Mosaic Company (MOS) — Q4 2025 Earnings Call Transcript

Thank you, and welcome to our fourth quarter 2025 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer. Luciano Siani Pires, Executive Vice President and Chief Financial Officer, will review financial results and capital allocation progress. We will then welcome Jenny Wang, Executive Vice President, Commercial, to join Bruce and Luciano as we open the floor for questions. We will be making forward-looking statements during this conference call. The statements include, but are not limited to, statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release published yesterday and in our reports filed with the Securities and Exchange Commission. Please note in today's presentation and in our press release and performance data, we will refer to and provide various financial measures, including adjusted EBITDA, adjusted earnings per share, free cash flow, cost per tonne, and adjusted effective tax rate, either on a total company or segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found in our earnings release. Now I'd like to turn the call over to Bruce.

Good morning. Thank you for joining our call. As we look back on 2025, I want to start by recognizing the work our teams delivered across Mosaic throughout the year. We asked a lot of our people, and they responded with tremendous effort. The other members of the executive team and I are grateful for their dedication. I will start today's call with a high-level review of the markets and our business. Then Luciano will provide some details on our financial expectations for 2026, and Jenny is here to address your market-related questions. Our key messages for today are: first, while the fourth quarter was weaker than we expected due to phosphate demand in the United States, U.S. demand is emerging as farmers prepare for spring planting in North America and global ag fundamentals are solid. Second, we are on track to improve phosphate production performance, and we have posted consistently strong potash production throughout 2025. The work we have completed has restored our operational foundation and positioned Mosaic for a strong 2026. Third, we delivered meaningful cost and efficiency progress in 2025, and we have committed to achieve further reductions in 2026. Fourth, our extensive market access continues to provide a powerful platform for growth, especially in our Mosaic Biosciences business. And finally, in our capital allocation program, we have divested several noncore assets, Patos de Minas and Taquari as well as a pending transaction to sell Carlsbad that will allow us to focus attention and capital where it matters. Before I get into a more detailed review of the business and our outlook, I will turn to a high-level view of the market conditions and explain why despite the tough ending to 2025, our long-term outlook remains constructive. U.S. demand, especially for phosphate, fell sharply in the fourth quarter, pressured by affordability challenges and uncertainties surrounding government support. Recently, we have seen an increase in spring inquiries as growers look to nourish their soil, especially after last year's big crop and corresponding nutrient removal. As we enter the buying season across several key geographies, a compressed demand timeframe is possible and could place additional strain on logistics capabilities. While overall North America potash and phosphate shipments declined in 2025, Mosaic's North America sales volumes proved more resilient, indicating we captured additional market share. Looking ahead, phosphate supply and demand dynamics are supportive as China continues to restrict exports to prioritize domestic demand and lithium iron phosphate battery demand continues to consume an even larger share of the world's phosphoric acid. Potash markets remain balanced with prices that appeal to the world's farmers and fertilizer producers alike. As we look at 2026, we expect global potash shipments to approach record levels driven by broad-based demand across most key geographies. And as a result, we expect to continue producing at high operating rates. While credit constraints remain a challenge in Brazil, expanding planted acreage and rising crop yields bode well for long-term Brazilian fertilizer demand. Demand also remains strong in other key growing regions of the world, including China and India. Now I'll move on to discuss our business and outlook. In phosphate, we delivered strong rock production last year with Florida reaching its highest level in three years and record mining production at Miski Mayo. Our top strategic priority in 2025 was to restore stability in our operations and normalize costs. While the recovery of our production volumes has taken longer than expected, we accomplished a great deal toward that goal. In our U.S. Phosphate business, we invested time and money across our assets to set ourselves up for reliably strong production, and we are seeing positive results. The key measure of our success is P2O5 output because acid gives us the ability to flex grades and products to meet demand and P2O5 production improved during the year. Our phosphate fertilizer production also rose through the year, and we expect consistently good production in 2026. We produced 1.7 million tonnes in the fourth quarter even with an extended turnaround at our Bartow facility as well as deliberate steps to adjust production amid soft U.S. demand. We are off to a strong start this year, and we expect to produce at least 7 million tonnes of phosphate in 2026. In potash, we are back at full operating rates at Esterhazy since the tragic fatality in December, and