Bruce Bodine
President and Chief Executive Officer at Mosaic
Good morning. Thank you for joining our call today. This is my first earnings call as Mosaic CEO, and I'd like to begin by acknowledging Joc O'Rourke for his many contributions to the Company. Joc held this role for nearly a decade and the Company is much stronger today, thanks to his leadership. Under Joc, Mosaic expanded its footprint in Brazil with the successful Vale Fertilizantes acquisition. We completed development of the world's largest potash mine. We transformed our cost structures, and we deleveraged and optimized our balance sheet. We have opportunities to improve returns and drive shareholder value by building on the current position of strength that Joc helped to create. I look forward to evolving Mosaic strategy and to helping all of you understand just how we will do that.
So, for today, there are a few key messages that we would like you to take away from this call. First, phosphate markets are very strong. We expect dynamics to remain constructive for the foreseeable future and we are working to optimize our production so we can benefit fully. Second, we expect demand recovery in potash. In fact, we are seeing early signs of demand emerging in Brazil. That said, given current potash economics, we will be curtailing production from our Colonsay mine. Third, we are taking these actions as well as reducing costs and capital expenditures to improve through cycle returns. Finally, with our strong financial foundation in place, we remain committed to prudent capital allocation, selectively investing when risk-adjusted returns are compelling and returning excess cash through share repurchases and dividends.
For full year 2023, Mosaic generated revenue of $13.7 billion, adjusted EBITDA of $2.8 billion, and adjusted earnings per share of $3.57. We invested $1.4 billion in the business, refinanced $900 million in long-term debt, and returned $1.1 billion to shareholders, including over $750 million in share repurchases.
Let's start by looking at the market. 2022 brought extreme volatility to fertilizer markets. High prices driven by supply disruption, eventually reduced demand. In 2023, as prices retreated, customers returned in many key markets. The long-term global grain and oilseed supply and demand picture remains encouraging, with secular demand growth outpacing supply. In addition to population and income growth, demand for agricultural commodities is being driven by renewable fuel adoption, which we expect will continue to ramp over the next several years. Recent policy mandates have been announced in California, the European Union, and in Singapore, and additional mandates are expected in the future. This emerging source of demand has the potential to require tens of millions of additional acres of production.
Short-term fundamentals also look positive. We believe that ongoing weather challenges in key growing regions, including Brazil, will result in grain production lower than what the market is anticipating. This suggests that already low stock-to-use ratios will remain under pressure and support a healthy grain price environment. On this point, there tends to be a lot of focus on the stock to use ratios for corn and soybeans. And as you can see in the presentation materials we posted, these two commodities represent approximately 30% of the global potash and phosphate consumption. This means that 70% of consumption is tied to other crops, many of which are experiencing continued tightening in their ratios. We believe the result is that growers around the world continue to be incentivized to maximize yield and crop production through strong fertilizer applications.
In North America, a long Fall application season drove strong demand well into the fourth quarter. Solid winter fill activity tells us bins are near empty and channel inventories are low. We are seeing demand strength continue into the Spring planting season, and sales volumes are mostly committed through March. In Brazil, barter ratios for both soybeans and corn are favorable. And while weather impacts have delayed fertilizer purchases, our outlook for full year 2024 is very positive, with expectations of fertilizer shipments at or near an all time record as growers need to replenish soil nutrients.
Favorable ag commodity and fertilizer demand drivers are especially promising for phosphate markets. We expect global supply will remain tight due in part to China's fertilizer export restrictions, as the government prioritizes domestic food security. Tighter environmental oversight has also had an impact with the reduction of domestic DAP production. China also continues to direct more acid to industrial markets. Lithium iron phosphate production has more than tripled in the last two years and we expect growth to continue at a rapid pace. The competition for phosphate molecules is intensifying, and it will continue to do so for quite some time. This, together with limited capacity additions in the near future, suggests phosphate market fundamentals will remain constructive.
