Nutrien Ltd. (NYSE:NTR) Q2 2024 Earnings Call Transcript

Nutrien Ltd. (NYSE:NTR) Q2 2024 Earnings Call Transcript August 8, 2024

Operator: Greetings, and welcome to Nutrien’s 2024 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference 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. Welcome to Nutrien’s Second Quarter 2024 Earnings Call. As we conduct this call, various statements that we make about future expectations, plans and prospects contain forward-looking information. Certain 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. I’ll now turn the call over to Ken Seitz, Nutrient’s President and CEO; and Pedro Farah, our CFO, for opening comments.

Ken Seitz: Good morning. Thank you for joining us today. Nutrien just delivered adjusted EBITDA of $3.3 billion in the first half of 2024, supported by increased crop input margins, strong global potash demand and lower operating rate costs. Our uptrend fertilizer production assets and downstream retail business in North America and Australia have performed well in 2024, demonstrating our advantages across the ag value chain. The operating environment in Brazil has remained more challenged, and we will discuss today the actions we are taking to stabilize our business in this market. In potash, we generated adjusted EBITDA of $1 billion in the first half of 2024, which was down from the prior year due to lower benchmark prices.

We increased potash production across our six mine network, and lowered our controllable cash cost of production to $53 per tonne in the first half. The reduction in per tonne costs was driven by higher production volumes and supported by the benefits of mine automation investments. We sold record potash volumes in the first half, utilizing the advantages of our global supply chain to respond to increased demand from our customers in North America and offshore markets. In nitrogen, we delivered adjusted EBITDA of $1.1 billion in the first half of 2024, as lower benchmark prices were partially offset by lower natural gas costs. Our North American nitrogen assets remain very well positioned on the global cost curve, and we continue to progress reliability initiatives that contributed to higher operating rates.

Nitrogen selling prices in the second quarter increased compared to the first quarter of the year, reflecting the advantages of our extensive North American distribution network and the strong execution of our commercial team. Phosphate fertilizer markets remained relatively firm through the first half of 2024, and we benefited from lower raw material input costs. Our phosphate sales volumes were consistent with the prior year as we had extended turnaround activity at our Aurora and White Springs plants in both periods. Retail adjusted EBITDA totaled $1.2 billion in the first half of 2024, up 17% from the prior year, driven by increased gross margin across all major product lines. Crop nutrient sales volumes were similar to the prior year as planting delays in May offset the benefits of an early start to the application season in the first quarter.

Crop nutrient margins increased by $21 per tonne in the first half, supported by the stabilization of fertilizer markets and a lower cost inventory position compared to the prior year. Crop protection margins in North America returned to normalized levels, while wet weather in May impacted applications and shifted some demand into the third quarter. We ended the second quarter with retail crop protection inventory down 17% compared to the prior year. The majority of this reduction occurred in our Latin American operations, where we are focused on tightly managing inventory and working capital levels. Overall, we are pleased with the first half performance of our North American and Australian retail businesses. Excluding the impacts of delayed planting in North America, our results were in line with our previous expectations.

Now, turning to Brazil, where we have seen more persistent challenges. As outlined at our Investor Day in June, we are accelerating a margin improvement plan focused on further reducing operating costs and rationalizing our footprint to optimize cash flow. This included the decision to curtail 3 fertilizer blenders and close 21 selling locations in the second quarter. We continue to evaluate our commercial footprint in Brazil to further extract efficiencies and see opportunities to grow our proprietary products business. During the second quarter, we also incurred a loss on foreign currency derivatives in Brazil. We have taken actions to remediate this issue and are confident that these actions have addressed the matter going forward. Now, turning to the market outlook for the remainder of 2024.

Global grain stocks remain historically tight, while favorable growing conditions have created an expectation for record US corn and soybean yields. Despite lower crop prices, demand for crop inputs in North America is expected to remain strong in the third quarter, as growers aim to maintain optimal plant health and yield potential. We anticipate good affordability for potash and nitrogen will support fall application rates this year. Prospective soybean margins in Brazil are currently above 2023 levels supported by a weaker real. Brazilian soybean area is expected to increase by 1% to 3% in the upcoming planting season, and fertilizer demand is projected at approximately 46 million tonnes in 2024, in line with historical record levels. We are seeing strong underlying consumption trends in most major potash markets in 2024 and raised our full year global potash shipment forecast to 69 million to 72 million tonnes.

