Market Overview

The Mosaic Company Reports First Quarter 2018 Results

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The Mosaic Company (NYSE:MOS) today reported first quarter 2018 net
earnings of $42 million, compared to a net loss of $1 million in the
first quarter of 2017. First quarter earnings per share were $0.11,
which included a negative impact of $0.09 per share from notable items,
primarily related to non-cash currency translation charges and costs
related to the Vale Fertilizantes acquisition, partially offset by
discrete tax items. Adjusted earnings per share during the first quarter
of 2018 were $0.201. Adjusted earnings were negatively
impacted by the late spring and other weather related issues, including
underperformance of Canadian rail providers, which negatively impacted
phosphate and potash sales volumes and unit costs, and was the primary
driver of an approximately $290 million increase in working capital.

"We saw strong fundamentals in the first quarter, and we expect that
positive momentum to continue," said Joc O'Rourke, President and Chief
Executive Officer. "We've increased our full year adjusted earnings per
share guidance to reflect improving market conditions and strong
operational performance across business units. Our excellent progress on
the transformational initiatives at Mosaic Fertilizantes is expected to
generate substantial earnings growth in the second half of 2018."

Mosaic's net sales in the first quarter of 2018 were $1.9 billion,
compared to $1.6 billion last year, primarily driven by the acquisition
of Vale Fertilizantes. Operating earnings during the quarter were $81
million, up from $30 million a year ago, driven by higher gross margins
in all three operating segments.

1 See "Non-GAAP Financial Measures" for additional
information and reconciliation.

Cash flow used by operating activities in the first quarter of 2018 was
$71 million compared to cash flow provided by operating activities of
$146 million in the prior year. The current period reflects a
significant increase in working capital ahead of the delayed peak
fertilizer season, as well as weather and logistics issues. Capital
expenditures totaled $223 million in the quarter. Mosaic's total cash
and cash equivalents, excluding restricted cash, were $659 million and
long-term debt was $5.1 billion as of March 31, 2018. Subsequent to
quarter end, the Company used $100 million in cash to further reduce
long-term debt.

"Excellent execution and improving market conditions are driving
stronger cash flow expectations and providing Mosaic with an opportunity
to increase the pace of debt reduction," said Joc O'Rourke. "In fact, we
have prepaid $300 million in debt since year-end and have increased our
target to pay down $500 million in long term debt this year, which would
bring us closer to our through-cycle balance sheet targets."

Phosphates

       
Phosphates Results* 1Q 2018 Actual 1Q 2018 Guidance
 
Sales Volumes 1.9 million tonnes 1.9 to 2.2 million tonnes
 
Gross Margin (GAAP) $49 per tonne
 
Adjusted Gross Margin (non GAAP) $57 per tonne $55 to $65 per tonne
 

*Tonnes = finished product tonnes

 

Net sales in the Phosphates segment were $866 million for the first
quarter, up from $839 million last year with higher average sales prices
partially offset by lower sales volumes as a result of a delayed spring
season and logistical challenges. Gross margin was $97 million for the
first quarter and included a negative $15 million notable item due to
refinement of our weighted average inventory costing, compared to $57
million for the same period a year ago. The increase in the first
quarter gross margin was driven by higher average sales prices, as well
as operational improvements that lowered controllable operating costs in
the segment. These benefits were partially offset by higher ammonia and
sulfur costs, as well as the notable item discussed above.

The first quarter average finished product selling price was $431 per
tonne, compared to $369 per tonne a year ago. Phosphates segment total
finished product sales volumes were 1.9 million tonnes, down from 2.3
million, reflecting both the idling of our Plant City concentrates
facility and the delayed planting in North America.

Potash

       
Potash Results     1Q 2018 Actual     1Q 2018 Guidance
 
Sales Volumes 1.7 million tonnes 1.7 to 2.0 million tonnes
 
Gross Margin (GAAP) $61 per tonne
 
Adjusted Gross Margin (non GAAP) $64 per tonne $50 to $60 per tonne
 

Net sales in the Potash segment totaled $404 million for the first
quarter, down from $414 million last year with higher average sales
prices more than offset by reduced sales volumes as a result of a change
in the Canpotex revenue recognition policy and logistical challenges
during the quarter. Gross margin was $102 million for the first quarter
and included a negative $5 million notable item due to refinement of our
weighted average inventory costing, compared to $69 million for the same
period a year ago. The improvement in gross margin was primarily driven
by higher average realized sales prices. MOP cash costs, including brine
management costs, were $86 per tonne, flat with last year's levels
despite a negative impact from logistics related product containment
issues during the quarter.

