Executive Summary / Key Takeaways

• Mosaic's core investment thesis centers on its position as a leading global producer of essential phosphate and potash crop nutrients, poised to benefit from constructive agricultural fundamentals and tight supply dynamics, particularly in phosphates.
• Recent financial performance, highlighted by a significant increase in Q1 2025 operating earnings driven by higher phosphate prices and cost improvements in Brazil, demonstrates the company's leverage to favorable market conditions and progress on operational efficiency.
• Strategic initiatives focused on restoring U.S. phosphate production reliability, achieving substantial cost reductions ($150 million annual run rate target by end 2025), optimizing the portfolio through asset divestitures (like MWSPC exchange, Patos de Minas sale), and growing new ventures like Mosaic Biosciences are expected to drive future profitability and shareholder value.
• Mosaic's expansive market access, especially its strong presence and improving performance in Brazil, provides a strategic advantage to navigate shifting global trade flows and capitalize on regional demand strength, while its differentiated operational technology contributes to cost leadership in phosphates.
• Key factors to watch include the successful execution of the U.S. phosphate production ramp-up to target run rates (7.8-8.2 million tons annualized), the realization of targeted cost savings, the impact of geopolitical factors and trade policies on market dynamics, and the continued growth trajectory of the Biosciences segment.

Setting the Scene: A Global Nutrient Powerhouse Adapts and Innovates

The Mosaic Company stands as a global leader in the production and marketing of concentrated phosphate and potash, two fundamental crop nutrients essential for global food production. Operating across North and South America, and serving markets worldwide through its Phosphate, Potash, and Mosaic Fertilizantes segments, Mosaic plays a critical role in the agricultural supply chain. Its history is marked by strategic expansions, notably the transformative 2018 acquisition of Vale Fertilizantes in Brazil, which significantly deepened its footprint in a vital agricultural market. This move, alongside ongoing portfolio optimization efforts including recent divestitures like the MWSPC joint venture exchange for Maaden shares and the sale of the Patos de Minas unit, underscores Mosaic's strategic evolution to enhance focus and capital efficiency.

Mosaic operates within a dynamic competitive landscape dominated by large, diversified players like Nutrien (NTR), CF Industries (CF), Yara International (YAR), and ICL Group (ICL), alongside numerous regional and specialty producers. Competition hinges on scale, cost efficiency, product quality, and market access. Mosaic distinguishes itself through its integrated phosphate operations, controlling the process from mining rock to producing finished fertilizers. This vertical integration, particularly in its Florida and Louisiana facilities, provides a cost advantage. While precise, directly comparable market share figures for all niche competitors are challenging to ascertain, Mosaic holds a leading position in global phosphate and a significant share in potash, leveraging its extensive distribution network spanning approximately 40 countries.

Mosaic's competitive edge is further sharpened by its operational technology and ongoing innovation. In phosphates, its integrated mining and processing capabilities contribute to a cost leadership position, with management targeting a $20 to $30 per ton reduction in conversion costs from late 2023 levels as production ramps up. This efficiency is crucial against rivals like NTR and CF, who boast scale and specialized nitrogen efficiency, respectively. In potash, investments like the Esterhazy Hydrofloat project aim to add 400,000 tons of annual capacity and improve product mix flexibility, driving down unit costs towards a target range of $64-$69 per ton. Beyond core production, Mosaic is cultivating new technological frontiers through Mosaic Biosciences. This emerging business focuses on biological products designed to enhance nutrient use efficiency and crop performance. These products, such as PowerCoat and BioPath, are often applied directly to fertilizer granules, leveraging Mosaic's existing distribution channels. The Biosciences pipeline includes promising developments in nitrogen fixation and phosphorus solubility, targeting significant revenue growth (on track to double in 2025, aiming for $70 million revenue and $200 million EBITDA in five years) and offering high gross margins (around 60% for own products). This technological diversification complements Mosaic's core offerings and provides a potential avenue for future valuation upside, positioning it against competitors who may focus more narrowly on traditional nutrient efficiency or digital farming tools.