Update on our summer fill program in North America has been strong, which is supportive of granular grade demand in the third quarter. The settlement of potash contracts with China and India in July is expected to support demand in standard grade markets through the second half. Global nitrogen markets are being supported by steady demand and continued supply challenges in key producing regions, including the extension of Chinese urea export restrictions into the second half of 2024. US nitrogen inventories were estimated to be below average levels entering the second half, and we have seen strong customer engagement on our summer fill programs in the third quarter. I will now turn it over to Pedro to provide more details on our full year 2024 guidance assumptions.

Pedro Farah: Good morning. As Ken highlighted, we raised our outlook for global potash demand in 2024, increased our annual potash sales volume guidance to 13.2 to 13.8 million tonnes. Our sales volume range factors in the potential for a relative short duration Canadian rail strike in the second half of 2024. We expect strong North American potash shipments in the third quarter and we are planning typical annual maintenance turnarounds with the majority occurring this year in the fourth quarter. In nitrogen, we narrowed our annual sales volume guidance range to 10.7 million tonnes to 11.1 million tonnes. We expect higher year-over-year volumes in both the third and fourth quarter, supported by lower planned turnaround activity in the second half.

Our phosphate sales volume guidance range was lower to 2.5 million tonnes to 2.6 million tonnes, reflecting the impact of extended turnaround activity and delayed mine equipment moves. For retail, our full year adjusted EBITDA guidance was lowered to $1.5 billion to $1.7 billion. The primary driver is the expectation for a more moderate recovery in Brazilian retail earnings as well as the impact of delayed planting in North America in the second quarter. We have taken a number of strategic actions in Brazil, including the containment of blenders that will result in lower near-term earnings potential, but will optimize cash flow. Capital expenditures were down 27% in the first half of 2024 and we maintained our full year CapEx guidance of $2.2 billion to $2.3 billion.

As mentioned at our Investor Day in June, our capital priorities are focused on initiatives that drive organic growth in retail and operational improvements in potash and nitrogen. The focus in retail is to further expand our proprietary products portfolio and drive network optimization. We are targeting a more than 10% annual growth rate in proprietary products gross margin, which is expected to be a significant contributor to our 2026 retail adjusted EBITDA target of $1.9 billion to $2.1 billion. The majority of planned investment capital in our fertilizer operations are related to mine automation projects in potash and the completion of low-cost brownfield expansions in nitrogen. These investments support our 2026 target to increase fertilizer sales volume by 2 million tonnes to 3 million tonnes compared to 2023 levels, while improving the efficiency of our operations.

I’ll now turn it back to Ken.

Ken Seitz: Thanks Pedro. Our results in the first half of 2024 highlighted the advantages of our world-class upstream production assets and downstream retail business in North America and Australia. We delivered record potash sales volumes, lowered our operating costs, and improved retail margins. We continue to take actions to enhance the quality of our earnings and cash flow with a focus on improving 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. Finally, I would like to say a few words about the CFO transition that we announced yesterday. Mark Thompson will be moving into the CFO role on August 26. Mark has been with the company for 13 years and has held numerous executive and senior leadership positions, currently serving as our Chief Commercial Officer.

He brings a strong track record of execution, proven financial and strategic acumen, and in-depth knowledge of our business that will support the advancement of our strategic priorities and drive a focused approach to capital allocation. On behalf of the Nutrien team, I would also like to thank Pedro for his service and commitment to Nutrien over the last five years. To support the transition, Pedro will move into an advisory role until the end of the year. We will now be happy to take your questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question comes from the line of Chris Parkinson from Wolfe Research. Your line is now open.

Q&A Session

Chris Parkinson: Great. Thank you so much. Just given the performance in retail and kind of the puts and takes over the last season or two, could you just potentially speak to what you’re seeing in end market grower demands in both of your major or, or I should say three perhaps, what you’re hearing from growers, where your inventory levels are? Just anything that we could help compartmentalize where we stand today versus normalized — perhaps more of a normalized set up for 2025 and 2026?

Ken Seitz: Yeah. Great. Thanks for the question, Chris. And yes, obviously, with some softening ag commodity prices, we’ve seen that impact grower sentiment. That’s true. At the same time, if we look at what cost of inputs is done that affordability is still there and all the incentives exist for growers to maximize yields. But certainly, Jeff can talk about what he’s seeing on the ground in key regions like North America and Australia.

