Nutrien Ltd. (NTR) Earnings Call Transcript & Summary

Thanks, and welcome to Nutrien's 2026 Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. And I would now like to turn the conference call over to Jeff Holzman, Senior Vice President of Investor Relations and FP&A. Please go ahead.

Thank you, operator. Good morning, and welcome to Nutrien's Second Quarter 2026 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 is contained in our quarterly report to shareholders as well as our most recent annual report, MD&A and Annual Information Form. I will now turn the call over to Ken Seitz, Unit's President and CEO; and Mark Thompson, our CFO, for opening comments. .

Good morning, and thank you for joining us today to review our first half performance, progress on our strategic priorities and the outlook for our business. In the first half of 2026, Nutrien delivered record potash sales volumes, strong growth in proprietary products margins and further enhanced the reliability and adding cost position of our nitrogen assets in a dynamic global operating environment. We raised the bottom end of our 2026 potash sales volumes guidance, lowered our capital expenditures guidance range and increase the pace of share repurchases. Our results demonstrated strong performance against our strategic priorities that are strengthening our business, driving structural growth in free cash flow and increasing cash returns to shareholders. In potash, we increased production from our low-cost 6 mine network and utilize the capabilities of our extensive global supply chain to meet strong customer demand. In the first half, we mined 53% of ore tons using automation, exceeding the top end of our 2024 Investor Day target. This result reflects the strong execution of our automation strategy while also highlighting additional opportunities to further enhance deployment and performance across the network. These investments are delivering wide-ranging benefits beyond improvements in safety and productivity. Increased automation enables us to mine more ore with the assets already in place, helping to optimize capital expenditures and maximize returns on existing investments. In nitrogen, our low-cost North American assets remain well positioned with advantaged natural gas costs and a continued focus on initiatives that increase upgraded product volumes and margins. Our first half production was consistent with our previous expectations, including a planned turnaround at our Carseland facility that demonstrated operational excellence in action. The turnaround was the largest in the facility's history and included a debottlenecking project that increased the site's annual production capacity. Despite a much larger scope than the last year turnaround 4 years ago, we achieved higher productivity and contractor efficiency through improved planning and execution. The work was completed safely with the 0 lost time injuries, ahead of schedule and under budget. Turning to our downstream Retail business. Adjusted EBITDA increased by 4% in the first half of 2026, underpinned by execution of key growth initiatives that enhance our ability to serve growers with a broader set of products and services integrated through our network. Our proprietary products business delivered strong growth in the first half, including a 10% increase in proprietary crop nutrients gross margin despite softer fertilizer demand as growers continue to prioritize solutions that enhance productivity. Our performance reflects targeted investments we made to advance capacity and meet increasing customer demand with sales volumes for certain nutritional products increasing nearly tenfold compared to the prior year. Together, these results demonstrate how customer insights targeted investments and disciplined execution are driving earnings growth. Over the last 2 years, we have taken purposeful steps to optimize our portfolio following a comprehensive review of each asset's free cash flow contribution and returns on invested capital. Since June 2026, we completed agreements to sell noncore assets for gross proceeds of approximately $90 million. Including these agreements and prior divestments, we have generated approximately $1 billion in gross proceeds since the fourth quarter of 2024. These actions are strengthening our portfolio quality while creating additional flexibility to reduce debt, increase shareholder returns and allocate capital to businesses with superior long-term growth opportunities. As previously announced, we are reviewing strategic alternatives for our phosphate business and are encouraged to have received numerous nonbinding bids as part of the process. We also continue to review strategic options for our Trinidad nitrogen operations and each component of the Brazilian retail business. We remain on track to solidify the optimal path for these businesses in 2026. Overall, our first half results demonstrate progress on our strategic priorities and disciplined execution to enhance earnings quality and free cash flow per share. Across each of our businesses, we continue to focus on areas within our control, namely operational excellence, cost management and capital efficiency. While the external environment remains dynamic, we believe Nutrien is well positioned to create long-term value for our shareholders. Now turning to the market outlook. Global agricultural markets are supported by robust grain and oilseed demand. Risks to crop production and trade have increased due to geopolitical uncertainty and forecasts indicating El Nino conditions which are expected to place upside pressure on crop prices. Potash margins remain constructive due to favorable affordability, healthy demand in all major global markets and stable supply relative to other commodities. We've maintained our forecast for global potash shipments of 74 million to 77 million tonnes in 2026 as projected shipment levels are expected to be consistent with consumption. Global urea prices declined in the latter half of the second quarter during a seasonal low for demand that was exacerbated this year due to evolving geopolitical developments. Global urea fundamentals affirmed in the third quarter, driven by ongoing trade flow disruptions, production outages, elevated energy prices and increased demand. We expect these factors will continue to shape the outlook for nitrogen markets over the remainder of 2026. In this environment, Nutrient's North American nitrogen assets are well positioned to benefit from secure low-cost feedstock supply and defendable market access. With that overview, I'll now turn it over to Mark to provide more detail on our second quarter financial performance guidance assumptions and capital allocation priorities.