The first quarter average selling price was $239 per tonne, up from $210
per tonne a year ago. Potash segment total sales volumes for the first
quarter were 1.7 million tonnes, down from 2.0 million tonnes last year,
reflecting a 0.4 million tonne loss from the change in Canpotex revenue
recognition policy.

Mosaic Fertilizantes

       
Mosaic Fertilizantes Results*     1Q 2018 Actual     1Q 2018 Guidance
 
Sales Volumes 1.6 million tonnes 1.3 to 1.6 million tonnes
 
Gross Margin (GAAP) $37 per tonne
 
Adjusted Gross Margin (non GAAP) $37 per tonne $25 to $35 per tonne
 

*Tonnes = finished product tonnes

 

Net sales in the Mosaic Fertilizantes segment were $665 million for the
first quarter, up from $427 million last year. Gross margin was $59
million, compared to $18 million for the same period a year ago. The
year-over-year increase in gross margin is primarily driven by the
acquisition of Vale Fertilizantes.

The first quarter average finished product selling price was $420 per
tonne, compared to $375 per tonne a year ago. Mosaic Fertilizantes
segment total finished product sales volumes were 1.6 million tonnes, up
from 1.1 million last year, primarily as a result of the acquisition of
Vale Fertilizantes.

During the quarter, Mosaic Fertilizantes completed actions that are
expected to drive over $100 million in annualized synergies. The
majority of these synergies is expected to flow through cost of goods
sold, with one-third realized in earnings in the first half of 2018, and
two-thirds realized in earnings in the second half of the year. In the
first quarter, Mosaic realized earnings benefits of approximately $12
million.

Other

Selling, General and Administrative (SG&A) expenses were $94 million for
the first quarter, up from $81 million last year, primarily as a result
of a larger business footprint in Brazil and higher accruals for
expected performance based compensation.

While the reported tax rate during the first quarter of 2018 was over
200 percent, excluding discrete items, the effective tax rate was 28
percent. For the full year 2018, Mosaic now expects the effective tax
rate to be around 30 percent, as a result of a higher expected
contribution to pre-tax earnings from Brazil. Mosaic does not expect to
pay material cash taxes in 2018.

Financial Guidance

"Delays in new fertilizer supply coming to market, as well as strong
demand and improving farm economics bode well for Mosaic's future,"
O'Rourke said. "Mosaic's transformation is well underway in all of our
businesses, which, combined with positive market trends, puts Mosaic in
an excellent position to create sustainable shareholder value over the
long term."

For the second quarter of 2018, Mosaic expects:

             
    Sales Volumes     Adjusted Gross Margin
      millions of tonnes*      
Potash     2.1 – 2.4     $50 – $60 per tonne
Phosphates     2.1 – 2.4     $65 – $75 per tonne
Mosaic Fertilizantes     2.0 – 2.3     $20 – $30 per tonne
Corporate and Other           $(30) – $(15) million
 

*Tonnes = finished product tonnes

 

In the potash segment, rail logistical issues have already impacted the
second quarter. If these issues continue, second quarter volumes would
be negatively impacted and curtailments could result in higher costs and
lower gross margins per tonne.

In the phosphates segment, improved margin expectations reflect cost
management as well as improved market conditions. Chinese phosphate
exports continue to be a key factor for the phosphate market.

In the Mosaic Fertilizantes segment, volumes have begun to reflect a
seasonal acceleration in demand, and the Company expects higher synergy
realization and improving market conditions to be offset by the
diminished benefits of purchase accounting adjustments on inventory,
traditional second quarter maintenance turn arounds, and a higher
proportion of SSP sales, a lower margin product.