Jeff Tarsi: Yeah. Thanks, Chris, and good question. And obviously, we’ve grower commodity prices higher. If I look at our business, we had, I think, a very strong print in the second quarter. And more importantly, we had very strong margins across all three shelves of our business, crop protection, seed and fertilizer. And if I look at it from a grower standpoint, and if I look at what USDA is projecting from crop yield standpoint, I can tell you that I haven’t seen growers pull back on giving their crops, the inputs they need to maximize yields going forward. We think that from an inventory standpoint, we’re in a really good position right now. And we had a real strong focus on getting our inventory down as low as we possibly could.

Through the first half, we brought our inventory down roughly $700 million. A large part of that is in the crop protection shelf, and we have a very clear focus on doing that. And probably more impressive is we’ve been able to bring our inventory down in each of the geographies. And probably more importantly, we brought it down just under $250 million in our Brazil business. And so, again, if I look going forward, if we pull the yields off that are projected, there’s going to be an awful lot of nutrient removal from the soil and we get an open fall, I would expect that we would see strong demand for MPK as we go into the fall season. Again, that’s going to be weather dependent, but again, it’s a really solid print across the first half. We’ve seen margins return to what we consider to be historical margins, some of them, may be a bit above historical margins.

Operator: Your next question comes from the line of Andrew Wong from RBC Capital Markets. Your line is now open.

Andrew Wong: Hey. Good morning. Thanks for taking my questions. So just on the potash segment, the moment, you’ve got six operating potash mines. They’re operating at about an 80%, 85% operating rate. Could it make sense to maybe curtail production or shut down one of the higher cost mines like you had done previously at [indiscernible] and consolidate production, so it’s a little bit more efficient around fewer mines, which could potentially save on costs?

Ken Seitz: Thank you, Andrew, for the question. And I can assure you that we’ve looked at that very closely over the years. And one of the benefits of having six mines and the flexibility in production is the ability to respond to our customers, because even this year where we’ve seen delayed contracts in India and China, which is, of course, standard grade products, we have the ability to produce additional granular and serve granular markets while we are watching delays in those stranded grade markets. And so that flexibility among that six-mine network allows us to, as I said, meet the needs of our customers. Curtailing one mine definitely limits that flexibility, because we have some mines that produce more standard grade and some mines that produce more granular products.

So I would say, in this environment, again, where we’ve seen shifting trade flows, we’ve seen additional volume coming out of Russia and Belarus, and we’ve seen a mix — a balance shifting between granular and standard grade markets, that flexibility is actually a big advantage for us, and it’s an advantage that is playing out certainly as we speak and one that we want to preserve because it does create value for shareholders.

Operator: Your next question comes from the line of Jacob Bout from CIBC. Your line is now open.

Jacob Bout: Good morning. I had a few questions about the unauthorized execution of that derivatives contract that resulted in that large charge. Just want to understand, what was the situation that led up to that? Was it — is it kind of normal course steps such a large exposure? Is this only a Brazil issue? And then maybe just comment on your use of derivatives as a risk management strategy.

Ken Seitz: Good. Thank you, Jacob. So to answer your specific question, was this in the normal course? The answer is no. What led up to it was, obviously, we’re doing a lot of work in Brazil and some organizational changes that led to challenges on segregation of duties and some of the checks and balances, governance and controls that we have in place. We identified that quickly, we dealt with it quickly, and we have remediated the issue. It’s certainly only contained to Brazil, and we’ve had our auditors have a look at all of this and certainly on a path to remediation. With respect to how we use instruments to hedge, I’ll pass that over to Pedro to provide some more explanation.

Pedro Farah: Thank you. Jacob, what we use is a typical combination of forwards and options. So there’s nothing too exotic there to basically cover positions that we have short in dollars for that position. But as mentioned by Ken, I think the issues were more actions that we’re taken outside of the normal policy. And those were quickly identified, rectified, and we have all the controls being put in place now that we are quite confident will be totally remediating the situation for the future.

Operator: Your next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is now open.

Joel Jackson: Good morning. Ken and team, you had your Investor Day in June. It was less than two months ago. And I think the focus of that event really seeing how you’re going to grow retail over the next couple of years from about $1.75 billion this year, pick up maybe $0.25 billion of EBITDA over the next couple of years. With your update now, you’re guiding down retail $150 million lower. And what strikes me is how do you reconcile your view less than two months ago? This is a big growth engine for Nutrien. But now you’re guiding down retail, you’re making that challenge harder. Do you still stick to those targets what’s changed? Do you need to review everything? What do you think?