Thanks, Ken. Nutrien delivered adjusted EBITDA of $2.4 billion in the second quarter of 2026, and first half adjusted EBITDA was $3.5 billion, up 6% from the prior year. Cash provided by operating activities rose by 12% in the first half, providing opportunity to further advance our capital allocation priorities. In potash, we generated adjusted EBITDA of $658 million in the second quarter, reflecting higher global benchmarks and strong operational and supply chain execution. Our second quarter and first half potash controllable cash cost of product manufactured was flat compared to the prior year. due to cost control measures and the benefits of our automation program that Ken articulated. We continue to target our controllable cash cost below $60 per ton on a full year basis for 2026. We raised the bottom end of our 2026 potash sales volume guidance to 14.2 million to 14.8 million tonnes due to the strength of first half sales and increased visibility on the second half order book. Canpotex is fully committed for third quarter sales volumes, and we had a favorable response to our domestic summer fill program. We anticipate a similar split between offshore and domestic sales volumes in the third quarter compared to the prior year. Our Nitrogen operating segment generated adjusted EBITDA of $635 million in the second quarter. Net selling prices were in line with higher global benchmarks and the timing of order book sales with approximately 35% of total segment volumes sold prior to the onset of the Middle East conflict. Nitrogen sales volumes were down from the prior year, reflecting no production from Trinidad and New Madrid planned maintenance at Carseland and some deferred customer purchases late in the quarter during a period of increased market volatility. Looking ahead, the majority of our Q3 nitrogen fertilizer sales volumes are now committed and aligned with summer fill values set in late June and early July. We maintained our 2026 nitrogen sales volume guidance of 9.2 million to 9.7 million tons with planned turnarounds scheduled at our Lima and Redwater nitrogen facilities in the third quarter and higher ammonia operating rates expected in the fourth quarter. In phosphate, adjusted EBITDA declined in the second quarter due to elevated sulfur costs, which have placed unsustainable pressure on global phosphate producer margins. We maintained our 2026 phosphate sales volume guidance supported by reliability improvements achieved in the first half while we continue to closely monitor customer demand and sulfur input costs in the second half of the year. Our downstream retail business delivered adjusted EBITDA of $1.24 billion in the first half up 4% compared to the prior year. Following a strong start to the application season in the first quarter, North American retail crop nutrient volumes declined in the second quarter, in particular, for phosphate and nitrogen. The reduction in commodity fertilizer volumes was offset by strong proprietary products performance. We maintained our full year retail adjusted EBITDA guidance of $1.75 billion to $1.95 billion with the midpoint of the range underpinned by 3 key items. First, we continue to project high single-digit growth in our proprietary products gross margin in 2026, supported by organic growth in our core retail geographies. Second, we expect higher crop nutrient margins per ton to offset a reduction in sales volumes compared to the prior year. We anticipate firm in crop prices and an earlier start to the North American fall application season will support nitrogen and potash applications similar to historical average levels with phosphate demand expected to remain below historical levels. Third, we anticipate recent favorable weather to improve winter planting prospects in Australia and continued strength in livestock markets through the second half. As we look toward the remainder of 2026, we expect free cash flow to be supported by constructive fertilizer market fundamentals, strong operational execution, capital discipline as well as ongoing portfolio optimization efforts. Reflecting this focus on capital efficiency and returns, we have reduced our capital expenditures guidance by $50 million to a range of $1.95 billion to $2.05 billion. We increased share repurchases in the first half of 2026 by 26% compared to the prior year and have stepped up our repurchase pace in the third quarter to approximately $75 million per month. This is consistent with our capital allocation approach of increasing cash returns to shareholders and maintaining a strong balance sheet as we structurally grow free cash flow. I'll now turn it back to Ken for final comments.