The Company is not providing forward looking guidance for U.S. GAAP
reported earnings per diluted share or a quantitative reconciliation of
forward-looking adjusted earnings per diluted share. Please see
"Non-GAAP Financial Measures" for additional information. EPS guidance
is based on preliminary estimates of asset values and depreciation for
the acquired Vale Fertilizantes business which are expected to be
finalized during 2018.

For calendar 2018, Mosaic now expects:

       
$ in millions except per share     Full Year 2018
Adjusted earnings per share     $1.20 - $1.60 per share
SG&A     $325 – $350
Adjusted EBITDA     $1,700 - $1,900
Capital Expenditures     $900 – $1,100
       
Millions of tonnes     Full Year 2018 Sales Volumes
      (finished product)
Potash     8.2 – 9.0
Phosphates     8.2 – 9.0
Mosaic Fertilizantes     9.2 – 10.0*
 

*Reflects a correction from prior estimate which did not correctly
capture inter-segment sales volume eliminations.

About The Mosaic Company

The Mosaic Company is one of the world's leading producers and marketers
of concentrated phosphate and potash crop nutrients. Mosaic is a single
source provider of phosphate and potash fertilizers and feed ingredients
for the global agriculture industry. More information on the Company is
available at www.mosaicco.com.

Mosaic will conduct a conference call on Tuesday, May 8, 2018, at 9:00
a.m. Eastern Time to discuss first quarter 2018 earnings results as well
as global markets and trends. Presentation slides and a simultaneous
webcast of the conference call may be accessed through Mosaic's website
at www.mosaicco.com/investors.
This webcast will be available up to one year from the time of the
earnings call.

This release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements
include, but are not limited to, statements about the anticipated
benefits and synergies of our acquisition of the global phosphate and
potash operations of Vale S.A. previously conducted through Vale
Fertilizantes S.A. (which, when combined with our legacy distribution
business in Brazil, is now known as Mosaic Fertilizantes) (the
"Transaction"), other proposed or pending future transactions or
strategic plans and other statements about future financial and
operating results. Such statements are based upon the current beliefs
and expectations of The Mosaic Company's management and are subject to
significant risks and uncertainties. These risks and uncertainties
include, but are not limited to: difficulties with realization of the
benefits and synergies of the Transaction, including the risks that the
acquired business may not be integrated successfully or that the
anticipated synergies or cost or capital expenditure savings from the
Transaction may not be fully realized or may take longer to realize than
expected, including because of political and economic instability in
Brazil or changes in government policy in Brazil; the predictability and
volatility of, and customer expectations about, agriculture, fertilizer,
raw material, energy and transportation markets that are subject to
competitive and other pressures and economic and credit market
conditions; the level of inventories in the distribution channels for
crop nutrients; the effect of future product innovations or development
of new technologies on demand for our products; changes in foreign
currency and exchange rates; international trade risks and other risks
associated with Mosaic's international operations and those of joint
ventures in which Mosaic participates, including the performance of the
Wa'ad Al Shamal Phosphate Company (also known as MWSPC), the ability of
MWSPC to obtain additional planned funding in acceptable amounts and
upon acceptable terms, the timely development and commencement of
operations of production facilities in the Kingdom of Saudi Arabia, and
the future success of current plans for MWSPC and any future changes in
those plans; the risk that protests against natural resource companies
in Peru extend to or impact the Miski Mayo mine, which is operated by an
entity in which we are the majority owner; difficulties with realization
of the benefits of our long term natural gas based pricing ammonia
supply agreement with CF Industries, Inc., including the risk that the
cost savings initially anticipated from the agreement may not be fully
realized over its term or that the price of natural gas or ammonia
during the term are at levels at which the pricing is disadvantageous to
Mosaic; customer defaults; the effects of Mosaic's decisions to exit
business operations or locations; changes in government policy; changes
in environmental and other governmental regulation, including expansion
of the types and extent of water resources regulated under federal law,
carbon taxes or other greenhouse gas regulation, implementation of
numeric water quality standards for the discharge of nutrients into
Florida waterways or efforts to reduce the flow of excess nutrients into
the Mississippi River basin, the Gulf of Mexico or elsewhere; further
developments in judicial or administrative proceedings, or complaints
that Mosaic's operations are adversely impacting nearby farms, business
operations or properties; difficulties or delays in receiving, increased
costs of or challenges to necessary governmental permits or approvals or
increased financial assurance requirements; resolution of global tax
audit activity; the effectiveness of Mosaic's processes for managing its
strategic priorities; adverse weather conditions affecting operations in
Central Florida, the Mississippi River basin, the Gulf Coast of the
United States, Canada or Brazil, and including potential hurricanes,
excess heat, cold, snow, rainfall or drought; actual costs of various
items differing from management's current estimates, including, among
others, asset retirement, environmental remediation, reclamation or
other environmental regulation, Canadian resources taxes and royalties,
or the costs of the MWSPC, its existing or future funding and Mosaic's
commitments in support of such funding; reduction of Mosaic's available
cash and liquidity, and increased leverage, due to its use of cash
and/or available debt capacity to fund financial assurance requirements
and strategic investments; brine inflows at Mosaic's Esterhazy,
Saskatchewan, potash mine or other potash shaft mines; other accidents
and disruptions involving Mosaic's operations, including potential mine
fires, floods, explosions, seismic events, sinkholes or releases of
hazardous or volatile chemicals; and risks associated with cyber
security, including reputational loss; as well as other risks and
uncertainties reported from time to time in The Mosaic Company's reports
filed with the Securities and Exchange Commission. Actual results may
differ from those set forth in the forward-looking statements.