Ken Seitz: Yes. Thanks for the question, Joel. And we absolutely still believe in those targets and are in fact, progressing towards those targets. When we talk about our North American and Australian business organic growth, or what we can do on proprietary products and network optimization and some of the investments we’re making in our digital platform. If we look at the margin improvements in the first half of 2024, we’re very encouraged by the path that we’re on in North America and Australia. When we talk about guiding down at the moment, we essentially have two challenges. One is what we talked about in Brazil. And as it relates to Brazil, we can talk more about the challenges that we’ve seen in terms of taking longer for that market to stabilize.

We were looking to — if our inventories to clear through 2024 and so we could emerge into 2025 in a better position. That said, we’ve seen some changes with grower buying patterns where there’s been a shift to generic crop protection products and even straight commodity fertilizers, which is having the effect of taking longer for in-country inventories to clear through the system. We’ve also seen some unfavorable weather conditions, and we’re also dealing with a change in buyer behavior where it’s just-in-time purchasing on the farm, and that obviously creates challenges through the supply chain and so on. We do have a plan in Brazil, and it is a plan where we’re going to, as we speak, improving margins. We’ve talked about closing 21 locations.

We’ve talked about curtailing three blenders, cost reduction initiatives and certainly working down our inventories, and that’s happening as we speak. When we step back, we believe in our presence in Brazilian agriculture, and we believe in that market, it’s just taking time to stabilize. So again, when we talk about the challenges and the guide down in our retail EBITDA, Brazil plays a huge role in that, and we are on a path to a better day in Brazil. The other one is we’re always dealing with weather in agriculture, and it is true that we had a wet spring in May in North America that we didn’t see all the product go to ground that we would normally have seen. We’re heading into the fall application season here. This crop in North America is going to pull a lot of crop nutrition out of the ground.

We had a very strong summer fill program, and so that as we head into the fall, we’re looking to — when they’re pending a strong fall application season. So it’s all to say, Joel, that we absolutely believe in what we talked about at Investor Day, we’re dealing with some near-term challenges here that we have a plan for.

Operator: Your next question comes from the line of Ben Theurer from Barclays. Your line is now open.

Ben Theurer: Yes, good morning and thanks for taking my question. Just two real quick ones. So one, as you look into the upgrade of your potash volumes globally, but then at the same time, your internal guidance raise is a little more muted, could you quantify what your expectation is as the potential disruption on the rail strike that you’ve mentioned?

Ken Seitz: Yes. Thanks, Ben. And when we guide on potash volumes, we have considered the potential for a short rail strike, but yes, there’s a lot of moving parts there. So I’ll pass it over to Mark Thompson.

Mark Thompson: Yes. Thanks, Ken. Good morning, Ben. So yes, first and foremost, obviously, we’re concerned about the potential for the rail strike, as Pedro mentioned in his comments, given the impact that this would have not only on nutrients, but on our customers and the broader economy. And given the dependence, particularly of our offshore potash exports through Canpotex on Canadian rail on a consistent basis, really any work stoppage would have some impact on the business. So with the uncertainty surrounding the situation in recent months, we’ve done a few things that are within our control, charge up our domestic distribution network and Canpotex has also worked to take proactive steps to support customers and charge up their network to the degree that, that’s possible.

Just on your question on guidance, look, I think there’s some unknowns here, given this is relatively unprecedented, but in our guidance, we’ve embedded, we’ll say a few days to a maximum of a week of potential impact from a rail strike. And if we were to see that type of eventuality, we would expect that we would be trending towards the lower end of our potash sales volume guidance. Now in the event that we move through the situation, and we don’t see a logistics interruption that would see a situation where we’d be trending more towards the midpoint or potentially even the upper end of our potash sales volume guidance all else equal. So when you take that into account and you look at us raising our full year global shipment estimate by about 1 million tonnes, I think that probably helps square up the plug on a typical market share for us in that 19% to 19.5% range that we’ve talked about historically.

Operator: Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is now open.