Thanks, Mark. The results we share today demonstrate progress towards strengthening the business and positioning Nutrient for long-term growth and resilience. Across Nutrien, our teams continue to identify initiatives to further improve performance, unlock value from existing platforms efficiently serve our customers and advance future growth. Together, these efforts are expected to structurally increase free cash flow per share and enhance long-term shareholder returns. To that end, we intend on hosting an Investor Day on November 30 in Toronto where we'll outline the next phase of opportunities to create additional value across the business. To close, I'm encouraged by the team's execution in the first half of 2026 and the momentum we continue to build across nutrient. With that, we'd be happy to take your questions.

[Operator Instructions] The first question comes from the line of Chris Parkinson from Wolfe Research.

Great. Just want to circle around the second half outlook for potash, it seems like demand has been pretty stable across Asia, Southeast Asia, some of your core markets. So I'd love to hear your perspectives there versus your initial Jan 1 expectations run through the Americas. And then in terms of your order books, do you feel pretty comfortable where you are now heading into December, especially that you're kind of taking some maintenance downtime and some other stuff -- would just love to hear the puts both the puts and takes, how you're thinking about that.

Great. Thank you, Chris. Yes, we are certainly constructive on potash for the second half and for the year. We continue to say 74 million to 77 million tonnes of shipments this year. And you will have seen that we raised the bottom end of our own guidance now at 14.2 million to 14.8 million tonnes. And this is largely owing to favorable affordability of course. And to your question, healthy demand in all major global markets. So we started the year with low inventories that are being replenished, and here we are in the second half. We've had a favorable response to our summer fill program. We're now heavily committed through Q3. And of course, Canpotex and fully committed to and expecting year-over-year growth in offshore markets. So yes, contrition the setup, but maybe I'll have to your question, Chris, I'll hand it over to Chris Reynolds to just talk about region by region.

Chris, thanks for the question. And as Ken said, we are feeling good about demand for potash for the balance of the year. As you know, still globally the most affordable nutrient out there. And we're seeing that in our major markets. And so as you suggested, we go around the world here. North America, we had a good response to our summer fill program. And then subsequent to that, a price increase we took where we've taken some orders against that already and also a fairly slim import lineup as we look out over the next couple of months. Brazil, Q3 is always a little seasonally quiet in Brazil. But despite that, prices have been holding pretty steady around that $400 mark. And the uptick in commodity prices were witnessed has all helped sentiment down there. We estimate there's still a lot of buying to be done yet in Brazil for the balance of the year, somewhere around 4 million tonnes. And so feeling good about things there. We actually just got back from a trip to China talking to customers there and potash inventories have grown a little bit year-over-year in China. What we heard from our customers is that in-country channels are reasonably slim. So when you think about 20 million tonnes of consumption is the expectation there for China and potash inventory is around 3 million to 3.3 million tonnes, certainly not overbearing in terms of supply/demand. And the other message we got loud and clear when we were there is that the government and the buyers there are prioritizing security of supply. And I also like the outcome of early settlement for this 2026 contract. Southeast Asia demand continues to be underpinned by really good palm oil prices, but also a little bit of concern in terms of the potential El Nino impact in that region. So overall, Chris, feeling good about demand for potash for the balance of the year and continuing stable market.

Your next question comes from the line of Ben Isaacson from Scotiabank.

