Mosaic Co. (NYSE:MOS)

The analysis of economic profit from 2017 to 2021 reveals a period of consistent value destruction, characterized by negative economic profit throughout the five-year duration. Although the magnitude of the economic loss improved significantly by the end of the period, the organization failed to generate returns exceeding its cost of capital.

Net Operating Profit After Taxes (NOPAT) Volatility

NOPAT exhibited extreme fluctuations, starting at 610,470 thousand US$ in 2017 before collapsing to a deficit of 1,197,855 thousand US$ in 2019. A recovery phase followed, with a modest return to profitability in 2020 and a substantial increase to 1,881,191 thousand US$ by 2021, marking the highest operating performance in the observed period.

Cost of Capital and Invested Capital Dynamics

Invested capital remained relatively stable, fluctuating within a narrow range between 14.65 billion and 15.84 billion US$. Concurrently, the cost of capital showed an upward trajectory, rising from 18.37% in 2017 to 21.19% in 2021, with a temporary dip to 16.50% in 2019. The increasing cost of capital heightened the threshold required for the organization to achieve a positive economic profit.

Economic Profit Trajectory

Economic profit remained negative for all reported years, indicating that the operating returns were insufficient to cover the capital charge. The deficit widened from 2,149,792 thousand US$ in 2017 to a peak loss of 3,688,677 thousand US$ in 2019. However, a corrective trend emerged post-2019, with the economic loss narrowing to 1,476,419 thousand US$ by 2021, primarily driven by the sharp increase in NOPAT despite the rising cost of capital.

In summary, while the significant growth in NOPAT during 2021 greatly reduced the annual economic loss, the combination of a high cost of capital and a large base of invested capital continued to result in negative economic value added.

The financial performance displayed over the reported periods reveals significant volatility in key profitability measures.

Net Earnings (Loss) Attributable to Mosaic

The net earnings figures exhibit substantial fluctuations across the five-year span. In 2017, the company recorded a net loss of approximately $107.2 million. This shifted positively in 2018, showing a net profit of $470 million. However, this trend reversed sharply in 2019, with net losses deepening to roughly $1.067 billion. The year 2020 marked a recovery with net earnings rising to $666.1 million, followed by further strong gains in 2021, reaching about $1.63 billion. This pattern indicates a high degree of instability in profitability, with pronounced losses in 2017 and 2019 contrasted by substantial profits in 2018, 2020, and 2021.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values similarly demonstrate marked variability. In 2017, NOPAT was approximately $610.5 million, followed by a decline to $515.1 million in 2018. The most notable change occurred in 2019, with NOPAT plunging to a negative $1.198 billion, signaling operational challenges. In 2020, NOPAT rebounded to $136.4 million, and then grew significantly to about $1.88 billion in 2021. The results suggest a recovery in operational efficiency beginning in 2020 after a considerable downturn in 2019, with 2021 marking the highest operational profitability within the period.

Overall, the data demonstrates a pattern of extreme fluctuations in both net earnings and operating profitability. The year 2019 represents a significant downturn in both measures, followed by a phased recovery in the subsequent years. The company’s financial results reflect considerable volatility possibly driven by external market conditions or internal operational factors that affected profitability during the reviewed timeframe.

Provision for (benefit from) income taxes

The provision for income taxes exhibited considerable volatility over the five-year period. In 2017, the provision was a positive amount close to $495 million, indicating a tax expense. This sharply declined in 2018 to approximately $77 million, followed by a notable shift into a tax benefit in 2019 and 2020, with negative amounts of roughly $225 million and $579 million respectively. However, in 2021, the provision reverted to a tax expense of around $598 million. This fluctuation suggests significant changes in taxable income or tax-related adjustments during these years.

Cash operating taxes

Cash operating taxes demonstrated an increasing trend with some fluctuations. In 2017, a negative value near -$69 million indicates a tax benefit or refund during that year. From 2018 onwards, cash operating taxes were positive and generally growing, rising from about $211 million in 2018 to over $526 million in 2021. This progressive increase in cash taxes paid corresponds with a return to a positive tax provision in 2021, reflecting higher tax payments aligning with increased taxable earnings or changes in tax liabilities.

