Nutrien releases results for the second quarter of 2023

Nutrien Ltd. announced its results for the second quarter of 2023. There was net profit of US$448 million, which includes non-monetary losses of US$465 million mainly related to goodwill in South American retail and US$233 million related to fixed assets of phosphate. Q2023 2,53 adjusted net earnings per share was $2,5 and adjusted EBITDA was $XNUMX billion.

“Nutrien’s results have been impacted by unprecedented volatility in global agricultural input markets over the past 18 months. We continue to see demand strengthen in our main markets, particularly in North America, but the recovery process has been more uneven in offshore markets”, commented Ken Seitz, president and CEO of Nutrien.

“We are announcing a series of strategic actions to reduce our controllable costs and increase free cash flow in 2023 and beyond. This includes an indefinite pause of our potassium ramp-up and suspension of work on our Geismar clean ammonia project. These actions, along with other operational efficiency initiatives, demonstrate our commitment to disciplined capital allocation and focus on long-term value creation,” added Seitz.

As financial highlights, the company's statement highlighted:

• Net profit generated of US$1 billion and adjusted EBITDA of US$3,9 billion in the first half of 2023, significantly below the record levels achieved in the first half of 2022. This was mainly due to lower net realized fertilizer prices, volumes of offshore potash sales and profits from Nutrien Ag Solutions (“Retail”).

• Retail adjusted EBITDA fell to $1,1 billion in the second quarter, primarily due to lower gross margin for nutrients and crop protection products. Agricultural nutrient sales volumes in North America increased 16% in the second quarter compared to the same period a year ago and margins per ton in the US returned to more normalized levels. Crop protection margins were pressured by lower prices for certain commodities and the impact of selling through higher-cost inventories.

• Potash adjusted EBITDA fell to $654 million in the second quarter as weaker net realized sales prices and lower offshore sales volumes more than offset higher sales volumes in North America. Lower customer demand in Asia was partially offset by increased Canpotex sales volumes to Brazil.

• Nitrogen adjusted EBITDA fell to $569 million in the second quarter due to lower realized net selling prices for all major nitrogen products, which more than offset higher sales volumes and lower gas costs.

• Recognition of non-cash impairment of US$465 million, mainly for goodwill related to retail assets in South America in the second quarter of 2023. This is due to the impact of agricultural input price volatility, more moderate long-term growth assumptions and higher interest rates. Nutrien also recognized a $233 million non-cash phosphate loss related to White Springs property, plant and equipment due to volatility in forecast phosphate margins.

• Year-to-date repurchase of approximately $13,4 million of shares as of June 30, 2023, under normal course issuer offering programs, for approximately $1 billion. Cash used for dividends and share repurchases in the first half totaled $1,6 billion.

• Full-year 2023 adjusted EBITDA and adjusted net income per share guidance were revised to $5,5 to $6,7 billion and $3,85 to $5,60 per share, respectively.

The company informed about the following strategic actions for the near future:

• Indefinite pause in increasing annual potash production capacity to 18 million tonnes in response to market conditions, following completion of flight projects in the second half of 2023.

• Suspension of work on 1,2 million ton Geismar clean ammonia project. This decision is due to an increase in expected capital costs compared to our initial estimates, continued uncertainty about the timing of new uses for clean ammonia, and the prioritization of other capital allocation alternatives.

• Reducing planned capital expenditures on smaller investment projects in our retail business and deferring the timing of capital expenditures on selected nitrogen brownfield projects as we prioritize capital and provide flexibility in future allocation alternatives.

• Projected capital expenditure reduction of approximately US$200 million in 2023. Total capital expenditure expected of US$2,8 billion in 2023, with further reductions expected in 2024.

In relation to agriculture and retail, Nutrien highlighted the following topics:

• Climate and geopolitical challenges are contributing to tight global grain and oilseed supplies and providing support for prices. The U.S. Midwest has experienced some of the driest conditions on record this growing season, which has reduced expected yield potential below trend. Ukraine's agricultural production and export volumes continue to be negatively affected by the war, with Russia's cancellation of the Black Sea grain deal creating additional supply uncertainty.

• Crop prices have been volatile but remain historically high, with new crop prices for corn, wheat and soybeans 15% to 20% above the ten-year average. Fertilizer affordability has improved significantly compared to the previous year due to continued strength in crop prices and reduced fertilizer prices.

• Drought conditions in North America impacted in-season nitrogen applications and crop protection. Currently, crop development is ahead of schedule, which could support an extended window for agricultural inputs.

• Brazilian grain and oilseed prices were pressured by the record harvest and limitations in logistics and export capacity. However, demand for Brazilian soybeans is expected to remain robust and higher international prices are expected to support a two to three percent increase in planted area. Brazilian producers may have purchased a smaller than normal proportion of inputs for this time of year, which should support strong demand leading into the spring planting season, which begins in September.

• Australian agricultural production has benefited from timely rainfall and has supported demand for agricultural inputs.

Finally, regarding the nutrients market, the company pointed out:

• Global potash prices weakened during the second quarter of 2023, driven by continued destocking in offshore markets and uncertainty created by the delay in the Chinese potash contract. There has been stronger engagement in offshore spot markets, led by Brazil, following the settlement of the Chinese potash contract in June 2023. Channel inventories in North America are expected to end the first half at multi-year lows and we are seeing a strong demand in the third quarter.

• Potash exports from Russia are projected to decline by 3 to 4 million tonnes and from Belarus by 4 to 5 million tonnes compared to 2021 levels. Canadian potash exports are expected to be limited by logistical challenges primarily due to strike at the Port of Vancouver and, as a result, the projected global shipping range for 2023 is expected to be reduced to between 63 and 65 million tonnes.

• Global urea and nitrate prices strengthened in the third quarter of 2023, driven by increased demand and supply constraints, including factory shutdowns and reduced Egyptian gas supplies. Ammonia prices were affected by lower-than-expected European natural gas prices, weak downstream industrial demand and reduced imports by phosphate producers. However, ammonia markets are expected to strengthen during the remainder of the year due to low global stocks, ongoing supply constraints and higher values ​​for other nitrogen products.

• Dry phosphate prices fell throughout the second quarter of 2023, but canal inventories were low to end the North American spring and demand strengthened in the second half. Sulfur prices remain historically low compared to finished phosphate prices, which in combination with lower ammonia prices have offset some of the price declines.