Non-GAAP Financial Measures

This press release includes the presentation and discussion of
non-GAAP diluted net earnings per share guidance, or adjusted EPS,
non-GAAP gross margin per tonne, or adjusted gross margin per tonne, and
non-GAAP EBITDA, or adjusted EBITDA, referred to as non-GAAP financial
measures.
Generally, a non-GAAP financial measure is a
supplemental numerical measure of a company's performance, financial
position or cash flows that either excludes or includes amounts that are
not normally excluded or included in the most directly comparable
measure calculated and presented in accordance with U.S. generally
accepted accounting principles, or GAAP. Non-GAAP financial measures
should not be considered as substitutes for, or superior to, measures of
financial performance prepared in accordance with GAAP. In addition,
because non-GAAP measures are not determined in accordance with GAAP,
they are thus susceptible to varying interpretations and calculations
and may not be comparable to other similarly titled measures of other
companies. Adjusted metrics, including adjusted EPS, adjusted gross
margin, and adjusted EBITDA are calculated by excluding the impact of
notable items from the GAAP measure. Notable items impact on gross
margin and EBITDA is pretax.
Notable items impact on diluted net
earnings per share is calculated as the notable item amount plus income
tax effect, based on expected annual effective tax rate, divided by
diluted weighted average shares. Management believes that these adjusted
measures provide securities analysts, investors, management and others
with useful supplemental information regarding our performance by
excluding certain items that may not be indicative of, or are unrelated
to, our core operating results. Management utilizes these adjusted
measures in analyzing and assessing Mosaic's overall performance and
financial trends, for financial and operating decision-making, and to
forecast and plan for future periods. These adjusted measures also
assist our management in comparing our and our competitors' operating
results. We are not providing forward looking guidance for U.S. GAAP
reported diluted net earnings per share, gross margin per tonne, or
EBITDA, or a quantitative reconciliation of forward-looking adjusted EPS
because we are unable to predict with reasonable certainty our notable
items without unreasonable effort. Historically, our notable items have
included, but are not limited to, foreign currency transaction gain or
loss, unrealized gain or loss on derivatives, acquisition-related fees,
discrete tax items, contingencies and certain other gains or losses.
These items are uncertain, depend on various factors, and could have a
material impact on U.S. GAAP reported results for the guidance period.

Reconciliations for historical periods beginning with the quarter
ended June 30, 2016 are provided under "Consolidated Data" in the
Selected Calendar Quarter Financial Information performance data for the
related periods.
This information is available on our website at www.mosaicco.com
in the "Financial Information – Quarterly Earnings" section under the
"Investors" tab.

