Joc O' Rourke
President and Chief Executive Officer at Mosaic
Good morning. Thank you for joining our full-year 2022 earnings call. Mosaic had a record year in 2022, delivering revenues of $19 billion, adjusted EBITDA of $6.2 billion and adjusted earnings per share of $11.01.
In 2022, we reached several operational milestones that allowed us to benefit from strong prices. K3 reached its initial capacity of 5.5 million tons. In Brazil, we grew our distribution market share from 16% to 18%.
In North America in phosphates, performance products represented 43% of total sales volumes and now we have begun to look at expanding our MicroEssentials capacity further, which we will discuss later. These efforts are driving strong free cash flow generation, which allowed us to return significant capital to shareholders in 2022, while also strengthening our balance sheet.
Over the last 12 months, we have repurchased $1.7 billion worth of shares outstanding, if we include the fourth quarter of 2021, we have bought back more than 10% of the shares outstanding or roughly 40 million shares.
In addition to share repurchases, we have also paid investors nearly $200 million in dividends. Our regular dividend now stands at $0.80 per share, up from $0.60 per share the prior year. And on the balance sheet, we met our long-term debt reduction target of $1 billion with the retirement of $550 million of long-term debt in November.
Before diving into our business further, I'd like to briefly discuss broader agriculture and fertilizer markets. Ag market fundamentals remain very constructive, with December corn near $6 per bushel and November beans near $14 a bushel. This reflects ongoing global food security concerns at a time of disappointing production. Global stocks-to-use ratios are at 25-year lows and remain under pressure because of elevated risks that threaten output in 2023.
The world continues to watch the war in Ukraine. We have consulted with top military and foreign policy leaders who share our concern that the conflict seems unlikely to be resolved in the near-term and will have long lasting impacts, particularly in the production of key crops like wheat and sunflowers, which is a source of significant amount of the world's edible oils.
Outside of Europe, we believe the USDA's latest estimate for Argentinian production appears optimistic, as drought conditions during the growing season suggest yields will disappoint. In Brazil, weather has delayed the planting of safrinha corn, which could pressure the record crop that many are forecasting.
Around the world, we still see fertilizer shortages in many key agricultural markets, despite some major markets being well supplied. However, the overall shortage still threatens total production and this will underpin global crop prices for some time.
Now let's focus on the fertilizer markets. The sharp spike in nutrient prices in the first half of last year resulted in growers aggressively mining their soils. As we enter 2023, phosphate and potash prices are now half of what they were at the peak.
With crop prices still very strong, farmer affordability for nutrients has improved significantly and is now back to the levels seen in 2020 and 2021. This suggests a strong rebound in demand as growers seek to maximize yields with sufficient fertilization.
The world is still short of potash. Certain markets are seeing more readily available supply, but this means other markets are not able to get what they need. Belarusian supply remains constrained because of the ongoing sanctions. We believe Belarus, Calais exports were down about 8 million tons in 2022, and we expect only modest recovery in 2023 with total exports of around 6 million tons to 7 million tons or half of their pre-sanctioned export volumes.
The limited product Belarus has been able to get out of the country has been aggressively marketed over the seasonally slow winter and we have seen similar actions from some Russian producers. This is driving recent weakness in prices, but we believe the phenomena is temporary and will reverse as spring demand ramps up.
In phosphates, China remains committed to the structural shift impacting where it sends its phosphoric acid. In addition to shutting down production for environmental reasons, a significant portion of phosphoric acid is now being directed to industrial uses, including the battery market.
Roughly 1 million tons of finished fertilizer equivalent was diverted to the battery market in 2022 and we think that will continue to grow rapidly over the next few years as the additional battery capacity is added. This suggests China's exports of phosphate fertilizers will continue to be down significantly as restrictions extend into 2023. Inventory levels in our key markets for both phosphates and potash have declined considerably from the elevated levels observed in the second half of last year.
Grower demand across the Americas has been very strong because of favorable affordability, but retailers have been hesitant to replenish inventories, because of the volatility in global prices, especially in potash with the aggressive off-season marketing from the Russians and the Belarusians. U.S. spring demand is ramping up over the next coming weeks and we believe we have reached a bottom in potash prices.
In Brazil, sentiment has improved. Inventories have worked their way down to much more normalized levels for both potash and phosphates, as growers take advantage of much more attractive barter ratios. We estimate fertilizer shipments will total 46 million tons in 2023, up more than 10% from last year and roughly 35% of those expected shipments have already been contracted.
In India, phosphate inventories remain very low even after a year of elevated imports as most of the product went straight to the ground. Government subsidies for the coming fertilizer year will determine whether India will be able to attract the nutrients it needs to meet its food security concerns.
In Southeast Asia, potash has become much more affordable for palm oil producers as well, which should drive demand recovery.
