has been viewed favorably by the market. The company’s ability to restore full capacity in Florida and address electrical and logistical issues without major safety or environmental incidents has helped bolster investor confidence.

Cautious Outlook, While the company demonstrated resilience, the production losses and delayed shipments did weigh on Q3 results, contributing to a more cautious sentiment in the short term.

Market Challenges in Fertilizer Segments:

Potash prices were lower in Q3 2024, which has contributed to weaker sentiment regarding this segment. However, there is optimism that prices may have hit their bottom and could trend upward, especially as global potash shipments are forecast to recover in 2024 and 2025.

The phosphate market remains strong, driven by supply constraints (especially from China) and high demand for fertilizer and industrial uses. The strong stripping margins Mosaic achieved have helped mitigate some of the negative impacts from lower potash prices, contributing to a more favorable sentiment for the phosphate segment.

Agricultural Demand:

Long-Term Optimism

The overall sentiment toward Mosaic is positive in the context of long-term agricultural demand. While there were delays in Brazil’s recovery, especially in corn and soybean demand, the outlook for 2025 remains positive, driven by solid crop yields in key regions and biofuel policies (such as in Brazil, India, and Indonesia) that support future growth in agricultural output.

Short-Term Caution, There was some caution in the market due to the delayed recovery in Brazilian agriculture, which impacted fertilizer demand in Q3.

The overall market sentiment for Mosaic in Q3 2024 is cautiously optimistic. While there are concerns over short-term issues, such as lower potash prices, production disruptions, and delays in Brazilian agricultural recovery, the company's solid fundamentals, strong cash flow, shareholder returns, and strategic investments in biosciences and efficiency improvements position it well for long-term growth. As global fertilizer demand strengthens and operational challenges are resolved, sentiment is expected to improve in the coming quarters, particularly in 2025.