For the three months ended March 31, 2018, the Company reported the
following notable items which, combined, negatively impacted earnings
per share by $0.09:

                   
Amount Tax effect EPS impact
Description Segment Line item (in millions) (in millions) (per share)
 
Foreign currency transaction gain (loss) Consolidated Foreign currency transaction gain (loss) $ (32 ) $ 9 $ (0.06 )
Unrealized gain (loss) on derivatives Corporate and Other Cost of goods sold (12 ) 3 (0.02 )
Fees related to purchase of Vale Fertilizantes Corporate and Other Other operating income (expense) (18 ) 5 (0.03 )
Integration costs Corporate and Other Other operating income (expense) (8 ) 2 (0.02 )
Costs to capture synergies Mosaic Fertilizantes Other operating income (expense) (16 ) 5 (0.03 )
Refinement of inventory costing Potash Cost of goods sold (5 ) 2 (0.01 )
Refinement of inventory costing Phosphates Cost of goods sold (15 ) 4 (0.03 )
Realized loss on RCRA Trust securities Phosphates Other non-operating income (expense) (5 ) 1 (0.01 )
Severance Corporate and Other Other operating income (expense) (4 ) 1 (0.01 )
Discrete tax items Consolidated (Provision for) benefit from income taxes       48   0.13  
Total Notable Items $ (115 ) $ 80 $ (0.09 )
 

For the three months ended March 31, 2017, the Company reported the
following notable items which, combined, negatively impacted earnings
per share by $0.04:

                   
Amount Tax effect EPS impact
Description Segment Line item (in millions) (in millions) (per share)
 
Foreign currency transaction loss Consolidated Foreign currency transaction gain (loss) $ 9 $ (1 ) $ 0.02
Unrealized loss on derivatives Corporate & Other Cost of goods sold (1 )
Fees related to purchase of Vale Fertilizantes Corporate & Other Other operating expense (3 ) (0.01 )
Discrete tax items Consolidated (Provision for) benefit from income taxes (9 ) (0.03 )
Liquidated damages for CF ammonia agreement Phosphates Other operating income (expense) (3 ) (0.01 )
Resolution of Canadian tax audit Potash Cost of goods sold   (3 )       (0.01 )
Total Notable Items $ (1 ) $ (10 ) $ (0.04 )
 
 
Condensed Consolidated Statements of Earnings
(in millions, except per share amounts)
 
 

The Mosaic Company

   

(unaudited)

   
 
Three months ended
March 31,
2018     2017
Net sales $ 1,933.7 $ 1,578.1
Cost of goods sold   1,691.6     1,448.5  
Gross margin 242.1 129.6
Selling, general and administrative expenses 93.6 80.9
Other operating (income) expense   67.8     18.6  
Operating earnings 80.7 30.1
Interest expense, net (49.4 ) (25.8 )
Foreign currency transaction gain (loss) (32.2 ) 8.9
Other income (expense)   (5.6 )   (4.5 )
Earnings (loss) from consolidated companies before income taxes (6.5 ) 8.7
Provision for (benefit from) income taxes   (49.9 )   9.7  
Earnings (loss) from consolidated companies 43.4 (1.0 )
Equity in net loss of nonconsolidated companies   (3.3 )   (0.1 )
Net earnings (loss) including noncontrolling interests 40.1 (1.1 )
Less: Net loss attributable to noncontrolling interests   (2.2 )   (0.2 )
Net earnings (loss) attributable to Mosaic $ 42.3   $ (0.9 )
Diluted net earnings per share attributable to Mosaic $ 0.11   $  
Diluted weighted average number of shares outstanding 384.1 350.5
 
 
Condensed Consolidated Balance Sheets
(in millions, except per share amounts)
 

The Mosaic Company

   

(unaudited)