our HydroFloat project is ramping up. We expect to achieve record production at Esterhazy in 2026. International sales volume set a record last year, and we anticipate continuing strong demand in 2026. In fact, we expect to produce around 9 million tonnes of potash this year, a level similar to 2025, even after we complete the Carlsbad transaction. On the cost front, we are maintaining disciplined cost management through all market conditions. In 2025, we faced significant market volatility. When sulfur prices spiked at the end of the year, which we expect will significantly compress margins in our Phosphate and Mosaic Fertilizantes segments well into the first half of 2026, we moved quickly to protect margins and profitability. We have idled Araxa and Fospar in Brazil, our lowest margin operations until further notice. Turning to managing our controllable costs and driving operating efficiency. We made excellent progress on this front last year. We executed our mine optimization plan, improved our fixed labor costs, consolidated suppliers where possible, and managed corporate costs well. Our business in Brazil was a standout, delivering cost improvements through increased mine production and the elimination of high-cost imported rock. In fact, rock output in Brazil reached near record levels in 2025. In phosphate, we began to reverse the cost pressures that arose from extensive maintenance activities in the first half of the year. Fourth quarter cash cost of conversion was $112 per tonne, which is an improvement of approximately $20 per tonne compared with a high watermark earlier in the year. This improvement is structural, not one-off. In potash, our cash cost of production averaged $75 per tonne in 2025 and would have been within our Analyst Day target range, if not for the extension of Colonsay, which carries higher costs. At Mosaic Fertilizantes, blended rock cost per tonne reached $97, the lowest level since 2021. We achieved our $150 million cost savings objective ahead of schedule in 2025. As we enter the new year, we are advancing a broad set of technology-enabled initiatives to drive the next wave of efficiencies from optimizing supply chains in North America and Brazil to improving how we manage contracts and vendors to enhancing productivity. These efforts have positioned us to deliver another $100 million in savings in 2026. Our other strategic pillars are leveraging our market access and redefining our growth, and here too, we have made important strides. In 2025, we expanded our Brazil distribution capacity with the completion of a 1 million tonne blending facility in Palmeirante in the fast-growing agriculture region in Northern Brazil. The facility positions us to better serve customers in the area and to meet rising demand as credit conditions normalize. One of our most promising growth stories is Mosaic Biosciences. Our global market access, the strength of our brand, and our long-term customer relationships provide significant strategic advantages for us. We launched five new products in 2025 and expanded commercialization in the Americas, China, and India. Mosaic Biosciences is capitalizing on previous investments in R&D by expanding registrations of current products to our core markets and new geographies, now reaching over 60 registrations and selling into 16 countries. The business consistently delivers stable gross margins in the 40s, and future product launches should provide a pathway to higher margins over time. In 2025, Mosaic Biosciences doubled net sales to $68 million. Looking ahead to 2026, our expectation of continued adoption across our current portfolio, along with 8 to 10 anticipated new product launches positions us to achieve another year of doubling net sales. Mosaic Biosciences is delivering on the promise we saw from the start. It has become a truly scalable growth platform. The final element of our strategy is reallocating capital in pursuit of stronger returns. We continue to reshape our portfolio and strengthen our financial foundation last year. On the capital reallocation front, the transactions announced in 2025, including Carlsbad, are expected to generate approximately $170 million in proceeds over time and also allow for a reduction of $60 million in asset retirement obligations. More importantly, we will avoid significant capital expenditures that these assets would have required. While the proceeds from the transactions announced last year are modest, this continues the process that began three years ago and has already generated significant value. As an example, our position in Ma'aden equity is currently valued at about $2.1 billion. Looking ahead to 2026, we expect progress on multiple fronts. We're pursuing strategic alternatives for selected Brazilian assets, including unlocking incremental value from co-products, niobium, and other critical minerals. We also expect to generate value through monetization of some of our Florida land holdings. A note on capital expenditures. We expect CapEx in 2026 to come in around $1.5 billion, higher than 2025 due to mine, gyp stack, and clay settling area expansions in Florida. At the same time, cash spending on asset retirement obligations and environmental reserves are expected to decline by roughly $50 million, partially offsetting the increase as much of our closure work, particularly at Plant City, is complete. Looking further ahead, we continue to expect capital expenditures to trend down, reaching approximately $1 billion by 2030, with asset retirement obligations and environmental reserve cash spending also declining to about $200 million by 2030. Now I'll turn the call over to Luciano.