Globally, we are seeing very good farmer economics and depleted inventories that suggest strong demand for phosphates and potash in 2023.
Given this landscape, we believe our business is well-positioned to benefit from the market's recovery. In phosphates, lingering issues from Hurricane Ian impacted our operations during the fourth quarter for longer than originally expected, but Florida operations returned to normal operating levels earlier this month. We now believe we have moved past the operational issues that impacted output and are dedicating resources to fixing key components in our production.
At Bartow, we are upgrading our sulfuric acid production facilities following the recent production stops we saw after Hurricane Ian. And at Faustina, we have improved operations at our ammonia plant and saw a significant increase in the amount of ammonia produced from our plant during the fourth quarter.
Florida production has returned to normal operating rates. During the first quarter, we expect total shipments of 1.7 million tons to 1.9 million tons with realized pricing of $625 per ton to $675 per ton. We expect stripping margins will remain relatively stable quarter-over-quarter as lower raw material prices offset lower finished product prices.
In our potash business, slower demand led us to temporarily stop production at our Colonsay mine, but we think the current market situation is temporary and expect to restart operations at Colonsay within the first half of 2023.
At Esterhazy, the 12th miner is being commissioned and the 13th miner is expected to be in service before the end of the year. When that's done, it will add at least 1 million tons of additional annual capacity at one of the most efficient mines in the world. In the first quarter, we expect sales of 1.8 million tons to 2 million tons with realized MOP prices at the mine of $425 per ton to $475 per ton.
Mosaic Fertilizantes had its best year since we purchased the business in 2018, with adjusted EBITDA of $1 billion in 2022, despite volatility in the second half of the year. Fourth quarter results reflect the sharp reversal of commodity prices from the highs of the first half of the year, which negatively impacted both the production and the distribution margins.
But for the full year, our distribution margins averaged $36 per ton, which is right in the range of $30 per ton to $40 per ton that we would expect. First-quarter distribution margins will be similar to fourth quarter as higher inventory is worked through. But for the full year, we do expect distribution margins to be back within our normal range.
As we think about the evolution of our business, we continue to execute our high-returning investments while returning capital to shareholders. In phosphates, we have begun the expansion of our MicroEssentials offering by adding capacity at our Riverview facility.
The project is expected to be completed by the end of the year. Upon completion, about 50% of our North American phosphate business will be sales of value-added performance products. This is not an expensive project. The total budget is less than $40 million with a payback period of less than two years.
We are also building a test plan for purified phosphoric acid production in North America to verify final design plans for commercial operation. This is the next step in our shift away from commodity fertilizers and opens up new markets like food production and batteries. We are also exploring using the plant's byproducts to produce NPKs.
In Brazil, we continue to grow our distribution business. While our footprint is already large, there are still areas where we see opportunities to expand. We have begun construction of a 1 million ton blending and distribution facility at Palmeirante in the fast-growing North with access to very attractive rail infrastructure. Returns of about 20% on an expected $80 million budget, make this another example of highly attractive modest investments.
We are also monetizing past investments. In January, we sold our Streamsong Resort for $160 million, because we could realize appealing value for a noncore asset.
Our joint venture in Saudi Arabia is also performing well. In 2022, Mosaic's equity earnings from the joint venture totaled $195 million, which is about a quarter of our initial investment. This year, they plan to reduce debt by $800 million. They have also distributed $100 million in dividends to investors. Our proportional share of $25 million was received this month.
Finally, I want to reiterate that we remain committed to our approach to balance sheet management and shareholder capital returns. In November, we retired $550 million in long-term debt and this allowed us to meet our commitment of reducing long-term debt by $1 billion. As we look at our balance sheet today, we believe we are well-positioned for the long term. Similar to last year, we plan to return substantially all of our free cash flow to shareholders in 2023 through a combination of share repurchases and dividends. Since September of 2021, we bought back $2.2 billion in shares and we continue to see great value in our shares. To emphasize that point, we plan to proceed with a $300 million accelerated share repurchase program in the first quarter.
We have also grown our regular dividend to $0.80 per share and we are well-positioned to consider further growth, especially with our reduced share count. In addition to the regular common dividend, our Board of Directors has approved a special dividend of $0.25 per share to be paid out on March 30th to shareholders of record on March 15th. Given our strong cash flow, combined with the proceeds of asset sales, our Board approved this payout as a supplement to our ongoing share repurchases.
Before we go on to Q&A, allow me to summarize. Mosaic delivered record results in 2022 and we expect favorable dynamics to continue in 2023. The world is short global grains and oilseeds. So farmers are incented to maximize yields. We expect this to drive strong fertilizer demand and our business is well-positioned to meet that demand through our existing assets and exciting new growth opportunities. With the strong cash flows that these provide, we are returning significant capital to shareholders through dividends and share repurchases.
With that, I'd like to now move on to the Q&A portion of the call.