Ken, my question is, can you please talk about Nutrien's road map to expanding potash capability towards 18 million tonnes from somewhere around 15 million tonnes today. It seems like you're getting close to your limit of capability. And given that supply is coming to market and given where demand growth is the timing? What is the CapEx? And do you still want to be in a 19% to 20% market share range in 4 or 5 years from now?

Great. Thank you, Ben, for the question. And the short answer, just to start on the demand side, and market shares, yes, 19% to 20% historically has been sort of the market share that we've had globally. And then that's owing to the fact that we've had customers in each of these regions for decades, and those customers are growing in each of their regions. Demand for potash continues to grow and we grow along with them. It becomes a reliable supplier of high-quality volumes around the world for those decades now. And like I say, our customers want to grow with us. So then when we look to our own network and to your question, we ask the question, how we're going to continue to meet demand in 19% to 20% market share. We do have our 6 mine network, low cost, sits very well on the cost curve. Mark just mentioned, we've been successful at keeping cash cost per ton below $60, Part of that is the automation work that we've been doing. But that might automation work means that in the next time that we mine is also more efficient than the last. And so as we continue to deploy those automation efforts, we look to where we're going to unlock that next ton. And it sort of happens in a way that we move from mine to mind depending on -- so the all-in lowest cost, CapEx, capital charge included where we get that next time from. Today, that has been Lanigan expansion, but we have actions at 5 of those 6 mines to continue to expand production. And again, with mine automation, those options are growing for us. This year, we would say that we have about 15 million tons of production capacity. To your question, Ben, we like to think about sort of a year lead time to unlock additional volumes and maintain that 19% to 20% market share. So lead times are actually relatively short, and it's really getting mining machines in place and belting to the shaft given that our milling capacity and tells management areas are built that may require some load-out investment in some of our mines, but again, these are relatively, and I do say, relatively shorter-term investments than something like a greenfield development. In terms of cost, we say that next incremental production, 15 million to 18 million tonnes is sort of $2 to $300 a ton. And that would be, as you know, as we're witnessing an order of magnitude lower than a greenfield development. As we go from 18 million tonnes and beyond, we do experience a bit of a step change in capital. But again, we're talking about $700 or $800 a tonne, again, maybe 1/3 or less of what a green development would be. So suffice it to say, Ben, we have these plans. We have this mapped out. We've done the math. We've talked to our customers. And every year, we just continue to demonstrate that if we grow our volumes.

Your next question comes from the line of Andrew Wong from RBC Capital Markets.

I just wanted to ask about the pace on buybacks. The Q2 dollar amount was up pretty meaningfully versus Q1. And then when we look at Q3 to date, the repurchases that we kind of average out for the quarter, that puts you on another similar pace in terms of a sequential increase. So is this your new regular buyback rate? Or was there something that was driving this increase more temporarily? Like because of cash flows or how you see the value in your shares?

Yes. Thanks, Andrew. And we do have, I would say, a pretty disciplined capital allocation structure and framework that we use are at as we make these decisions as we talk about it quite a bit with our Board, but I will hand it over to Mark to just provide a color on that framework.