Thank you, Bruce. Good morning, everyone. 2025 was a challenging year for Mosaic from a cash flow perspective. Inventory builds in both finished products and raw materials weighed on cash flow for much of the year and intensified as demand weakened significantly in the fourth quarter. The impact was significant. Working capital reduced cash flow by $960 million for the year and contributed to an $829 million increase in net debt. The buildup in working capital changed our plans for the balance sheet. In November 2025, we successfully raised $900 million through three-year and five-year notes. While the original intent was to refinance a portion of the 2027 maturity, the fourth quarter demand downturn and the resulting increase in debt led us to reassess and to redirect the proceeds towards retiring short-term commercial paper. Our next maturity isn't until the end of 2027, and we continue to monitor markets for opportunity. Looking forward, how do we see '26 cash flows, debt, and shareholder returns? In the near term, cash flow remains constrained by lower EBITDA, a result of the sharp increase in sulfur prices since December. Phosphate stripping margins are under pressure. Every $10 increase in sulfur prices adds approximately $10 million of quarterly expense. Compared with the prior year first quarter, we thus expect a roughly $250 million headwind to Q1 '26 EBITDA. This margin pressure also led us to idle Araxa and Fospar in Brazil until further notice. And given the uncertainty surrounding our production plans in Brazil, we're not providing full year 2026 Mosaic Fertilizantes sales volumes guidance. But we expect cash flow to improve progressively as the year unfolds. We expect our own phosphate production to improve, supporting better fixed cost absorption and higher profitability on incremental volumes. Phosphate prices are rebounding from recent lows in Brazil, and working capital release is expected to drive a significant cash flow uplift this year. On working capital, we exited 2025 with about 240,000 tonnes of excess inventory in phosphates versus the prior year. At current inventory values, this represents roughly $140 million of potential working capital release over the next few quarters from demand recovery alone. While the typical seasonal inventory build in Mosaic Fertilizantes will offset part of this capital release in the first quarter, it will set up a more pronounced working capital benefit in the second and third quarters. But beyond demand recovery, higher phosphate production provides another source of working capital release as we currently hold excess phosphate rock and stockpiles. In addition, movements in sulfur and ammonia could provide some relief. And taken together, we believe a $300 million to $500 million working capital release is highly possible, supporting meaningfully higher cash flow generation in 2026. EBITDA to cash flow from operations conversion rate reached a low point in the mid-30s range in 2025 versus a more normalized level of 70%. As working capital unwinds, we expect a meaningful improvement in this conversion rate. Now how should we think about capital allocation in 2026? We will continue to invest in our business. Capital expenditures are expected to be higher in 2026 than in 2025, driven primarily by required investment in new gyp stacks at multiple sites. The positive offset, though, is that asset retirement obligations and environmental reserve spending is expected to trend down. Taken together, as Bruce mentioned, total cash outlays for CapEx, ARO, and environmental reserves are expected to be modestly higher than the prior year. This is a way of thinking that we suggest you to adopt going forward as ARO and environmental reserve spending will trend down for the next few years. We continue to see opportunities to reduce CapEx towards $1 billion by the end of the decade with ARO and environmental reserves steadily edging down to approximately $200 million. Overall, we expect to generate free cash flow after CapEx and other cash spending above the minimum dividend in 2026. This will allow us to prioritize debt reduction and subsequently pave the way to resume extraordinary returns to shareholders. I'll stop here and turn the call back to the operator for questions and answers.

First question is just on phosphate or DAP. Can you triangulate what you're thinking? I mean, obviously, Q4, you're telling us that pricing was too high and farmers kind of balked at that. Pricing has come down now, but so have your margins pretty significantly in a relatively tight market, you'd argue you should be able to get margin expansion. So do you think you'll be able to price for that higher sulfur as we go through this planting season? And if you do, do you think farmers will actually buy? Or will they forgo DAP applications this year? Or do you think they just pushed it to the spring?

Thanks for the question, Duffy. Regarding DAP, we definitely recognize that farmers are still facing affordability challenges, although the situation has improved. We expect this to get better in 2026 compared to 2025, based on the dynamics within agricultural commodities. As for the sulfur price and our ability to pass on costs, it may not be as feasible to do so as it has been historically during tight market conditions, given the ongoing affordability issues. We still view anything above a stripping margin of $300 as constructive, as we remain in the middle of the cost curve. It will be interesting to see what happens with sulfur after Q1. We anticipate improvements, but I don't expect sulfur prices to return to the very low levels seen two or three years ago. We do see potential for better sulfur pricing, which should positively impact stripping margins. Additionally, as we increase our phosphate fertilizer production capacity, our fixed cost absorption will help expand our margins further, insulating us from some uncontrollable raw material costs. Farmer affordability remains a key consideration, and while we may face limits on how much we can pass through, we still have considerable room to maneuver before experiencing significant pressure on margins related to phosphate profitability. Jenny, do you have any comments on this?