       
March 31, December 31,
2018     2017
Assets
Current assets:
Cash and cash equivalents $ 659.4 $ 2,153.5
Receivables, net 708.4 642.6
Inventories 2,059.0 1,547.2
Other current assets   414.6     273.2  
Total current assets 3,841.4 4,616.5
Property, plant and equipment, net 11,865.3 9,711.7
Investments in nonconsolidated companies 836.3 1,089.5
Goodwill 1,760.6 1,693.6
Deferred income taxes 495.9 254.6
Other assets   1,652.8     1,267.5  
Total assets $ 20,452.3   $ 18,633.4  
Liabilities and Equity
Current liabilities:
Short-term debt $ 71.8 $ 6.1
Current maturities of long-term debt 250.8 343.5
Structured accounts payable arrangements 426.7 386.2
Accounts payable 679.4 540.9
Accrued liabilities   791.8     754.4  
Total current liabilities 2,220.5 2,031.1
Long-term debt, less current maturities 4,823.1 4,878.1
Deferred income taxes 1,178.5 1,117.3
Other noncurrent liabilities 1,550.5 967.8
Equity:
Preferred Stock, $0.01 par value, 15,000,000 shares authorized, none
issued and outstanding as of March 31, 2018 and December 31, 2017
Common Stock, $0.01 par value, 1,000,000,000 shares authorized,
389,188,324 shares issued and 385,416,049 shares outstanding as of
March 31, 2018, 388,998,498 shares issued and 351,049,649 shares
outstanding as of December 31, 2017
3.8 3.5
Capital in excess of par value 977.2 44.5
Retained earnings 10,675.6 10,631.1
Accumulated other comprehensive loss   (1,201.6 )   (1,061.6 )
Total Mosaic stockholders' equity 10,455.0 9,617.5
Noncontrolling interests   224.7     21.6  
Total equity   10,679.7     9,639.1  
Total liabilities and equity $ 20,452.3   $ 18,633.4  
 
 
Condensed Consolidated Statements of Cash Flows
(in millions, except per share amounts)
   

The Mosaic Company

   

(unaudited)

 
Three months
ended March 31,
2018     2017
Cash Flows from Operating Activities:
Net cash provided by (used in) operating activities $ (71.0 ) $ 146.0
Cash Flows from Investing Activities:
Capital expenditures (223.3 ) (223.8 )
Purchases of available-for-sale securities - restricted (185.7 ) (736.1 )
Proceeds from sale of available-for-sale securities - restricted 184.0 734.3
Investments in consolidated affiliate 1.3 (25.0 )
Proceeds from sale of fixed assets 1.2
Acquisition, net of cash acquired (994.6 )
Other   (3.3 )   5.0  
Net cash used in investing activities (1,220.4 ) (245.6 )
Cash Flows from Financing Activities:
Payments of short-term debt (14.5 )
Proceeds from issuance of short-term debt 65.3 143.0
Payments of structured accounts payable arrangements (235.7 ) (35.3 )
Proceeds from structured accounts payable arrangements 173.8 107.3
Payments of long-term debt (206.9 ) (1.6 )
Proceeds from issuance of long-term debt 1.3
Cash dividends paid (9.6 ) (96.4 )
Other   (0.2 )   (1.6 )
Net cash provided by (used in) financing activities (213.3 ) 102.2
Effect of exchange rate changes on cash   13.4     3.0  
Net change in cash, cash equivalents and restricted cash (1,491.3 ) 5.6
Cash and cash equivalents - beginning of period   2,194.4     711.4  
Cash and cash equivalents - end of period $ 703.1   $ 717.0  
 

Reconciliation of cash, cash equivalents and restricted cash
reported within the unaudited condensed consolidated balance
sheets to the unaudited statements of cash flows:

Cash and cash equivalents

$

659.4

$

675.3

Restricted cash in other current assets

 

9.4

 

7.1

Restricted cash in other assets

 

34.3

 

 

34.6

 

Total cash, cash equivalents and restricted cash shown in the
unaudited statement of cash flows

$

703.1

 

$

717.0

 
 
 

Earnings Per Share Calculation

   
Three months ended
March 31,
2018     2017
Net earnings attributable to Mosaic $ 42.3 $ (0.9 )
Basic weighted average number of shares outstanding 382.6 350.5
Dilutive impact of share-based awards   1.5    
Diluted weighted average number of shares outstanding   384.1   350.5  
Basic net earnings per share attributable to Mosaic $ 0.11 $
Diluted net earnings per share attributable to Mosaic $ 0.11 $
 

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