Broad industry trends provide a constructive backdrop. Global agricultural commodity fundamentals remain solid, with historically low stock-to-use ratios for grains and oilseeds. While corn and soybean prices have seen some softening, favorable economics for other crops like palm oil, sugar, and coffee, combined with increasing demand driven by biofuel mandates, support robust fertilizer demand globally. Tight supply dynamics, particularly in the phosphate market due to limited new capacity and ongoing Chinese export restrictions (influenced by strong domestic demand and rising LFP production), are expected to keep prices and stripping margins elevated. The potash market, while more balanced, is seeing prices rise due to strong demand recovery and supply uncertainties from key non-North American producers.

Performance Reflecting Strategy and Market Dynamics

Mosaic's recent financial performance underscores the impact of these market dynamics and the company's operational focus. For the first quarter of 2025, Mosaic reported net sales of $2.62 billion, a slight decrease from $2.68 billion in the prior year period. However, gross margin saw a significant increase, rising 22% to $488.4 million, primarily driven by higher average selling prices in the Phosphate segment and cost improvements within Mosaic Fertilizantes. Operating earnings surged to $338.5 million, a substantial increase from $172.9 million in Q1 2024, reflecting the leverage to improved market pricing and operational efficiencies.

The Phosphate segment's operating earnings climbed significantly to $139.4 million in Q1 2025 from $40.3 million in the prior year period. This was largely due to higher average selling prices ($632/tonne for finished product, up 7% from $593/tonne in Q1 2024), which offset the impact of lower sales volumes (1.5 million tonnes, down 9% from 1.6 million tonnes) resulting from planned maintenance downtime. Higher raw material costs for ammonia ($416/tonne, up 3%) and sulfur ($157/long ton, up 11%) partially tempered margin expansion, but lower blended rock costs ($77/tonne, down 5%) provided some relief. Management is focused on improving production rates from 58% in Q1 2025 towards historical levels to drive down conversion costs from $134/tonne.

In the Potash segment, operating earnings decreased to $156.8 million in Q1 2025 from $198.0 million in Q1 2024. This decline was primarily attributed to lower average selling prices ($234/tonne, down 9% from $258/tonne) and slightly lower sales volumes (2.1 million tonnes, down 2% from 2.2 million tonnes), impacted by weather-related logistical constraints. Production cash costs increased to $78/tonne from $72/tonne due to curtailed production and pulled-forward maintenance, but management expects costs to decline in the second half of 2025 as production normalizes and benefits from the Hydrofloat project are realized, targeting the $64-$69/tonne range.

The Mosaic Fertilizantes segment demonstrated strong underlying performance, with operating earnings increasing to $98.5 million in Q1 2025 from $42.0 million in Q1 2024. This improvement was driven by cost reductions in both the distribution business (lower purchased product costs) and mining operations (lower rock costs, $97/tonne in Q1 2025 vs $115/tonne in Q1 2024). Sales volumes increased 8% to 1.8 million tonnes as the Brazilian agricultural market recovered. While average finished product selling prices were slightly lower ($452/tonne vs $463/tonne), the significant cost improvements boosted profitability. Management noted that Q1 2025 results included an $18 million negative impact from foreign exchange, suggesting stronger underlying performance.

Liquidity remains robust, with a target buffer of up to $3.0 billion. As of March 31, 2025, cash and cash equivalents stood at $259.2 million. The company maintains access to significant credit facilities, including $2.5 billion available under its revolving credit facility and $1.7 billion available under its commercial paper program, ensuring ample resources to fund operations, CapEx ($340.8 million in Q1 2025), debt service, and dividend payments ($70.9 million in Q1 2025). Operating cash flow in Q1 2025 was $42.9 million, impacted by a seasonal $162.4 million increase in inventories, particularly in Brazil, in preparation for the high season. Despite this, management anticipates improved cash flow conversion throughout the remainder of the year as sales volumes increase and inventories are drawn down.