Yes, I would like to add one point. DAP prices in North America, particularly in the U.S. market, have remained quite stable, largely due to the acute affordability issues faced by farmers in the U.S. In contrast, the international market shows different dynamics, with major DAP-consuming countries like China and India, where governments subsidize their farmers. This has resulted in price increases for DAP in the international market over the past five weeks. Currently, the international market price for DAP is actually at a premium compared to the NOLA price. I understand the concerns regarding affordability, which are indeed more pronounced in the U.S. market compared to the rest of the world.

Yes. I think that's a great point, Jenny, for everyone, is the international market is a little bit disconnected from an affordability and constructiveness standpoint than maybe just the U.S. which is great given our distribution access, we will pivot as necessary to take advantage of that.

Bruce, when we take a step back and we just look at 2026 versus your Capital Markets Day expectations in terms of turnarounds, can you just kind of give us a walkthrough of the phosphate production or asset portfolio, where we were, where we kind of were trending towards the end of the fourth quarter and where you expect to be in '26? You're back down to $112 in terms of conversion costs. How should we think about that as it relates to your greater than 7 million tonne production guidance for '26?

Yes, Chris, thank you for your question. Our guidance is based on demonstrated performance, as we discussed last quarter, but this doesn't necessarily indicate our future status. I understand there might be some confusion, and I'm happy to clarify. In the fourth quarter, to achieve the 8 million tonne rate, we need an operating factor in the low 80s, around 81% for our fertilizer assets in North America. We maintained this in Bartow for much of 2025 and reached it in Louisiana during the fourth quarter. Riverview was in the mid-70s, while New Wales faced some operational challenges but is still working towards more consistent performance. Overall, we experienced a good quarter, with improvements in P2O5 production from the third to the fourth quarter, and we continue to see progress as we move into the first quarter. Bartow is operating above 80%, and Louisiana is also around that threshold, with Riverview approaching 80%. Collectively, these three facilities are already at or above the 80% operating factor, with more consistent performance being observed across all of them. New Wales is currently undergoing a turnaround, and we anticipate reaching near 80% as they exit this phase in the second quarter. New Wales is significant for us, with a capacity of 3 million tonnes of granular product. In the first half of the year, we plan to complete the remaining turnarounds—Bartow has none planned for the year, New Wales is handling a major one now, and Riverview has a turnaround scheduled for the second quarter. We expect to see improvements in production as we come out of these turnarounds, which makes us optimistic about the latter half of the year. Therefore, we are projecting over 7 million tonnes; our performance has been around 7 million tonnes over the last two quarters, but we anticipate potential upside. Luciano has additional insights to share.

Yes. May I comment on the cost side? The $112 per tonne in phosphates is where it should be given the current production volumes. The $131 of Q3 was actually very abnormal because of lots of repairs done outside of turnarounds. And the rule of thumb is every 100,000 tonnes per quarter should represent kind of a $7 to $8 decline through cost absorption on this $112. So therefore, if the path from 1.7 to 2.0 would imply kind of between $20 and $25 per tonne decline over current levels of phosphate conversion costs.

Yes. So, Chris, we remain confident in our ultimate objective we talked about in Analyst Day, both on volume and cost to Luciano's point, getting below $100 conversion cost. And then we're continuing to focus on some of the last things of talent and training, discipline around our operations management system, better asset predictive maintenance and analytics, which continue to take us to that next frontier.

I can see where your capital expenditures come through your cash flow statement. Where does your ARO and environmental reserves cash spend come through? Is that part of operations? Or is that a capital cost, the $400 million in cash spend you talked about?

Thanks, Jeff. I'm just going to put this over right to Luciano. He's got that.

Jeff, it is actually spread across a few lines. There is a small portion that comes through the operational aspect of cash flows, with nothing on capital expenditures, but it is included in a few lines. You have accrued liabilities. For instance, the current portion of ARO. When you spend on that, you reduce accrued liabilities. There is also a bit on the net income line that offsets the accretion expenses. So, it is a bit complex, but it falls within the operational section of the cash flow statement.

Just to follow up on the CapEx, maybe the inventory a little bit. I think the Street had CapEx coming down about $300 million from '25 to '26. So I know you called out why it's going up. But could you talk about sort of what changed and what triggered the need to do this in '26 and your confidence that this will not leak into '27 and beyond? And then secondarily, you called out on the inventory line that you have excess phosphate rock inventory. So I'd just be curious if you could help us understand, is that because you thought you were going to produce more last year, so you bought excess rock where you thought rock prices were going to go up, so you bought ahead of that increase? Just trying to understand how you're going to work that number down.