Yes. Thanks, Ken. And just before touching on the specific buyback base, I think it's important to provide some context on the overall capital allocation philosophy because the buybacks are about 1 component of a broader set of objectives that we have that value for shareholders. So as Ken has said and I've said numerous times, you look back at our 2024 Investor Day. And since that time, we've provided the numerous avenues to grow structural free cash flow from the business. We've had the upstream fertilizer sales volume growth we've demonstrated the retail earnings growth and the continued optimization of cost structure and capital expenditure structure, all of which have grown that structural base. As you heard Ken say, this morning, we've now generated since the fourth quarter of 2024, about $1 billion in divestiture proceeds which has put our balance sheet in a great spot. And as we've mentioned numerous times, the return on capital philosophy is anchored in the idea that at mid-cycle prices, we want to be around 1.5x net debt to EBITDA, and we're getting quite close to those levels today, and we're very comfortable with the balance sheet and feel like we're in a great spot on that front. So when it comes to being disciplined on capital allocation, we now have a very streamlined and targeted set of growth investments in the business where our core strength exists but really believe that we can demonstrate strong returns to shareholders by reinvesting in the company in those areas. But that also has allowed us to grow that stable cash base and as demonstrated and as you've noted, this has allowed us to increase the pace of ratable share repurchase activity. That ratable share repurchase activity is also linked to the ability to grow dividends per share over time without growing dividend expense. So when you zoom in on that framework and you look at this year specifically, we've gone from starting the year at a pace of around $50 million per month to around $55 million per month and now in the third quarter, per month. And what I'd say is with the second quarter behind us and the strong execution that we've outlined this morning and demonstrated in our results, there's confidence in cash generation for the year. I think as we zoom out even further and think about that buyback over time, there's certainly going to be the structural component of the buyback that as we grow free cash flow, the opportunity to increase that ratable buyback grows over time inevitably with our business, there's also a cyclical component to that buyback as we move through cycles, where we'll be looking at the balance sheet and looking at where we are in the cycle. But for the remainder of the year, we anticipate that we will remain in and around these levels. And as we get into 2021, we'll be looking at all the factors that I just talked about and that Ken's outlined, as we continue to level set that ratable buyback. But the most important component of this is that shareholders can expect that Nutrien will continue to be a strong return of capital than the share repurchase mechanism is our preferred avenue to do that.

Your next question comes from the line of Joel Jackson from BMO Capital Markets.

A little preamble to my question. But I've noticed in Q2 for retail, obviously, a quarter for all. It was the lowest domestic fertilizer volumes like for adverse since 2013, we all know that [indiscernible] have been accreted in retail since then, volumes are down a lot year-over-year. We all know what happened with commodity prices across Q2 -- but I was wondering if you could talk about it, and this also lets you know Nutrien EBITDA -- excuse me, retail EBITDA being down in Q2. Can you talk about exactly what was happening in the domestic retail fertilizer market were -- was there a buyer's holiday because of commodity prices, fertilizer prices? And what does that set up for the rest of the year in terms of inventories in the market?

Yes. Thanks, Joel. As the sort of spring unfolded, we were and at the start of the year, we're expecting lower fertilizer volumes in our downstream business albeit maybe not as to the extent that you described. And so what was going on there is we did see phosphate volumes down about 10%. And we can use the word demand destruction. And the reasons for that we've talked about, obviously, what's going on in sulfur market, and I think the phosphate business in general as phosphate producers have struggled and shutting in facilities. And we're heading into the second half of year, we expect we'll continue to see demand disruption as it relates to phosphate. Nitrogen volumes were down. You're correct and down about 7% in our downstream business. onto a few things. Obviously, year-over-year corn acres are down, and that certainly plays a role in nitrogen applications. We did have a larger fall application season in 2025. So we did see some significant volumes go down last fall, and we had a delayed start to the Western Canadian planting season, which also had an impact. And yes, we did see some demand deferral into the second half. And that's -- you know what happened to urea prices that run up and then the sort of seasonal lull as we came out of the season. And grower stepping back and watching prices come down and delaying purchases. So yes, that contributed as well, albeit to a lesser extent. And potash was pretty much as expected. We saw a 1% growth in potash, and that's owing to probably being the most affordable of 3 crop nutrients once again. Heading into the second half year, I mean the crop is advancing well, which could lead to an open application season so that we continue to expect good volumes this fall on the year. Could we be down a little bit on volumes? Yes, but we expect higher gross margin per ton on crop nutrients again in the second half that will offset those lower volumes. More broadly, for our downstream business for our retail business, if you're talking about a tale of 2 halves, your proprietary performed very well in the first half. Crop chemistry as expected, Australia is performing well. We had some higher costs as it relates to fuel. But coming out of the second half, we've maintained our guidance at 1.75 million to 1.95 million tonnes. And it's really just owing to the ongoing high single-digit percentage growth in our proprietary product gross margins. structural growth as it relates to proprietary products. Again, I talked about crop nutrients. Crop Protection is performing well. We saw that in Q3 as farmers seek to maintain Codell. And so again, those points -- the midpoint of our guidance, those assumptions and again, maintaining that 1.75 million to 1.95 million.