Vincent Andrews: Thank you. Good morning, everyone. I’m wondering if you could talk a bit more about Brazil and maybe crop chemicals, in particular. Your suppliers or some of your suppliers have reported they’ve obviously, speaking about the challenges down there as well. It seems like there’s price competition being led by generics, but maybe broader than that. And I’m just wondering, are you seeing — are your inventory positions there in terms of your costs? Are they where they need to be? Are you getting concessions from the suppliers? Or is there more work to be done there? And how much is Cropchem of the $150 million reduction in EBITDA for the year. How much of that is associated with Cropchem to the extent you can estimate?

Ken Seitz: Yes. No, thanks, Vincent, and I think you identified a lot of the challenges in crop protection above mentioned. And certainly, as you say, the switch to generic crop protection among some farmers is certainly having an impact. But I’ll pass it over to Jeff Tarsi to provide more detail.

Jeff Tarsi: Yes. Vincent thanks. And look, I don’t think that anyone’s exempt from the market pressures that we’ve seen in Brazil over the last 18 to 24 months. And that pressure has been particularly intense around the crop chem sector, really starting in the back half of last year. And what we have seen, and I think it was mentioned a little bit earlier, is that we’re seeing more interest on the generic side of the market, and we’re seeing growers, as they’re squeezed financially as well, looking for lower cost options, particularly around generic chemistry from that standpoint. And I think we’ll continue to see that for a bit. You mentioned what portion of our business is from a crop chem basis, we’re basically a third, a third, a third there from a crop to fertilizer and seed standpoint.

From an inventory standpoint, as I mentioned earlier, we brought our inventory down quarter-over-quarter roughly about $250 million, and a large portion of that — $250 million for Brazil. And a large portion of that is in the crop chem sector. So I like where we’ve got ourselves positioned from a crop chem standpoint. And again, we continue to see margin pressure there. And while we’ve done a good job of getting our inventory down, what’s important as we go forward is that the risk of the retail industry get their crop chem in that same position that we want to see some alleviations on margins. As Ken mentioned a bit earlier, we’re just super focused right now on margin improvement across all three shifts of our business, cash generation and again, managing our inventories down just as tight as we can possibly get them.

Operator: Your next question comes from the line of Ben Isaacson from Scotiabank. Your line is now open.

Ben Isaacson: Thank you very much, and good morning, everyone. So back to Brazil, Ken, you mentioned that you have a plan in place for operational improvements in the near term, but maybe a bit of a longer-term question. You guys have taken roughly $800 million of write-downs in the region over the past year or so and then another $200 million of this FX issue. So, $1 billion of challenges against a business that generates somewhere between $80 million and $100 million in EBITDA, is that right? And what are we playing for here? And what’s still at risk? And how has that run rate changed given that you’re making some pivots in the region? Thank you.

Ken Seitz: Yes. Thanks and — thanks for the question, Ben. Yes, we’re obviously doing a complete commercial review of our business in Brazil. We’re still a small percent of the market, less than 2% of the market in Brazil. And we’ve been through just a period of extraordinary volatility ever since really the conflict in Eastern Europe. And we’re at a time in the market that’s challenged for all the reasons that we’ve talked about today. And of course, Brazilian agriculture and Brazilian retail won’t be challenged forever, because that region continues to grow in terms of agriculture and farmers continue to look for maximizing yields, and therefore, appropriate crop input. So the market is going to come around. We know that.

It’s a matter of time for us. As Nutrien, yes, we have been assessing how it is that we continue to gain access to Brazilian agriculture as one of the largest potash suppliers into the country as we look at proprietary products and the opportunity to grow that business in Brazil. And for the balance of it, yes, a strategic review on what makes sense for us going forward, to your point, Ben.

Operator: Your next question comes from the line of Jeff Zekauskas from JPMorgan. Your line is now open.

Jeff Zekauskas : Thanks very much. You lowered your retail guide by about $150 million. How much of the lowering came from the weather in the U.S. and how much came from South American operations?

Ken Seitz : Yes. Thanks, Jeff. And certainly, the majority of that change was related to everything that we’ve talked about with respect to Brazil. The impact of wet May in North America contributed to about a third of that adjustment.

Operator: Your next question comes from the line of Joshua Spector from UBS. Your line is now open.

Lucas Beaumont: Thank you. This is Lucas Beaumont on for Josh. I just wanted to follow-up on the pathway for retail towards the 2026 targets. I mean you’re sort of pointing to about $1.6 billion in EBITDA this year and then bridging that to the $2 billion. I mean, over the last five years, retail has only kind of grown EBITDA at a mid single-digit kind of rate. To hit the $2 billion, you’re going to need to get up to kind of 12% a year in the next two years. So could you please just kind of walk us through the buckets of the growth algorithm, and how you see yourself getting to be able to deliver on that? Thanks.

