Mosaic Co. (NYSE:MOS)

The period under review demonstrates significant fluctuations in financial performance, particularly concerning net operating profit after taxes and, consequently, economic profit. A clear pattern of negative economic profit is consistently observed throughout the analyzed timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced a decline from US$610.47 million in 2017 to US$515.09 million in 2018. A substantial negative value of approximately negative US$1.20 billion was recorded in 2019, representing a significant downturn. A recovery to US$136.36 million occurred in 2020, followed by a considerable increase to US$1.88 billion in 2021. This indicates substantial volatility in core operational profitability.

Cost of Capital

The cost of capital exhibited variability across the years. It increased from 18.45% in 2017 to 19.56% in 2018, then decreased to 16.57% in 2019. A rise to 19.10% was seen in 2020, culminating in the highest value of 21.28% in 2021. The increasing cost of capital in later years likely contributed to the continued negative economic profit despite improving NOPAT in 2021.

Invested Capital

Invested capital remained relatively stable between 2017 and 2019, fluctuating between US$15.02 billion and US$15.59 billion. A slight decrease to US$14.65 billion was observed in 2020, followed by an increase to US$15.84 billion in 2021. These changes in invested capital appear to have a less pronounced effect on economic profit compared to the fluctuations in NOPAT and cost of capital.

Economic Profit

Economic profit was negative throughout the entire period. The largest negative value was recorded in 2019 at approximately negative US$3.70 billion. While the negative economic profit lessened in 2021 to approximately negative US$1.49 billion, it remained substantial. The consistent negative economic profit suggests that the company’s returns on invested capital were consistently below its cost of capital, indicating value destruction during this period.

The substantial improvement in NOPAT in 2021 did not translate into positive economic profit, primarily due to the concurrent increase in the cost of capital. This suggests that while operational performance improved, the cost of funding those operations increased at a faster rate, continuing to erode shareholder value.

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 economic spread ratio exhibited a consistently negative trend between 2017 and 2019, followed by improvement in the subsequent two years. Economic profit remained negative throughout the analyzed period, though the magnitude of the loss decreased from 2020 to 2021. Invested capital fluctuated modestly over the five years, showing a slight increase overall.

Economic Spread Ratio

The economic spread ratio declined from -14.39% in 2017 to -24.51% in 2019, indicating a widening gap between the company’s return on invested capital and its cost of capital. This suggests a decreasing ability to generate returns exceeding the cost of funding. A subsequent improvement occurred, with the ratio reaching -9.41% in 2021. While still negative, this represents a substantial positive shift, indicating a narrowing of the gap between returns and costs.

Economic Profit

Economic profit consistently registered as a negative value across the five-year period. The largest loss occurred in 2019, at -3,698,536 US$ in thousands. Losses decreased in both 2020 and 2021, falling to -2,663,009 and -1,490,637 US$ in thousands respectively. This suggests a gradual improvement in the company’s ability to generate profits above its cost of capital, although it has not yet achieved positive economic profit.

Invested Capital

Invested capital remained relatively stable throughout the period, ranging between 14,653,500 and 15,843,300 US$ in thousands. A slight increase is observable from 2017 to 2021, moving from 15,024,306 to 15,843,300 US$ in thousands. This indicates a moderate expansion in the company’s capital base.

The combined trends suggest that while the company experienced consistent economic losses, its performance improved from 2019 to 2021. The narrowing of the economic spread ratio, coupled with the decreasing magnitude of economic profit losses, indicates a positive trajectory, though further improvement is needed to achieve positive economic value creation.

The economic profit margin exhibited considerable fluctuation between 2017 and 2021. Initially negative, the margin worsened significantly before showing signs of improvement in the later periods. A consistent pattern of economic loss is evident throughout the analyzed timeframe.

Economic Profit Margin Trend

The economic profit margin began at -29.17% in 2017. It improved slightly to -26.44% in 2018, but then deteriorated substantially to -41.53% in 2019, representing the lowest point in the observed period. A partial recovery occurred in 2020, with the margin increasing to -30.67%. The most significant improvement was observed in 2021, where the margin rose to -12.06%, although it remained negative.

Net sales demonstrated an increasing trend over the period, with a peak in 2021. However, this increase in sales did not translate into positive economic profit. The negative economic profit values suggest that the cost of capital consistently exceeded the returns generated from operations, despite growing revenue.

Relationship between Net Sales and Economic Profit Margin

While net sales increased from US$7,409,400 thousand in 2017 to US$12,357,400 thousand in 2021, the economic profit margin remained negative throughout. The largest increase in net sales occurred between 2020 and 2021, coinciding with the most substantial improvement in the economic profit margin, indicating a potential, though incomplete, correlation between revenue growth and profitability. The substantial economic losses in 2019, despite relatively stable sales compared to 2018, suggest factors beyond revenue volume significantly impacted economic profitability.

The decreasing negativity of the economic profit margin in the final year of the period suggests a potential shift in the company’s ability to generate returns closer to, but still below, its cost of capital. Further investigation would be required to determine the underlying drivers of this improvement and its sustainability.