Total reported debt & leases

The total reported debt and leases exhibit a general declining trend over the period analyzed. Starting at approximately 5.88 billion USD at the end of 2017, the liabilities decreased to about 5.15 billion USD by the end of 2021. This represents a consistent reduction in debt levels during the timeframe, with the most notable year-on-year decrease occurring between 2019 and 2021, indicating potential efforts to deleverage or optimize debt management.

Total Mosaic stockholders’ equity

Stockholders’ equity showed fluctuations but overall an increasing trend. It grew from roughly 9.62 billion USD at the end of 2017 to about 10.60 billion USD by the end of 2021. After peaking above 10.39 billion USD in 2018, equity declined somewhat in 2019 but rebounded in the following years, suggesting periods of both capital accretion and consolidation. The equity levels at the end of the period are the highest reported and indicate strengthening shareholders' financial interest in the company.

Invested capital

Invested capital remained relatively stable with minor fluctuations, beginning at approximately 15.02 billion USD in 2017 and ending at about 15.84 billion USD in 2021. The values show a slight increase overall but include periods of decline, notably between 2018 and 2020. The general stability of invested capital indicates consistent asset or business investments relative to the company's size, without extreme expansions or contractions.

Summary of trends and insights

The data reflect a company progressively reducing its total debt and lease obligations over the five-year span, positively impacting financial leverage and possibly credit risk. Concurrently, the rise in stockholders’ equity suggests that the company has successfully maintained or increased its capital base, which may result from retained earnings or additional equity infusion. The sturdiness of invested capital further reinforces a stable investment footing. Taken together, these patterns imply a strategic emphasis on strengthening the balance sheet and maintaining capital adequacy while potentially streamlining debt exposure.

The financial performance between 2017 and 2021 is characterized by persistent negative economic profit, indicating that the organization did not generate returns exceeding its cost of capital during this period. However, a notable recovery trend emerged after 2019, suggesting an improvement in value creation efficiency toward the end of the observed timeframe.

Economic Profit

Economic profit remained negative throughout the five-year interval. Losses expanded from -2.15 billion USD in 2017 to a peak deficit of -3.69 billion USD in 2019. Subsequently, a recovery phase occurred, with losses narrowing to -2.65 billion USD in 2020 and further improving to -1.48 billion USD by December 31, 2021.

Invested Capital

Invested capital exhibited relative stability, fluctuating within a narrow range. The capital base peaked at 15.84 billion USD in 2021 after reaching a period low of 14.65 billion USD in 2020. The absence of significant volatility in the capital base indicates that the fluctuations in economic profit were primarily driven by operational performance or changes in the cost of capital rather than substantial shifts in the investment scale.

Economic Spread Ratio

The economic spread ratio remained negative, confirming that the return on invested capital was consistently below the required rate of return. The ratio deteriorated from -14.31% in 2017 to a low of -24.44% in 2019, mirroring the peak in economic losses. From 2020 onward, the ratio improved consistently, reaching -9.32% in 2021, which represents a significant reduction in the spread deficit and a trajectory toward positive value creation.

Between 2017 and 2021, a consistent negative economic profit was maintained, indicating that returns on capital did not exceed the cost of capital during this five-year period. However, a significant recovery trend is evident in the latter part of the period, characterized by a reduction in economic losses and a corresponding improvement in the economic profit margin.

Economic Profit Trends

Economic losses experienced a period of volatility, expanding from -2,149,792 thousand US dollars in 2017 to a peak deficit of -3,688,677 thousand US dollars in 2019. Following this trough, losses narrowed progressively, reaching -1,476,419 thousand US dollars by the end of 2021, marking the lowest deficit in the observed sequence.

Net Sales Performance

Revenue demonstrated growth from 7,409,400 thousand US dollars in 2017 to 9,587,300 thousand US dollars in 2018, followed by a period of relative stagnation between 2019 and 2020. A substantial increase occurred in 2021, with net sales rising to 12,357,400 thousand US dollars, suggesting a strong expansion in top-line performance.

Economic Profit Margin Analysis

The economic profit margin mirrored the volatility of absolute economic profit, reaching its lowest point in 2019 at -41.42%. From 2020 onward, a marked improvement was observed, with the margin contracting to -11.95% in 2021. This indicates that while the company remained in a state of negative economic value added, the efficiency of capital utilization relative to sales improved significantly toward the end of the analyzed period.