Vincent, no, thanks for the question. On CapEx, as Luciano and I talked about, we had an interesting confluence this year of a number of waste disposal projects in gyp stacks and clay settling areas and tailings dam in Brazil that have all kind of hit from a timing standpoint at the same time. That is unusual. But I would tell you that the $1.5 billion that we've said is, I would say, is really the ceiling. We probably see that as a worst-case outcome and actually have some upside to that. But just to give you an example, you don't know exactly how much a gyp stack, for example, is going to cost until you do some of the ground survey work. And then you find that out and have to tweak the estimates. So those are the types of things that happen. It's just clarification of what those waste costs are and then the timing of those given the exhaustion of existing capacity. So we have a gypsum stack at New Wales, a gypsum stack at Bartow, a gypsum stack in Louisiana, all happening in 2026. We have a tailings dam at Tapira, and then we have two clay settling areas, one winding down and another one being built at Four Corners. The good news is, is once you get beyond these, and that's why we have confidence that this number will come down in time, you don't build another gyp stack for another 4, 6, 8, even 16 years depending on the facility. And then clay settling areas last anywhere from two to five years. So these are lumpy when they do come through. It's unfortunate that they've all lined up together. It's not by choice, it's by necessity. And then once we're through this, we're very confident that the tail down to $1 billion towards the end of the decade is definitely possible. On the rock side, just a little bit, we don't buy rock on the external market like maybe other nonintegrated producers do. Our production of rock, I'm not going to say it's decoupled from the consumption, but there are largely two processes and then you manage rock production, rock inventory because we have millions of tonnes of available storage for rock inventory to manage through the near term, the next two to three years. But given that production on the fertilizer side, with all the work that went into asset reliability in the first half and into the second half of the year, we actually didn't consume as much. We built some of that rock inventory. But as I just talked about with two questions ago, we're seeing very good run rates. We'll start to more balance that out and actually start to reduce that rock inventory as we pull through more of that into finished goods. Luciano, do you want to add something?

There's a slide on the presentation that shows a $346 million increase in raw materials. That includes both sulfur ammonia and also the rock inventories work in process. And it's about half and half the increase. So the potential is with increased production rates to release that roughly $170 million, $180 million of excess rock inventory.

And the other thing that inventory allows us to do on the rock side, particularly in Florida, is as we move into new areas, which we're going through a major area relocation right now at South Fort Meade, it gives us even some buffer to make sure that we don't run out of rock or the ability to blend our rock for consistency to our acid facilities. So it serves that purpose as well, Vincent.

Just going to ask about the volume outlook there. So you guys talked about the continued challenges on the credit issues in Brazil and that your first quarter volumes are going to be down year-on-year. So if we assume that means maybe sort of 1.7 million tonnes or so and then your phosphate production is curtailed at least through sort of the first half with the cost challenges there. I mean that probably gets us to something flattish around 9 million tonnes for the year again. So, I mean, last year, coming into the year, you guys were sort of looking at 10 million to 10.8 million tonnes in volumes. You've added the capacity there. So you clearly have room to grow. So, I guess, could you just kind of help us frame how should we think about the volume outlook there for 2026? And then how we should sort of see your leverage to the upside to grow going forward?

Yes, Lucas, I appreciate the question. I'm going to ask Jenny to talk a little bit about the market side of Brazil. But we are still very much a believer in being in Brazil. As we've talked about before, we've been there for well over two decades and know how to navigate in that environment. The credit issues that are being faced in Brazil have caused headwinds to the type of market cap that we were hoping for when we put those 10.8 kind of million tonne numbers out there to not take risk in what you see maybe with some of our competitors have experienced, we have not had as much problems there. So we've taken a more conservative approach, but we do have, as you've said, that kind of buffer to grow as the market rebounds and more stabilizes, not only in our existing facilities but to your point, our new Palmeirante facility as well. So, Jenny, maybe you want to talk about how the market looks in '26 and then even beyond.

