Our view: We think Q3 was in-line with expectations while guidance was narrowed to bracket the previous mid-point, with potash performing better than expected and offsetting slightly weaker results in the other segments. We believe shares may respond positively to a solidly executed quarter driven by a recovery in potash and Retail margins, which we see as a step toward restoring investor confidence and helping shares re-rate back to normalized valuation.
Actual: $1.08B EBITDA | RBC $1.03B | Consensus $1.14B
Q3/23 Summary: Q3/23 results were in-line with expectations as stronger potash segment performance offset slightly weaker results in other segments. Retail segment performance was slightly below expectations ($197M actual EBITDA vs. $234M RBCe), with sales about in-line with our estimates ($3.5B actual vs. $3.6B RBCe) and EBITDA margins slightly lower (6% actual vs. 7% RBCe) as higher operating costs offset improved crop nutrient margins. In potash, sales volumes were well-above our expectations (3.9Mt actual vs. 3.2Mt RBCe) and prices were also better ($250/tonne actual vs. $242/tonne RBCe), driven by a strong recovery in North America. Nitrogen segment sales were worse than expected (2.4Mt actual vs. 2.6Mt RBCe) while realized prices were also a bit lower than expected ($276/tonne actual vs. $296/tonne RBCe), partially offset by lower costs. In phosphate, better than expected sales volumes (664Kt actual vs. 529Kt RBCe) were offset by lower realized prices ($575/tonne vs. $637/tonne RBCe).
2023 EBITDA guidance narrowed: Nutrien updated full-year consolidated EBITDA guidance to $5.8-6.4B, from $5.5-6.7B, with stronger guidance for potash offsetting a slightly lower outlook for the other segments. Potash EBITDA was raised to $2.3-2.5B, from $2.0-2.5B, due to stronger volumes and stabilized prices in H2/23. Nitrogen guidance was lowered slightly to $1.9-2.1B, from $1.8-2.3B, mainly due to technical production issues in Q3. Retail segment guidance was lowered slightly to $1.45-1.50B, from $1.45-1.60B, due to weaker crop protection margins in South America and lower earnings in Australia due to weaker livestock markets.
Key updates:
• 2023 capex expenditures guidance lowered to $2.7B, from $2.8B
• 2023 projected cash from operations lowered to $4.0-4.5B, from $4.4-4.9B, due to higher effective tax rate that increased to
27-27.5%, from 25.5-26%, as a result of unfavourable geographic mix - the company expects the tax rate to return to historical mid-20% levels in 2024.