Nutrien Ltd. on May 10 posted first-quarter net income of $576 million on revenues of $6.11 billion, missing the average analyst estimates (Bloomberg Consensus). Analysts had estimated $833 million and $6.4 billion, respectively. Adjusted EBITDA came in at $1.42 billion versus $1.69 billion.
Nutrien shares tumbled as much as 8.3% after missing the estimates and cutting its annual earnings guidance. The stock was down 2.4% to C$82.60 as of 9:46 a.m. in Toronto, sinking to its lowest price since September 2021. New York shares closed down 2.56% on May 11.
While adjusted EBITDA was down for all four Nutrien segments, Retail’s declined to a $34 million loss on lower sales and gross margins on crop nutrients and crop protection products compared to record levels achieved in 2022.
Despite the misses, Nutrien noted that it delivered the second highest net earnings of any first quarter on record. First-quarter 2022 net earnings were $1.39 billion on sales of $7.66 billion, with adjusted EBITDA of $2.62 billion. By comparison, 2021 first-quarter net income was $133 million on revenues of $4.6 billion and adjusted EBITDA of $806 million.
“Nutrien delivered adjusted EBITDA of $1.4 billion in the first quarter and continued to demonstrate the advantages of our flexible, low-cost production assets and global distribution network. We invested in initiatives to sustain and grow our asset base and returned $1.1 billion to shareholders during the quarter,” said Ken Seitz, Nutrien President and CEO.
“Crop input demand has strengthened as the spring planting season progresses in the northern hemisphere and higher cost inventory is moving through the channel,” he added. “We are encouraged by the continued stabilization of fertilizer markets following a year of unprecedented volatility, and anticipate increased demand in the second half of 2023 due to strong agriculture fundamentals, improved grower affordability, and lower inventory levels. With fertilizer prices near mid-cycle levels, we expect to generate strong operating cash flows in 2023 and to maintain a balanced and disciplined approach to capital allocation.”
Nutrien noted that the global grain stocks-to-use ratio is projected to end the current growing season at the lowest level in over 25 years. While crop prices have recently softened, Nutrien noted that crop futures are still approximately 15% above the 10-year average and grower margins remain healthy, providing incentives to invest in their crop and boost production.
Nutrien expects an 8 million acre increase in US major crop planted area in 2023, including an additional 3 million acres of corn. It said planting activity is progressing well in North America and fertilizer application rates have been in line with historical average levels and well above rates in the spring of 2022.
“Our second-quarter US retail fertilizer sales volumes are currently up 40% compared to the previous year,” Seitz told analysts May 11. “With product moving rapidly through the supply chain, we have seen some spot shortages in the US, in particular potash and urea. This is highlighting the challenges that can emerge from just-in-time purchasing. Retail fertilizer inventories are projected to end the second quarter down significantly compared to last year, which supports the need for a strong summer refill.”
The company expects a normal season reset for urea and UAN prices following the spring season.
The company said North American nitrogen supply has tightened during the spring season due to strong demand and lower net imports. It expects the ammonia markets to strengthen as demand increases and supply remains challenged with approximately 40% of European capacity currently curtailed and Russian ammonia exports constrained.
Nutrien said potash demand has strengthened in North America as the spring application season has progressed, while engagement in offshore markets have been variable. It anticipates increased global potash demand in second-half 2023 as a result of lower inventories and improved grower affordability compared to 2022.
“The timing of the new China contract remains uncertain,” said Seitz, “but we do not view this as a significant impediment to our recovery in global demand. Global trade flows have evolved over the past year and China’s seaborne imports now represent only 5% of global shipments. For Nutrien, it also represents a relatively small percentage of our total sales, as we have shifted more volume to higher netback markets.”
Nutrien expects potash exports from Eastern Europe will be up approximately 15% in 2023 compared to last year, but still down 30% from 2021. The company retains its 2023 global potash shipment forecast of 63-67 million mt.
Nutrien Executive Vice President and Chief Commercial Officer Mark Thompson outlined three key potash themes for analysts. First is a constrained market. Second is a shift in trade flows that includes three components – North American production becoming more important in a bigger proportion of buying in markets like North America, Brazil, and Southeast Asia; former Soviet Union production disproportionately moving into China; and product from Laos increasingly finding markets in China and Southeast Asia. Third is demand returning in the second half, with the long-term demand trend intact.
Asked by an analyst whether the company would reconsider its plans to ramp up potash production until demand re-engages, Seitz said yes, the company would consider slowing down, however, he reiterated that the market is growing, and believes that will “carry on for the absolute foreseeable future,” at a rate of 2.5-3% annual growth rate and that new supply is going to be required to meet growing demand.
The company cut its guidance for annual adjusted EBITDA to $6.5-$8.0 billion, down from February’s guidance of $8.4-$10 billion. It also adjusted guidance downward for several additional categories:
- Adjusted net earnings per share to $5.50-$7.50 from $8.45-$10.65;
- Retail adjusted EBITDA to $1.60-$1.75 billion from $1.85-$2.05 billion;
- Potash adjusted EBITDA to $2.65-$3.35 billion from $3.7-$4.5 billion;
- Nitrogen adjusted EBITDA to $1.95-$2.55 billion from $2.5-$3.2 billion;
- Phosphate adjusted EBITDA to $550-$700 million from $550-$750 million;
- Potash sales volumes to 13.5-14.3 million mt from 13.8-14.6 million mt;
- Nitrogen sales volumes remained at 10.8-11.4 million mt.
Nutrien announced that its Board of Directors has declared a quarterly dividend of US$0.53 per share payable on July 14, 2023, to shareholders of record on June 30, 2023.
| Retail (millions) | 1Q-23 | 1Q-22 |
| Adjusted EBITDA | (34) | 240 |
| Gross Margin | 615 | 845 |
| Total Sales | 3,422 | 3,861 |
| CN Sales | 1,335 | 1,587 |
| CN Margins | 141 | 292 |
| CN Volume (000 mt) | 2,040 | 2,175 |
| Avg ($/mt) | 655 | 729 |
| CN gross margin per mt | 69 | 134 |
| Potash (millions) | 1Q-23 | 1Q-22 |
| Adjusted EBITDA | 676 | 1,406 |
| Gross Margin | 697 | 1,545 |
| Total Sales | 1,002 | 1,850 |
| Sales Volume (000 mt) | 2,636 | 3,043 |
| Avg ($/mt) | 380 | 608 |
| Nitrogen (millions) | 1Q-23 | 1Q-22 |
| Adjusted EBITDA | 676 | 995 |
| Gross Margin | 541 | 860 |
| Total Sales | 1,179 | 1,514 |
| Sales Volume (000 mt) | 2,357 | 2,325 |
| Avg ($/mt) | 500 | 651 |
| Gas Costs ($/mmBtu) | 4.85 | 6.85 |
| Phosphate (millions) | 1Q-23 | 1Q-22 |
| Adjusted EBITDA | 137 | 239 |
| Gross Margin | 87 | 207 |
| Total Sales | 446 | 563 |
| Sales Volume (000 mt) | 548 | 651 |
| Avg ($/mt) | 814 | 865 |