Mosaic Co. (NYSE:MOS)

Analysis of the economic profit from 2017 to 2021 reveals a persistent failure to generate returns exceeding the cost of capital, although a significant recovery trend emerged in the final two years. While the organization experienced consistent economic losses throughout the period, the magnitude of these losses decreased substantially by the end of 2021.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited extreme volatility, characterized by a severe contraction in 2019 when results fell to negative 1.19 billion US dollars. This was followed by a sharp reversal, with 2021 marking the highest profit peak in the period at approximately 1.88 billion US dollars, indicating a strong recovery in operational performance.

Cost of Capital and Invested Capital

Invested capital remained relatively stable, fluctuating within a narrow range between 14.65 billion and 15.84 billion US dollars. In contrast, the cost of capital showed an overall upward trajectory, rising from 18.35% in 2017 to a peak of 21.17% in 2021. This increasing cost of capital exerted continuous upward pressure on the required return threshold.

Economic Profit Trends

Economic profit remained negative for the entire five-year duration, signifying that the return on invested capital did not cover the cost of capital. The deficit reached its maximum in 2019 at negative 3.68 billion US dollars, correlating with the NOPAT decline. However, from 2020 onward, the economic loss narrowed significantly, improving to negative 1.47 billion US dollars by 2021, driven primarily by the surge in NOPAT which offset the rising cost of capital.

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.

Between 2017 and 2021, a persistent negative economic profit was recorded, indicating that the returns generated were insufficient to cover the cost of invested capital. While the financial position remained distressed throughout the analyzed period, a notable recovery trend emerged following a peak deficit in 2019.

Economic Profit Trajectory

Economic profit experienced a downward trend from 2017 to 2019, moving from negative 2.15 billion USD to a period low of negative 3.69 billion USD. Following this trough, a consistent recovery was observed, with losses narrowing to negative 2.65 billion USD in 2020 and further improving to negative 1.47 billion USD by the end of 2021.

Invested Capital Stability

The capital base exhibited relative stability over the five-year horizon, fluctuating within a range between 14.65 billion USD and 15.84 billion USD. This stability indicates that the volatility observed in economic profit was primarily driven by operational performance or changes in the cost of capital rather than significant expansions or contractions of the invested asset base.

Economic Spread Ratio Analysis

The economic spread ratio remained negative for the entire duration, mirroring the trajectory of economic profit. The ratio reached its lowest point in 2019 at -24.42%, signifying the widest gap between the return on invested capital and the required rate of return. A significant reversal followed, with the ratio improving to -18.07% in 2020 and reaching -9.29% in 2021, marking the highest efficiency level within the five-year period.

Between 2017 and 2021, economic profit remained consistently negative, indicating that the company did not generate returns exceeding its cost of capital during this five-year period. While the entity failed to achieve a positive economic value added, a clear trend of recovery is observable following a significant downturn in 2019.

Economic Profit Volatility

Economic losses expanded from approximately $2.15 billion in 2017 to a peak deficit of $3.69 billion in 2019. Following this trough, the losses began to contract, reducing to $2.65 billion in 2020 and further improving to $1.47 billion by the end of 2021.

Net Sales Correlation

Revenue experienced fluctuations, rising to $9.59 billion in 2018 before declining to $8.68 billion by 2020. A substantial increase in net sales to $12.36 billion in 2021 coincided with the most significant reduction in economic losses, suggesting that increased scale contributed to the improvement in value creation.

Economic Profit Margin Analysis

The economic profit margin reached its lowest point in 2019 at -41.38%, reflecting a period of peak inefficiency relative to the cost of capital. Subsequent years showed a recovery in margin performance, with the deficit narrowing to -30.50% in 2020 and reaching its highest level of -11.91% in 2021.

The overall trajectory suggests that while the company struggled with economic value destruction for several years, the sharp increase in net sales and the corresponding narrowing of the economic profit margin in 2021 indicate a movement toward potential economic profitability.