Sure. Thanks. The market has been, as everyone knows, challenged by the high interest rate and the credit issues. We have really seen some major shift in the industry, both at the retailer side and also at the farmer side. The number of the filing of Chapter 11, the U.S. equivalent of Chapter 11 cases have increased over the last two years. The positive part of those challenges is the consolidations started to happen as well, both at the retailer side and also at the grower side. For 2026, we foresee this is going to be a challenging year as we go through this process. Therefore, if you think about the overall fertilizer shipment in the country, we may see some uncertainties related to the farm economics and affordability; probably also related to the supply availability, especially on phosphate with the restriction of the Chinese export. So overall market is likely going to be flat and our own distribution volume, we will make a prudent decision on how much we want to sell, which customers we want to sell. We are not going to take credit risk, and we're not going to compete in the market where the business quality is not really good. Lastly, I would say, last year was a significant application of low-quality phosphate and key products out of China. And we have started to see the official report on the yield impact. And if there's any further under-application of fertilizer in the current crop year, the ongoing safrinha corn or the coming sur season, the Brazilian farmers will have a very clear decision to make on what application rate they need to manage. So, in midterm, we are very optimistic about this market. Brazil is growing, it's expanding and yield is very important for the farmers. But before the market turned high, we need to manage through this process, especially in this year.

Lucas, I'm going to ask Luciano to talk a little bit on the cost side and the resiliency of Fertilizantes from an interesting perspective. But no doubt, the raw material prices have provided some headwinds in that business, and we've made some moves. We're going to watch that closely before we decide on what to do next for maximizing shareholder value. And a lot of that depends on what happens with sulfur price and what happens with fertilizer price. And probably, hence, why we didn't guide in this regard is there's a lot to unfold in the next, say, month to 3 months for us to watch to get more comfortable on how things are going to come out. But regardless of that, I think it's worth Luciano talking about the financial performance of that business.

There has been some disappointment regarding the design performance in the fourth quarter, but I would like to share a different viewpoint. Due to high sulfur prices, we reduced production by 30% at our SSP facility in Brazil and put our major site, Uberaba, in turnaround. We expected a turnaround but it is currently halted, resulting in significantly lower production. Our distribution margins have narrowed because of credit issues, and sales saw a sharp decline at the end of the quarter. Despite these challenges, the business generated nearly $50 million in EBITDA, which I consider an impressive performance given the circumstances we encountered and chose to implement in the fourth quarter. The foundation is there, and as market conditions improve, we anticipate a quick rebound in results.

I just had a couple of questions on the U.S. First, on the phosphate demand, it's been down pretty significantly for the past four years, but yields, the crop yields have still been pretty strong. So what should we take away from that dynamic? Are they just extremely depleted? Have farmers just been really efficient with applications? And then secondly, on the U.S. countervailing duties, I think that's up for review this year. Can you just go over that process? And how does the current high-priced phosphate market affect that review?

Thanks, Andrew, for your question. Let me start with your latter one, and then I'm going to turn it over to Jenny to talk about the lower phosphate in North America and any yield impacts or response to answer the first part of your question. On the countervailing duties, there really is no correlation to that on the process itself. But this process this year enters into its sunset review, which will kick off in April. And we're evaluating our needs to participate in that process as we speak. So a lot more to come there. And just to remind, as that process unfolds, duties do stay in place until an ultimate decision is made on the countervailing duties from the sunset review. I'll turn that over to Jenny now to talk about yields in North America.

Sure, Andrew. I want to discuss the phosphate shipments in North America. The main changes are occurring in the U.S. market. Shipments fell below 9 million tonnes in 2022 but bounced back to 10 million tonnes in 2023 and are expected to remain at that level in 2024. However, we observed a significant drop last year to 8.5 million tonnes. The yield impact will likely be felt in the upcoming season. The previous year saw a 14% to 15% reduction in phosphate shipments in North America, primarily during the fall application, which means those tonnes are essential for the spring crop. If there are significant yield impacts, they will likely affect the current crop going into the field. Additionally, precision agriculture has led many farmers to adjust their application rates while seeking products that enhance nutrient efficiency, such as biologicals. While products like our PowerCoat and BioPath can't directly increase phosphorus supply, their efficiency benefits will be noticeable over the next year or two when application rates are lower than usual. In summary, whether we see a yield impact in the U.S. similar to what is observed in Brazil will depend on this crop, and we'll be monitoring it closely.

Evan McCall for Joel Jackson. I'm curious about what led to the change in the expectation of 2 million per tonne to 2 million per quarter for phosphate. That was the outlook a year ago, and now we're targeting 1.7 to 1.8 by the end of the year.

Yes. As we've previously discussed in earlier quarters, our guidance will be based on the demonstrated performance from the prior three months. This suggests there could be potential upside to the numbers, Evan. However, until we have those results, we are taking a more cautious approach, as we may have been overly optimistic in the past. We haven’t lost our confidence, and I believe the examples I shared earlier regarding our operational aspects reflect the progress we are making and the confidence we have in achieving full utilization to reach 8 million tonnes.

