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Nutrien Ltd. (NYSE:NTR) Q4 2023 Earnings Call Transcript

Nutrien Ltd. (NYSE:NTR) Q4 2023 Earnings Call Transcript February 22, 2024

Nutrien Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to Nutrien's 2023 Fourth Quarter Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow after the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Jeff Holzman, Vice President of Investor Relations. Please go ahead.

Jeff Holzman: Thank you. operator good morning and welcome to Nutrien's fourth quarter 2023 earnings call. As we conduct this call, various statements that we make about future expectations, plans, and prospects contain forward-looking information. Certain material assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions are contained in our quarterly report to shareholders as well as our most recent Annual Report, MD&A, and Annual Information Form filed with Canadian and U.S. Securities Commissions. I will now turn the call over to Ken Seitz, President and CEO, and Pedro Farah, our CFO, for opening comments before we take your questions.

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Ken Seitz: Good morning. Thank you for joining us today as we recap our 2023 results and provide an outlook for the business and our strategic priorities for the year ahead. Nutrien delivered adjusted EBITDA of $6.1 billion in 2023, we generated $5.1 billion in cash from operations supported by the countercyclical release of working capital and retail. In response to changing market conditions, we took several actions during the year to enhance free cash flow, including a reduction in planned capital and operating expenditures of approximately $400 million. We maintained a balanced approach to capital allocation investing to sustain and grow our assets and returning a total of $2.1 billion to shareholders through dividends and share buybacks.

As the year progressed, we saw increased market stability and strong fertilizer demand in North America, supported by improved grower affordability and extended fall application season, and low channel inventories. Demand in key offshore markets also increased in the second half. However, the level of market stabilization varied by product and geography. Crop nutrients sales volumes for our global retail business increased by 10% in 2023 as growers worked to replenish nutrients in the soil. Due to the strength of grower demand in all regions, we ended the year with retail fertilizer inventories down 10% compared to the prior year. Crop protection sales volumes and margins in North America returned to normalized levels in the later part of the year, and we continued to be opportunistic in our approach to restocking inventories.

In Brazil, we significantly reduced our crop protection inventories in the fourth quarter, but margins remained challenged due to the persistence of higher inventory in the channel. For the full year Nutrien Ag Solutions delivered adjusted EBITDA of $1.5 billion, down from the record prior year and well below the level we would view as normalized earnings. We tightly managed inventory and advance a number of strategic initiatives that position our retail business for growth in 2024 and beyond. One of the areas of growth is our proprietary products portfolio. In 2023 these high-value products contributed gross margin of $1 billion, including increased sales and margins from our proprietary plant nutritional and biosimulant product lines. Gross margin for our crop nutritional products has grown at an annual rate of 15% over the last five years and we plan to continue to invest in our supply capabilities through differentiated product offerings and expanded manufacturing capacity.

We completed a number of tuck-in acquisitions in 2023 and will pursue targeted opportunities in our core markets going forward. As it relates to Brazil, the long-term prospects for agriculture are positive and it remains an important crop input market for Nutrien. In the near term, our focus will continue to be on the integration of recent acquisitions and optimizing our cost structure in this market. In potash, we delivered adjusted EBITDA of $2.4 billion in 2023, down from the prior year's record due to lower realized prices. North American sales volumes increased significantly in the second half of the year, supported by low channel inventories and a strong fall application season. We utilized our network flexibility to increase granular potash production and position product across our distribution channel in anticipation of higher seasonal demand and prices in North America.

Our offshore potash sales volumes also increased in the second half of 2023, driven by stronger demand in Brazil and China while net realized prices were impacted by lower global benchmarks and higher logistics costs associated with outages at Campa Texas export terminals. Our potash controllable cash cost of $58 per ton was flat year-over-year, demonstrating our focus on maintaining a low-cost position. We advanced mine automation products that enhance productivity and safety, increasing our annual potash ore tons cut using autonomous mining technology by 40% in 2023. Turning to nitrogen, we generated $1.9 billion in adjusted EBITDA in 2023 as lower benchmark prices more than offset lower natural gas costs compared to the prior year. We completed major maintenance turnarounds at our Geismyran and Borger plants in the second half and initiated actions at our Trinidad facility that are expected to support higher operating rates going forward.

We completed our Phase 1 GHG abatement program in 2023, which will be a key contributor to reducing Greenhouse gas emissions. This included a carbon capture project at Redwater that increased our low-carbon ammonia production capability to 1.2 million tons. In phosphate, we delivered full-year adjusted EBITDA of $470 million and focused on operational efficiency and product mix opportunities that enhance margins and cash flow. We completed maintenance turnarounds at our Aurora and White Springs plants that enabled higher operating rates in the second half and are expected to support increased volumes in 2024. To summarize, following a period of unprecedented market volatility, we are encouraged by the increased market stability and recovery in demand that occurred in the second half of 2023.

