Nutrien Reports Third Quarter 2023 Results

Delivered record potash sales volumes in the third quarter and benefited from strong crop nutrient demand in North America.

All amounts are in US dollars except as otherwise noted

Nutrien Ltd. (TSX and NYSE: NTR) announced today its third quarter 2023 results, with net earnings of $82 million ($0.15 diluted net earnings per share). Third quarter 2023 adjusted net earnings per share¹ was $0.35 and adjusted EBITDA¹ was $1.1 billion.

“Nutrien’s third-quarter results reflect the strength of agriculture and crop nutrient market fundamentals in North America. We delivered record potash sales volumes and are encouraged by the increased level of demand and market stability in the second half of 2023. We are optimistic on the outlook for our business and will continue to position the company to efficiently serve the needs of our customers,” commented Ken Seitz, Nutrien’s President and CEO.

“Our focus is on initiatives that strengthen the advantages of our integrated business, drive operational efficiencies and increase free cash flow. We expect to deliver growth from highly targeted investment projects and maintain a balanced and disciplined approach to capital allocation, including the return of meaningful capital to our shareholders,” added Mr. Seitz.

Highlights²:

• Generated net earnings of $1.1 billion ($2.18 diluted net earnings per share) and adjusted EBITDA¹ of $5.0 billion ($4.01 adjusted net earnings per share¹) in the first nine months of 2023, down from the record levels achieved over the comparable period in 2022. Adjusted EBITDA declined primarily due to lower net realized fertilizer prices across all segments and lower Nutrien Ag Solutions (“Retail”) earnings.
• Retail adjusted EBITDA declined to $197 million in the third quarter primarily due to lower gross margin for crop protection products, partially offset by higher gross margin for crop nutrients and seed. Crop nutrients gross margin increased in the quarter due to improved grower demand and higher per-tonne margins for our commodity fertilizer and proprietary nutritional and biostimulant product lines.
• Potash adjusted EBITDA declined to $611 million in the third quarter due to lower net realized selling prices. We delivered record potash sales volumes in the quarter supported by strong demand in North America and increased Canpotex sales to Brazil, which more than offset the impact of logistical challenges at Canpotex’s West Coast port facilities and lower demand from customers in India and Southeast Asia.
• Nitrogen adjusted EBITDA declined to $294 million in the third quarter due to lower net realized selling prices and lower sales volumes due to production outages, which more than offset lower natural gas costs.
• Returned $1.8 billion to shareholders in the first nine months of 2023 through dividends and share repurchases.
• Full year 2023 adjusted EBITDA guidance¹ was narrowed to $5.8 to $6.4 billion and adjusted net earnings per share guidance was revised to $4.15 to $5.00 per share.

Management’s Discussion and Analysis

The following management’s discussion and analysis (“MD&A”) is the responsibility of management and is dated as of November 1, 2023. The Board of Directors (“Board”) of Nutrien carries out its responsibility for review of this disclosure principally through its Audit Committee, composed entirely of independent directors. The Audit Committee reviews and, prior to its publication, approves this disclosure pursuant to the authority delegated to it by the Board. The term “Nutrien” refers to Nutrien Ltd. and the terms “we”, “us”, “our”, “Nutrien” and “the Company” refer to Nutrien and, as applicable, Nutrien and its direct and indirect subsidiaries on a consolidated basis. Additional information relating to Nutrien (which, except as otherwise noted, is not incorporated by reference herein), including our annual report dated February 16, 2023 (“2022 Annual Report”), which includes our annual audited consolidated financial statements and MD&A, and our annual information form dated February 16, 2023, each for the year ended December 31, 2022, can be found on SEDAR+ at www.sedarplus.ca and on EDGAR at www.sec.gov. No update is provided to the disclosure in our 2022 annual MD&A except for material information since the date of our annual MD&A. The Company is a foreign private issuer under the rules and regulations of the US Securities and Exchange Commission (the “SEC”).

This MD&A is based on and should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements as at and for the three and nine months ended September 30, 2023 (“interim financial statements”) based on International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting”, unless otherwise noted. This MD&A contains certain non-IFRS financial measures and ratios and forward-looking statements, which are described in the “Non-IFRS Financial Measures” and the “Forward-Looking Statements” sections, respectively.