Two brief ones for me. First is on mix. Just given some of the netback comments that you made, Jenny, can you help us in terms of how you're thinking about product mix and geographic mix in 2026? And then my second question just relates to the working capital. Can you give us a sense of how much of that working capital is tied up in Brazil?

Thanks, Kristen. I'll start with the working capital one and maybe turn it over to Luciano to give you a little more color on that one.

We are considering a release of between $300 million and $500 million, driven by several factors, including the release of rock inventories and sales in the fertilizer business, particularly in Brazil, which experienced slowed sales at the end of the quarter. As a result, we had to settle many accounts payable for nutrient purchases that we did not repurchase, impacting our working capital. We believe that as demand and production normalize, we can achieve a cash flow contribution of $300 million to $500 million this year.

And then, Kristen, on product mix and geographic mix, I'm just going to turn it over to Jenny to give you the latest thoughts on that.

Kristen, I think your question is probably more towards phosphate. Usually, our phosphate production goes around 55% to 60% stay in North America and the rest for the export market. This year, we are going to watch the market trend and demand very closely, especially in the U.S. market. I wouldn't be surprised to see increased sales of phosphate to the international market and the less percentage in North America. It is really market demand driven.

And I think, Kristen, what's driving that to Jenny's point, is how disciplined China stays to their export constraints. If it goes beyond the first half of the year, there may be even more opportunities on the international side. But we are getting a reach out from customers who are traditionally may be served more by the Chinese export market looking for tonnes. And I think it's important to understand that from our view anyway, that the phosphate market is a supply-constrained market. So, people are out there, particularly in India, Southeast Asia, looking for tonnes that would otherwise more traditionally have been supplied through China. And given their discipline and policy announcements, there could be meaningful reduction again this year on exports available from China.

And one of the reasons why the corporate segment is actually improving performance is because of our sales through China and India, which are accounted for in that segment. So there's increased contribution, EBITDA contribution, but within the corporate segment, which is the negative amount is declining.

This is Rahi on for Ben. So just a couple of questions. From the $300 per tonne in sulfur cost in your cost of goods sold in 4Q and the benchmark levels hitting about $500 in late last quarter, is it reasonable to assume some average around $400 per metric ton for sulfur cost in 1Q? Or would this boost automatically, you think already in 1Q to $500 per metric ton for sulfur? And then also for Fertilizantes, is the $50 million EBITDA the go forward per quarter if production stays curtailed?

Thank you for your question. To address the first part regarding sulfur, I will have Jenny elaborate as well. The sulfur price does affect our inventory. Our current forecast suggests that the price of sulfur will decrease as the year progresses. However, we may see an increase in cost of goods sold from the first to the second quarter due to the higher-priced sulfur we negotiated in the first quarter moving through our inventory. Jenny, do you have anything to add? As for the second part of your question, $50 million is not a consistent figure quarter to quarter. Various factors influence EBITDA from quarter to quarter. The product mix is one of these factors. Typically, the fourth and first quarters see lower performance due to the product mix, with increased nitrogen product sales and reduced volume in our performance products like Mosaic Fertilizantes, which normally yields a higher margin. There are many variables at play, and $50 million is not the new normal.

Yes, it will definitely be better than that, primarily because Uberaba is coming back and normalizing its production levels, which will contribute positively. We also anticipate an expansion in our distribution margins. Therefore, we should see a significantly higher EBITDA on a quarterly basis moving forward. The uncertainty remains with Araxa, which is currently inactive. Although we are saving on capital expenditures and other costs, the ongoing expenditures are still impacting EBITDA at about $10 million per month. However, despite this, we expect performance to improve.

I mean this is a question for Jenny. So we saw the demand deferral or destruction in phosphates in Q4. Like are you surprised that farmers took a holiday in phosphate, but not on potash, especially given the two mineral fertilizers tend to be applied in tandem.

Yes. Go ahead, Jenny.

Yes. I guess your question is probably more referred to the U.S. Am I surprised by the decline in demand for phosphate? I would say when we had this earnings call back in October for Q4, we mentioned there were some uncertainties regarding demand in Q4 for both phosphate and potash. One uncertainty was related to when the U.S. government payment would be made, and the other was due to weather conditions. Ultimately, the weather didn't cooperate, which led to a reduction in applications that could have occurred in November and December. The decline in phosphate demand is significantly greater than that for potash, largely because potash is more affordable. The prices for potash are considerably lower than those for phosphate and nitrogen. Regarding your last question, I found it interesting because I had the same thought. U.S. farmers typically wouldn’t apply potash without also applying nitrogen and phosphate, but that actually happened in December and November. Some farmers decided to postpone their phosphate applications, anticipating a price reset, which we know is unlikely due to the tight supply situation. However, there were indeed farmers who applied potash without phosphate, although it is not very common.