Ken Seitz : Yes. Thanks, Josh — sorry it’s Lucas. We certainly have that bridge and the path from here to there, and I’ll pass it over to Jeff to provide that.

Jeff Holzman : Yes. Ken laid out, Josh, a little bit earlier. We laid out in our investor strategy 1.9 to 2.1 and we continue to see a path to that number. As I look at it, I see three different buckets that we need to achieve on to deliver that 1.9 to 2.1. Number one, it starts with the continued momentum in growing our proprietary products business, particularly when we emphasize our plant nutrition and biologicals, we’ve been growing that business at a pace greater than 10% a year, and we believe we can continue that trajectory through further penetration in our core retail markets. And what’s also important as well as our growth in our international and wholesale channels and working with our commercial teams there. And so that’s going to play a significant part in it.

But also, we want to have steady and stable growth at our base operations in North America and Australia, consistent with what we delivered over the last five years, and that’s going to include network optimization, which we’re working on really hard right now. It’s going to include organic growth within those base businesses. And then some tuck-ins going forward. And then last but not least, and we talked a lot about this morning is our Brazil business and that seeing that market stabilize to that effect. So those are the three buckets that we see, and we still think that we’re on a path to achieving that.

Operator: Your next question comes from the line of Stephen Byrne from Bank of America. Your line is now open.

Stephen Byrne : Yes. Thanks. Jeff, in response to your comments just now about growing proprietary 10% per year, it looks like our proprietary seed, chemical and nutrients as a percent of the platform slipped in the first half of the year. Is there anything that you can call out that drove that? And as you look into a year where grower margins are looking tight, does that favor a shift to your proprietary products? Or do you see risk that they seek out more generics?

Jeffrey Tarsi: Yes. Thanks, Steve. And I — first of all, I do think that when we get in these tighter marketing conditions, it favors it, not only just around the not only around the crop protection shift, but I think it favors a bit on our prior seed business. And again, on our biologicals and crop nutrition and how we feed the crop as we go along through the season with that standpoint. And again, we’ve seen excellent growth again this year in our plant nutrition and biostimulant space. I’m particularly pleased around one of our products, [indiscernible], we had about a 300% increase in usage last year. We’re up another 75% this year. So we continue to be encouraged by that sector. And then it doesn’t get mentioned a lot, but our adjuvants sales year-to-date are up 7%, Steven, and adjuvants make up 5% of our crop protection space, particular tribute 13% of our margins.

And so, it tells us that our people are very focused and our growers are very conscious on continuing to use products to give them the best chance of efficacy. When you mentioned that as a percent, it looked like our proprietary business was less. You have to factor in last year that, that would have looked larger due to what we saw as the reset in the fertilizer market last year in the first quarter. And so that would have thrown those percentages out. But our business of — our proprietary products business continues to be a very bright spot for us. And again, we’ve got a lot of plans for big growth in that space going forward.

Operator: Your next question comes from the line of Aron Ceccarelli from Berenberg. Your line is now open.

Aron Ceccarelli: Hello, hi, good morning. Thanks for taking my question. I would like to ask a question about potash on the supply side. After the renegotiation of the contract, clearly, it seems like both India and China coming back. I would like to understand on the supply side, what you guys have seen from Laos? And how should we think about capacity addition from these guys for the remainder of the year? Thank you.

Ken Seitz: Yes. Thanks, Aron. Yes, we look at 2024, and on the demand side, what we’ve seen has been quite strong this year that led us to increase our view, 69 million to 72 million tonnes of shipments through the year. With just about every market increasing demand on the supply side, we look at a balanced market, and that does involve lows, and it does involve supplies out of Russia and Belarus, but I’ll pass it over to Mark to talk about those numbers.

Mark Thompson: Yes. Thanks, Ken. Good morning, Aron. So maybe just to kind of summarize how we’re looking at the potash market as a whole. I think starting on the demand side of the equation, obviously, a very strong demand profile in the first half of 2024. Across granular markets, we’ve seen a demand recovery in Southeast Asia, and that’s been combined with the continuation of strong domestic consumption of potash in China. As we’ve said before, this has all been supported by solid affordability. And really what we see is agronomic need to replenish potash levels globally after a few years of under application in key markets. So with the offshore contracts now in place, we do expect a global price floor to be established and standard demand remain strong through the second half of the year.

