Mosaic's cash improved. Why are phosphate profits still falling?

Mosaic's cash improved before its phosphate earnings did. The fertilizer producer released $433.5 million of cash from inventories in the third quarter, more than its entire $284.4 million of operating cash flow.

A lower-priced sulfur contract is expected to help fourth-quarter cash. But Mosaic expects phosphate adjusted profit to fall further as expensive materials already purchased work their way into fertilizer sold to customers.

The inventory swing behind better cash

Research by Ticker Byline shows how much of the cash improvement came from inventory. That cash-flow adjustment swung $634.3 million in Mosaic's favor, from a $200.8 million use of cash a year earlier to the current release.

Operating cash increased by only $55.9 million. All the other operating cash entries, taken together, deteriorated by $578.4 million.

Management attributed the cash improvement primarily to lower finished-goods inventories. With capital spending also lower, free cash flow reached roughly breakeven, compared with an outflow of about $135 million in the company's rounded reconciliation a year earlier.

Cheaper sulfur reaches cash before earnings

The new fourth-quarter sulfur contract with U.S. Gulf Coast refiners costs $615 per long ton, down from $705 for the third quarter. That is a 12.8% reduction in the contract price.

Mosaic says its two- to three-month inventory cycle delays the profit benefit. Higher-cost materials bought for third-quarter production will pass into the cost of fertilizer sold in the fourth quarter. The company expects the cheaper contract to help cash sooner, with the main earnings benefit in the first quarter of 2027.

The expensive-input warning was already visible in August, when Mosaic said the $705 contract would mainly affect fourth-quarter results. The new information is the lower contract and the timing of the expected relief.

Production discipline has costs of its own

Phosphate adjusted EBITDA fell to $49 million from $128 million in the second quarter. The measure removes interest, taxes, depreciation, depletion, amortization and selected other items.

Reported cash conversion cost improved to $117 per metric ton produced from $129. That measure excludes raw materials and several other costs. Idle, turnaround and unabsorbed fixed costs rose to $77 million from $60 million.

Third-quarter phosphate selling prices and rounded sales volume met August's forecast range. The issue is the cost of making the product, rather than a newly disclosed sales miss.

Our Mosaic company profile tracks the segment results, reduced potash production forecast, debt and capital spending.