Your next question comes from the line of Vincent Andrews from Morgan Stanley.

Just sticking with retail, there was a call out in the retail section coverage about the strong Australian livestock season. I see that shows up in services and other, and it certainly helped the second quarter. Could you just give us a little more detail on that, if not an area? I'm particularly have a lot of expertise on. And will that carry forward into the balance of the year? And how will it play out?

Yes. Thanks, Vincent. Yes, livestock markets are very strong, not just in Australia, but yes, certainly in our Australian business. We have got a combination of good weather. In Australia and a strong livestock market. Yes, I'll hand it over to Chris Reynolds just to provide some more color.

Yes. Thanks, Ken. Vincent. Thanks for the question. Yes, we were expecting actually livestock prices to come off a little bit in Australia after a pretty good run up there in 2025. But on the continued strength of export demand for both land and beef, we've seen those prices continue. And so where that comes from us is those stock agent commissions, that's the revenue stream we have in Australia in terms of, obviously, a percentage off the price of sheep and cattle mainly that we are instrumental in helping our growers sell in the Australian market. We also saw the Chinese government put some import restrictions on particularly Australian material, but -- and product, we haven't seen that impact prices yet. So we're on the watch out for that a little bit, but been very pleased with the performance of that business year-to-date.

And your next question comes from the line of Kristen Owen from Oppenheimer.

While we're here in retail, let's stick with that. I wanted to ask about your proprietary products growth, up about 3% year-over-year here in the second quarter, but 16% gross margin growth larger than if we look on the first half. So 2 questions. First, can you help us unpack the drivers of that gross margin strength there? And then second, we've heard from some others in the space, maybe a bit of timing shift from here in North America from 2Q to 3Q. Any color that you can provide on like any timing shifts that you may have seen? And again, the drivers of that gross profit growth.

Yes. Thanks, Kristen. Yes, no proprietary products, as you say, performing very well, we believe is continue to demonstrate structural growth in the gross margin contribution from proprietary products. We've launched 26 new products this year and again, seeing strong demand in our core geographies the first half, that was once again a story of our crop nutritionals in light of volatile fertilizer markets and constructive on the second half as well. I'll hand it over to Chris to give more color on some of the drivers of that growth. But as it relates to timing shifts, really just pointing to nitrogen. And again, we saw some -- a bit of different, I'd say, a bit out of H1 into H2. In our downstream business and the way the fall is setting up here, we're expecting good applications of NNK in the fall. So that would be sort of the timing shift that I point to. But again, Chris, back to you to our proprietary products.

Yes. Thanks, Ken. And Kristen, thanks for the question. Yes, we've been really pleased, obviously, with the performance of our proprietary products range so far this year. And as Ken said, underpinned by the introduction of a number of new products and a terrific response from the market to those new products. Growers are obviously very focused on yield right now, although commodity prices have moved up a little bit, which is helping sentiment. As we walk the fields with our growers, all of that conversation is around how do I increase yield how do I preserve the yield that I have in this crop. And so really, that comes back to increasing the efficacy of commodity fertilizers and particularly when a block fertilizers, sorry, phosphate gets high. It's, okay, how can I enhance the efficacy of this phosphate product with proprietary products. And that's what we're seeing in the marketplace. I think some of that spill from Q2 to Q3. We're seeing that particularly in fungicide demand growth. We've had wet weather through many parts of the Midwest and so grows keen to protect their crop against potential fungal disease and we're helping them do that. So lots of conversation about yield preservation and how our proprietary products can help them to do that.

Your next question comes from the line of Edlain Rodriguez from Mizuho.

In the global potash shipments outlook of $747 million that you have given the affordability of potash and strong demand, like what gets us to the low end and what gets us to the high end of that range?

Great. Edlain, thank you. Yes. We've got so assumptions, as you might expect, on both ends and on it over to Mark just to walk through.