Just a couple of modeling questions left. You mentioned that Faustina will be 50% more available in 2026 than in 2025. I'm not sure how low we were in 2025, but can you confirm if you produced 7 million tonnes of phosphate, how much of your ammonia requirement will be met by Faustina in 2026? Also, I'm not entirely clear on how you factored in the increased value of your sulfur inventory. Could you clarify whether there was an inventory gain in your adjusted EBITDA for the phosphate business due to the increase in sulfur value?

Yes. Regarding ammonia, I want to confirm that due to the recent turnaround we completed in the fourth quarter and the upgrades at that facility, we expect to see production increase by up to 50% by 2026 now that it is operational. This will result in a larger share of our overall portfolio being made up of consumed ammonia, accounting for 35% to 40% of our portfolio, compared to what would have been less exposure to the market. The primary component remains our strategic contracts, which are somewhat cost-based. Additionally, we're looking at 35% to 40% from Faustina at times, potentially slightly more. Faustina will not only fully utilize its own ammonia but will also provide enough to support the Florida system, significantly reducing our exposure to the spot market.

David, so there's absolutely no revaluation of inventory. There are no gains recorded on the EBITDA. The reason why prices affect inventory is mostly in Brazil because in Brazil, you have purchased nutrients. So if prices go up, you need to pay higher prices, and therefore, your inventory is recorded at a higher value. But in North America, which is everything is produced, inventory is recorded at cost of production and is not revalued, and there's no gain or loss.

Just one quick one. You all said there was a $250 headwind in the first quarter given where stripping margins are at. If on Slide 14, the February '26 metrics don't change, is that a similar headwind for the rest of the quarters? And I understand sulfur is supposed to come down, hopefully. And any sensitivity on how that $250 goes away and what the important variables are as the year unfolds?

Yes, thank you, Mike. If the sulfur price remains at its current level, the erosion of margins, particularly the stripping margin for sulfur, will continue at that rate. Additionally, we expect ammonia prices to decline throughout 2026, which will provide some offset. Ultimately, as we discussed earlier in the call, it depends on how much of the price can be passed through and the impact on the realization of stripping margins. Another positive aspect is that from 2025 to 2026, we will see improvements in turnaround and reduced idle costs. As production increases, we will also benefit from better fixed cost absorption related to conversion costs, which will help mitigate some of the pressures over time. Therefore, while not everything is fixed, there are many variables at play that will influence this situation. Luciano, do you have anything to add?

Yes. So realized stripping margins in the fourth quarter were $444 per tonne. And so if you correct for the current sulfur prices compared to the $306 that was recorded in the fourth quarter, you would have somehow $400 per tonne of stripping margins. And so what would be the impact to the bottom line? So just to give you an example, today, at $444, the EBITDA margin per tonne was $108. That per se suggests if you just take $444 less $108 that $330 would have been the breakeven point at Q4. However, there's about a $50 penalty just because of turnaround expenses and other SG&A expenses divided by a very small sales volume. So I would say these two lines are kind of $50 above what they should be. So that puts us at $280 breakeven. And if you add the cost dilution that we expect in going for 8 million tonnes, like we should be around $250 per tonne of 3P margin breakeven. So in a normalized world at a $400 3P margin, we should be making $150 per tonne approximately. Just a ballpark for you to reason around the phosphate performance.

Thank you, everyone, for joining us. To conclude our call, I'd like to reiterate our key messages for today. Clearly, the second half of 2025 was challenging for Mosaic and the agriculture business, especially in the U.S. We saw demand drop significantly as farmers dealt with tough economics and uncertainty around government payments. That said, our outlook for 2026 is positive, in part because demand is emerging in the U.S. and remains strong in other key areas of the world, but also because of the progress we've made to strengthen Mosaic. We're on track to improve phosphate production, and we expect a strong year for potash production. We've made good progress on cost and efficiency, and we expect further strides this year. Our Mosaic Biosciences platform is growing quickly and holds meaningful promise for the future. And our capital allocation program continues to produce results with several divestitures of noncore assets in 2025. So, overall, Mosaic is well positioned to weather the storm and deliver strong earnings as business conditions improve. Thank you very much, and have a safe day.