Market Outlook and Guidance

Agriculture and Retail

• Weather and geopolitical issues continue to impact global grain and oilseed production and trade flows, resulting in tight inventories. New crop corn and soybean prices have recently incurred some seasonal pressure but remain 10 to 15 percent above the 10-year average.
• Harvest in the US has progressed at an above average pace and fall fertilizer application rates have been strong in regions where harvest has been completed. We project fertilizer demand will be up 5 to 10 percent in the fourth quarter of 2023 compared to the same period in the prior year.
• Brazilian soybean acreage is expected to expand 3 to 4 percent in 2023 and fertilizer demand has increased in the fourth quarter. Growers in Brazil continue to purchase crop inputs on a just-in-time basis, in particular crop protection products.
• Australian growing conditions have been variable and shifting climate patterns could increase the risk of drier weather impacting crop production and crop input demand.

Crop Nutrient Markets

• Global potash prices were relatively stable in the third quarter of 2023 and demand was strong in North America, Brazil and China. We have increased our projected global shipment range to 65 to 67 million tonnes due to the strength of demand in the second half of 2023. We now anticipate exports from Belarus to be down approximately 4 million tonnes and exports from Russia to be down approximately 2 million tonnes, compared to 2021 levels.
• We expect robust agricultural fundamentals and the need to replenish soil nutrient levels will support increased potash consumption next year. We forecast global potash shipments in the range of 67 to 71 million tonnes in 2024, supported by stronger expected demand in Southeast Asia, Latin America, Europe and India.
• Ammonia outages in Europe and production challenges in other key regions have contributed to higher benchmark prices in the second half of 2023. Urea markets are relatively balanced as Chinese export restrictions and strong import demand in India offset weaker seasonal demand in other regions.
• Tight phosphate fertilizer supply has supported global benchmark prices, while recent increases in ammonia and sulfur input costs could pressure phosphate margins.

Financial Guidance

• Based on market factors detailed above, we are narrowing full-year 2023 adjusted EBITDA guidance² to $5.8 to $6.4 billion. Full-year 2023 adjusted net earnings guidance² is revised to $4.15 to $5.00 per share primarily due to a higher projected effective tax rate. Full-year 2023 cash provided by operations is now projected at $4.0 to $4.5 billion and capital expenditures at approximately $2.7 billion.
• Retail adjusted EBITDA guidance was revised to reflect pressure on crop protection product margins in South America and lower projected earnings in Australia, primarily related to weaker livestock markets.
• Potash adjusted EBITDA guidance and potash sales volume guidance were revised due to the strength of North American market fundamentals.
• Nitrogen adjusted EBITDA guidance was narrowed as higher benchmark prices offset lower projected sales volumes. Nutrien lowered Nitrogen sales volume guidance due to unplanned plant outages in the third quarter and the pull-forward of a planned maintenance outage at our Borger site into the fourth quarter of 2023.
• Phosphate adjusted EBITDA guidance was lowered due to the impacts of hurricane related outages in the third quarter and lower projected feed and industrial sales volumes.
• Effective tax rate on adjusted earnings guidance was increased primarily due to an unfavorable change to our geographic mix of earnings. We expect our effective tax rate on adjusted earnings will return to more historical levels in 2024.

All guidance numbers, including those noted above are outlined in the table below. Refer to page 56 of Nutrien’s 2022 Annual Report for related assumptions and sensitivities, except as set forth below.

Consolidated Results

Net earnings and adjusted EBITDA decreased in the third quarter and first nine months of 2023 compared to the same periods in 2022, mainly due to lower net realized selling prices across all segments and lower Retail earnings. This was partially offset by decreased cost of goods sold from lower natural gas and royalty costs, lower provincial mining taxes, and higher sales volumes for Retail crop nutrients. In the first nine months of 2023, we recorded non-cash impairment of assets of $698 million primarily related to South American Retail goodwill and Phosphate property, plant and equipment, resulting in lower net earnings. In the third quarter and first nine months of 2022, we recorded a non-cash impairment reversal of $330 million and $780 million, respectively, related to our Phosphate assets. The decrease in cash provided by operating activities in the third quarter and first nine months of 2023 compared to the same periods in 2022 was primarily due to lower earnings across all segments.

Segment Results

Our discussion of segment results set out on the following pages is a comparison of the results for the three and nine months ended September 30, 2023 to the results for the three and nine months ended September 30, 2022, unless otherwise noted.