For potash, supply is adequate to meet demand in the near term, and economics have not yet improved, which is why we intend to curtail production at Colonsay. We will continue to monitor market developments and customer demand. And when needed, Colonsay will be prepared to return to service in short order. Overall, ag and fertilizer market dynamics remain solid. At Mosaic, we continue to focus on meeting customer needs, executing on our business strategy, optimizing our operations and delivering value to shareholders.
Turning now to fourth quarter results and our first quarter outlook. For the fourth quarter of 2023, Mosaic delivered revenue of $3.1 billion, adjusted EBITDA of $646 million and adjusted earnings per share of $0.71. Our potash business generated $322 million of adjusted EBITDA on sales volumes of roughly 2.6 million tons. With the port at Portland, Oregon back up and running, the team at Canpotex had a strong finish to the year, enabling us to deliver sales volumes well within the range of our initial guidance. We expect sales volumes for the first quarter of 2024 in the range of 2.0 million to 2.2 million tons and potash prices at the mine in the range of $225 to $250 per ton.
In phosphates, we generated $259 million in adjusted EBITDA on sales volumes of 1.6 million tons. Realized stripping margins remained strong for the quarter, but were offset by lower cost absorption from or production levels. For the first quarter, we expect phosphate sales volume in the range of 1.6 million to 1.8 million tons, and DAP realized prices at the mine in the range of $580 to $605 per ton.
Moving to our business in South America. Despite the weather driven fertilizer demand headwind in the fourth quarter, we delivered strong operating results, with adjusted EBITDA of $111 million. Distribution business margins came in well above the historical normal annual range of $30 to $40 per ton. In the first quarter of this year, we expect margins to recede from the fourth quarter as part of the normal seasonality of the business. The first quarter of each year typically has a higher amount of fertilizer volume going to Brazil's corn crop, which demands a higher percentage of nitrogen products, which historically generate lower and less consistent margins, and lower volumes of MicroEssentials, which generates higher margins. As a result, margins are generally lower during the quarter, but improve from there, resulting in annual margins in line with our historic norm of $30 to $40 per ton.
We executed well against our capital allocation strategy in 2023 and our balance sheet remains optimized. We spent $1.4 billion in capex and made significant progress on our investment projects. We refinanced $900 million in debt and returned $1.1 billion to shareholders through an increased dividend and share repurchases. Our returns included not only free cash flow, but also proceeds from asset sales, such as the sale of Streamsong Resort.
Finally, I want to discuss our top strategic initiatives for 2024. First, we are focused on driving down costs. Over time, we expect to achieve at least $150 million in annual run rate savings off of a 2023 baseline, driven in part by savings from our Global Digital Acceleration program, which will go live later this year. Next, we'll continue to transform our operations to increase resilience and flexibility. Our top priority in phosphate is to improve our production volumes. We're working toward an annual run rate of 8 million tons over the next few quarters by enhancing the overall reliability and efficiency of our operations. To this end, we have a busy turnaround schedule at our Florida facilities in the first half of this year, as we target areas that have caused us the most significant maintenance issues.
Next, we will further expand our presence in Brazil, one of the most dynamic agricultural regions in the world, by completing a 1 million ton distribution facility at Palmeirante to serve the fast-growing Northern region of the country. We'll also further strengthen our product portfolio by growing non-commodity products. We are expanding MicroEssentials capacity at our Riverview plant here in Florida, and we expect those additional tons later this Spring. We anticipate that more than half of our phosphate sales will be value-added products, which clearly is a differentiator for us. In addition, we are planning for the next-generation MicroEssentials Pro, which is delivering significant yield improvements in field testing. MicroEssentials Pro will also extend our patent protection until 2038.
Finally, we'll remain true to our disciplined capital allocation strategy. In 2024, we expect to reduce total capital spending by about $200 million and will continue to return excess cash to shareholders.
To summarize, our outlook for agriculture and fertilizer markets remains positive. At Mosaic, we have a strategic roadmap to optimize returns through the business cycle, to grow and to decommoditize our product offerings, and we have a very strong financial foundation from which to operate. I'm looking forward to updating you on our progress as the year proceeds.
Now, let's move to Q&A.