Outlook and Strategic Trajectory

Mosaic's outlook for the remainder of 2025 is positive, underpinned by expectations of continued constructive agricultural and fertilizer market fundamentals. Management anticipates earnings will improve further from the strong Q1 start.

A key focus is the U.S. Phosphate business, with a target to reach an annualized production run rate of 7.8 million to 8.2 million tons by the end of 2024, following the completion of planned turnarounds. While Q1 2025 production was lower due to scheduled maintenance, the company expects production to improve throughout the year, targeting 7.2 to 7.6 million tons for the full year 2025. This ramp-up is crucial for achieving the targeted $20 to $30 per ton reduction in conversion costs from late 2023 levels, with costs expected to converge into the $95-$100 run rate range in the second half of 2025.

In Potash, the outlook is for continued strong demand, supported by rising prices. Production costs are expected to benefit from increased output at lower-cost mines and the Hydrofloat project, targeting the $64-$69 per ton range in the latter half of the year.

The Mosaic Fertilizantes segment is expected to see further improvements, particularly in Q2 2025, driven by seasonality and sustained cost discipline. Management projects Q2 EBITDA for the segment to be above $150 million and anticipates approximately 15% sales volume growth in Brazil this year, supported by the completion of the Palmeirante blend plant in July 2025.

Across the organization, Mosaic remains on track to achieve its $150 million annual run rate cost savings target by the end of 2025, leveraging operational efficiencies and SG&A reductions. Capital expenditures are expected to be between $1.2 billion and $1.3 billion in 2025, reflecting investments in sustaining assets and high-return growth projects. Despite an anticipated working capital build in 2025 due to sales growth and higher raw material prices, the company is confident in its ability to cover its minimum dividend and CapEx, with stronger cash flow generation expected in 2026.

The strategic focus on portfolio optimization continues, with the pursuit of strategic alternatives for the Carlsbad potash mine and assessment of other non-core assets in Brazil following the successful Maaden exchange and Patos de Minas sale. Simultaneously, the acceleration of Mosaic Biosciences is expected to contribute meaningfully to future growth and profitability, leveraging Mosaic's market access to introduce innovative biological products.

Risks and Considerations

While the outlook is positive, several risks warrant investor attention. Market volatility, particularly in agricultural commodity and fertilizer prices, remains a primary concern, potentially impacting revenue and margins. Geopolitical factors, including trade policies (such as potential Canadian potash tariffs) and supply disruptions from key producing regions (like uncertainties surrounding production in Laos or FSU exports), could alter supply-demand balances and trade flows. Operational risks, including the successful execution of the U.S. phosphate production ramp-up and the potential for weather-related disruptions (as experienced in 2024) or environmental liabilities (such as gypstack management costs and legal proceedings), could impact production volumes and costs. Credit risks in Brazil, although actively managed through shifts to lower-risk customers and mitigation measures, persist in a challenging economic environment. Competition from global rivals, including their expansion strategies and technological advancements, could pressure market share and pricing power.

Conclusion

The Mosaic Company is navigating a period of constructive market fundamentals from a position of strengthening operational performance and strategic clarity. The core investment thesis is compelling: a leading producer of essential crop nutrients poised to benefit from tight phosphate supply, recovering potash demand, and growth in key markets like Brazil. Recent financial results underscore the positive impact of favorable pricing and initial successes in cost reduction and operational improvement.

The company's strategic initiatives – restoring U.S. phosphate production, driving cost efficiencies, optimizing its asset portfolio, and cultivating new growth engines like Mosaic Biosciences – are directly aimed at enhancing profitability and shareholder value. While operational execution and external market dynamics, including geopolitical factors and competitive responses, present inherent risks, Mosaic's established market access, integrated operations, and commitment to innovation provide a solid foundation. The trajectory towards achieving production targets, realizing cost savings, and expanding its Biosciences footprint positions Mosaic to capitalize on the expected positive market conditions and deliver improved financial performance in 2025 and beyond.