We’ve mentioned already that we upped our global shipments estimate by 1 million tonnes on both ends of the range, and this is largely owing to stronger-than-expected shipments into China. So to come back to your question on the supply side of the equation, on the supply side, I’d say, for us, really as expected in terms of where the incremental supply has come from to service growth and demand this year, it’s really the FSU, incremental supply from Canada and then Laos. And really, we’ve seen the pace of shipments from the FSU in the first half generally in line with the levels we saw in the second half of last year. Russian supply is effectively back to 2021 levels. And similarly, with Laos, we’ve seen shipments in the first half generally in line with the second half of last year.

I think stepping back more broadly on Laos, as we’ve continued to read in publications and are aware, and I think that Laos producers have announced themselves continue to experience challenges with production. We understand there’s been continued water inflow issues that have hindered the achievement of production levels that were previously targeted. And as we look out over the medium term, say, the next two to three years, we do expect that we will see some incremental supply from Laos, potentially 1 million tonnes in our SMD. However, disclosures out of Laos have also taken larger expansions off the table from the previously targeted time frame. So yeah, I think when we step back from all of that, as Ken said, we continue to see a relatively balanced market in 2024 with supply and demand.

And I think actually as we look out to the next couple of years into 2025 and 2026, we expect to see global demand continue to grow, but there is less incremental supply available over that period. So we expect we could see some tightening and firming in the market over that time horizon.

Operator: Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open.

Adam Samuelson: Yes. Thank you. Good morning, everyone. Maybe just continuing on that line of questioning, Mark, just with — you’re taking the range on global shipments up 1 million tonnes. I mean you guys talk about 20% or so market share. So that’s 200,000 tonnes. It’s what you lowered increased, certainly at the low end of the range. Why wouldn’t — is it just the rail strike that would take you away from increasing the high end? Is it just the inventories coming out of the first half and known turnarounds in the fourth quarter? And I guess, how should we think about the uptake on summer fill in North America and what you’re seeing from a North American affordability demand for corn and soybean growers where certain new crop prices don’t point to a lot of profitability for the grower over the next 12 months?

Kenn Seitz: Great, Adam. Yes, I’ll quickly pass over to Mark here. But I think you’ve actually identified many of the moving parts within our guidance range. And if you look at today without a rail strike, certainly, we expect to see strong volumes, and you see that reflected in our own production volumes in the first half. You see that reflected in our cash cost of production, $53 per tonne. And without some challenges on rail, the year is, from a volume perspective, shaping up to be a very good one, maybe one of the best. And then, yes, Mark can certainly talk about additional color on guidance range and rail. And then also, yes, very strong uptick on our summer fill. But over to you, Mark.

Mark Thompson: Yeah. Thanks, Ken. Good morning, Adam. So yes, again, I think you and Ken both summarized it well. I think if you were to look at what we’ve said in terms of rail strike earlier in the call, Absent that, you’d see our typical market share targets to be right in line with what our guidance is implying relative to our global shipment guidance. And so obviously, we continue to watch that situation closely. We’re hopeful that there’s a resolution there that doesn’t impact the business. But ultimately, from a commercial perspective, really nothing has changed with respect to our marketing strategy or our typical market share. I think in North America, as you pointed out and has been said earlier in the call, we are seeing some softness in commodity prices, but I think potash affordability is really in a strong place.

We had an opportunity a couple of weeks ago to meet with all of our major customers in North America. I would say, across the mutant complex, sentiment is certainly the most positive on potash in terms of that affordability driving a strong bent towards consumption in the second half of the year. If you look at our summer fill program, we came through the spring season, notwithstanding some of the weather challenges with extremely depleted inventories across the channel in North America. Certainly, we saw that with all of our customers. We saw that within our Nutrien Ag Solutions business, and that set us up very well for a very strong summer fill program. So, at this point, we’re effectively sold out through the third quarter and effectively shipping into the first portion of October to deliver on that fill program.

So, yes, I think the response we’ve seen on potash has been very good. We’re not concerned on the consumption side of the equation in North America. But I’d say, really, that channel behavior is certainly normal.

Operator: Your next question comes from the line of Richard Garchitorena from Wells Fargo. Your line is now open.