During this time, we focused on initiatives that strengthened our core business, maintained the low-cost position and reliability of our assets, and positioned the company for growth in the years ahead. Now, turning to the outlook for 2024, global grain stocks to use ratios remain historically low as tightening supplies of wheat and rice have offset increased corn production in the U.S. and Brazil. Crop prices have declined from the historically elevated levels in 2022, but lower input prices have resulted in improved demand. In North America, we witnessed the strength of fertilizer demand during the fall season and it has carried through to healthy grower prepay commitments and a strong seed order book for Spring planting in 2024. In Brazil, there is some uncertainty over Safarina corn plantings in 2024.

A close-up of a farmer's hands sowing a field of organic grains with crop inputs.
A close-up of a farmer's hands sowing a field of organic grains with crop inputs.

However, soybean acreage is projected to expand and we anticipate seasonal strength and fertilizer imports during the second and third quarters. For potash, we expect global demand will continue to recover towards trend levels in 2024 with shipments projected between 68 to 71 million tons. In North America, we are seeing strong potash demand ahead of the Spring application season as channel inventories were tight to start the year. We expect increased potash demand in Southeast Asia, driven by lower inventory levels and favorable economics for palm oil and rice. China's potash consumption was estimated at a record of approximately 17 million tons in 2023 supported by strong affordability and is a part of a long-term strategy to increase domestic food production.

In 2024 we expect lower potash imports in China compared to the record in 2023, but for consumption to remain historically strong. Global nitrogen markets continued to be impacted by regional supply constraints, changes in natural gas prices, and seasonal buying patterns. These impacts have been evident to the first quarter as ammonia prices have seasonally weakened while global urea values have strengthened in response to increased demand ahead of the spring season. The U.S. nitrogen market is currently tight and net import volumes were down significantly through the first half of the fertilizer year. North American Natural gas prices remain very competitive compared to Europe and Asia and we are well-positioned to supply our customers this spring.

I will now turn it over to Pedro to provide more detail on our guidance, assumptions, and capital allocation plans for 2024.

Pedro Farah: Thanks, Ken. As disclosed in our earnings release, we have revised our guidance practice in 2024 to focus on providing forward-looking estimates that we believe are of value to our shareholders and are less impacted by changes in fertilizer commodity prices. We continue to provide guidance for retail adjusted EBITDA, fertilizer sales volumes, key financial modeling, variables, and pricing sensitivities. We have also provided adjusted EBITDA scenarios for our fertilizer business in our earnings presentation posted on our website. For retail, our full-year adjusted EBITDA guidance is $1.65 billion to $1.85 billion. The midpoint of this range represents an increase of approximately $300 million compared to last year, driven by increased gross margins in all major product lines.

We expect crop nutrient gross margins will be supported by higher sales volumes and per ton margins, in particular, compared to the compressed levels in the first half of the prior year. Further underpinning this growth is the continued expansion of our proprietary nutritional and bio-stimulant product lines. In Brazil, we expect increased crop input sales volumes in 2024 and an improvement in crop protection margins in the second half of the year. Our annual potash sales volume guidance of 13 tons to 13.8 tons assumes demand growth in offshore markets and a return to more normal operations at Canpotex ports in 2024. In North America, based on strong participation now our winter fuel program, we expect higher first quarter sales volumes compared to the prior year and a typical pricing reset compared to the fourth quarter of 2023.

Mine automation and other efficiency-related initiatives are expected to keep our potash controllable cash costs of production similar to last year. Nitrogen sales volumes are projected to increase by approximately 500,000 tons at the midpoint of our guidance range, supported by higher operating rates at our U.S. and Trinidad plants. We assume Henry Hub natural gas prices will average around 2.5 per MMBtu and our Alberta nitrogen plants will benefit from the typical discount to Henry Hub. Total planned capital expenditures of $2.2 billion to $2.3 billion is down approximately $400 million compared to 2023. This includes approximately $500 million of investing capital on initiatives that drive organic growth in retail and operational improvements in potash and nitrogen.

The focus on retail is to further expand our proprietary products portfolio, drive retail network optimization, and enhance our digital capabilities. In addition, we will continue to be opportunistics on tucking acquisitions in our core markets. The majority of the planned investment capital in our operations is focused on mine automation projects in potash and low-cost ground field expansions in nitrogen. We continue to target a stable and growing dividend with the increase approved by our Board of Directors yesterday, Nutrien's dividend per share has increased by 35% since the beginning of 2018. Similar to the past, we will evaluate the potential for additional shareholder distributions as the year progresses. I'll now turn it back to Ken.

Ken Seitz: Thanks, Pedro. As we look ahead to 2024, we expect increased crop input, market stability, and demand providing the opportunity for Nutrien to deliver higher fertilizer sales volumes and growth in retail earnings. We will continue to prioritize strategic initiatives that enhance our ability to serve growers in our core markets, maintain the low-cost position and reliability of our assets, and position the company for growth. We are hosting an Investor Day in New York on June 12th where we will provide more details on the strategic priorities across our integrated business, so watch for more details on this event over the next few weeks. We would now be happy to take your questions.

Operator: [Operator Instructions] Your first question comes from the line of Steve Hanson from Raymond James. Your line is now open.

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