Richard Garchitorena: Great. Good morning everyone. If I could ask on capital allocation. So, you’ve got a strong balance sheet, fairly low leverage, and strong free cash flow this quarter. You’ve cut your CapEx needs for this year by $400 million to $500 million versus last year. And you’ve also guided obviously on the Investor Day a significant production growth to 2026, which we would assume is supported by ongoing demand growth. So, my question is, we have all these factors in play. Your stock price has been fairly weak. What would we need to see for you to step up return of capital in the form of buybacks? And how should we see that play out potentially over the next six to 12 months?

Ken Seitz: Yes. Thanks Rich. I think you identified some of the numbers there in our CapEx program, $2.2 billion to $2.3 billion, which includes about $500 million, and that’s split between what we’ve talked about in retail, proprietary, and network optimization. And then the other half goes into our upstream business, looking at nitrogen, brownfield investments, debottlenecking, and mine automation, and potash. So, we have a very targeted and I would say, exciting program on the investing side that, along with sustaining CapEx, adds up to that $2.2 billion to $2.3 billion. As you say, we’ve got about $450 million in leases and then about $1 billion for the dividend. So, that all adds up to about $3.7 billion. And as we watch the year unfold and as we head into the fall here and into 2025, as you say, as we look at incremental cash above those levels, certainly, we will look at buying back our shares, among other opportunities, which could include ongoing retail tuck-in opportunities in North America and Australia, and maintaining the flexibility for those when they come up, but also, as you say, share repurchases.

Operator: Your next question comes from the line of Edlain Rodriguez from Mizuho. Your line is now open.

Edlain Rodriguez: Thank you. Good morning. Forgive me, if that question was asked before. On phosphate, you seem to have some concerns about affordability given the persistence of the high prices there. But yesterday, like the biggest player in the space didn’t seem to have any concern about the high prices. They think they can last for a long time and the disconnect between phosphate and product prices shouldn’t be an issue. But like what makes you concerned about like the high prices of phosphate and how detrimental that could be to demand and affordability going forward?

Ken Seitz: Yes. Thanks for the question, Edlain. We just talked about affordability and margins as it relates to potash and our summer fill program. It is a bit different situation in phosphate with some of the tightness in the phosphate market. And what we can tell you is what we’re seeing talking to farmers through our downstream channel. So I’ll start with Jeff to maybe provide some of that color, and then maybe over to Mark to talk a little bit about the fundamentals.

Jeff Tarsi: Yes. And as I stated earlier, when I look at the fall and the second half of the year, obviously, fall fertilizer activity and application will be weather dependent. We’ve had three good years in a row, and I’m banking on a fourth year here. If I look at the three nutrients, and Mark talked about this earlier, potash is appearing probably very in line from an affordability standpoint. The phosphate side of it is a bit more of the western mark, and I think that growers were probably expecting that, that price would come more in line with some of the other nutrients. So if I think if there’s a weakness out there in the fall from an application standpoint, I think that we’re seeing early on that, that could be in the phosphate market.

I don’t want to really projected what I think that could be for the fall, but we do see some softness in that side of it. We see growers asking a lot of questions from an affordability standpoint. Mark, I might kick it over to you.

Mark Thompson: Sure. Thanks, Jeff. Good morning, Edlain. Yes, I think I’ll just reiterate almost exactly what Jeff said from a different perspective, which is when we’ve been talking to our customers across the retail channel, particularly in North America. It’s true that global supply demand is very tight currently for phosphate. So that has led to good participation in fill programs because phosphate is needed. At the same time, as Jeff pointed out, we’ve got a pretty large price disparity between potash and phosphate currently in the market. So certainly, in those discussions with our customers, similar to Jeff’s discussion with his team and growers, there are concerns about affordability and concerns about potential demand destruction in portions of the phosphate market as we get into later in the fall season.

Now when you look at our phosphate business, in particular, obviously, we’ve got a very diversified phosphate business across both ag and industrial markets. We don’t see an impact from that from a volume standpoint for us because we are positioned a little bit differently. But certainly, for our customers and down at the grower level on Nutrien Ag Solutions, it’s something we’re going to continue to watch very closely.

Operator: There are no further questions at this time. I will now turn the call back to Jeff Holzman. Please continue.

Jeff Holzman: Thank you for joining us today. The Investor Relations team is available if you have follow-up questions. Have a great day.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.