Nutrien Ag Solutions (“Retail”)

• Retail adjusted EBITDA decreased in the third quarter of 2023 primarily due to lower gross margin for crop protection products, partially offset by higher gross margin for crop nutrients and seed. For the first nine months of the year, adjusted EBITDA decreased mainly due to lower gross margin for both crop nutrients and crop protection products. Included with expenses for the first nine months of 2023, we recognized a $465 million non-cash impairment primarily to goodwill relating to our South American Retail assets, mainly due to the impact of crop input price volatility, more moderate long-term growth assumptions and higher interest rates.
• Crop nutrients sales decreased in the third quarter and first nine months of 2023 due to lower selling prices across all regions compared to the strong comparable periods in 2022. Third quarter gross margin increased due to improved grower demand and higher per-tonne margins for both commodity fertilizer and our proprietary nutritional and biostimulant product lines. Sales volumes increased for both the third quarter and first nine months of the year as growers returned to more normalized application rates to replenish nutrients in the soil.
• Crop protection products sales were lower in the third quarter and first nine months of 2023 primarily due to decreased prices for certain commodity products compared to the historically strong comparable periods in 2022. Gross margin was also impacted by the selling through of higher cost inventory. Dry conditions in the US Midwest impacted demand for certain crop protection products during the third quarter and first nine months of the year.
• Seed sales and gross margin were higher in the third quarter due to increased cotton sales in the Southern US and the benefits of acquisitions in Brazil. Sales and gross margin for the first nine months of 2023 improved primarily due to increased corn sales in the US.
• Nutrien Financial sales increased in the third quarter and first nine months of 2023 due to higher utilization of our financing offerings in the US as well as the recent launch of NPay, our digitally-enabled financing program in Australia.

Potash

• Potash adjusted EBITDA declined in the third quarter and first nine months of 2023 due to lower net realized selling prices and offshore sales volumes, which more than offset higher North American sales volumes.
• Sales volumes were the highest third quarter on record, primarily driven by strong demand in North America and Brazil. North American sales volumes were higher in the third quarter and first nine months of 2023 due to lower channel inventory and increased grower demand. Offshore sales volumes declined over the same periods due to logistical challenges at Canpotex’s West Coast port facilities and reduced shipments to customers in India and Southeast Asia, partially offset by record Canpotex sales volumes to Brazil.
• Net realized selling price decreased in the third quarter and first nine months of 2023 compared to the historically strong periods in 2022, due to a decline in benchmark prices and higher logistics costs related to logistical challenges at Canpotex’s West Coast port facilities.
• Cost of goods sold per tonne decreased in the third quarter of 2023 primarily due to lower royalties and the timing of turnaround activity. For the first nine months of the year, cost of goods sold per tonne decreased mainly due to lower royalties.

Canpotex Sales by Market

Nitrogen

• Nitrogen adjusted EBITDA decreased in the third quarter and first nine months of 2023 due to lower net realized selling prices for all major nitrogen products, which more than offset lower natural gas costs. During the third quarter, we completed two smaller brownfield expansion projects at our Geismar facility and installed our final nitrous oxide (N₂O) abatement project, which we expect to be a key contributor to reducing our greenhouse gas emissions.
• Sales volumes were lower in the third quarter of 2023 primarily due to unplanned production outages at our plants in Trinidad, Borger and Geismar. Sales volumes for the first nine months of 2023 were flat as increased demand for nitrates and sulfates and strong spring seasonal demand for urea and ESN^® offset lower ammonia sales volumes impacted by the production outages.
• Net realized selling price in the third quarter and first nine months of 2023 was lower for all major nitrogen products primarily due to weaker benchmark prices resulting from lower energy prices in key nitrogen producing regions.
• Cost of goods sold per tonne decreased in the third quarter and first nine months of 2023 due to lower natural gas costs. Ammonia controllable cash cost of product manufactured increased for the first nine months mainly due to higher input costs and lower production.

Natural Gas Prices in Cost of Production

• Natural gas prices in our cost of production decreased in the third quarter and first nine months of 2023 as a result of lower North American natural gas index prices and decreased natural gas costs in Trinidad, where our natural gas prices are linked to ammonia benchmark prices.

Phosphate

• Phosphate adjusted EBITDA decreased in the third quarter and first nine months of 2023 primarily due to lower net realized selling prices for fertilizer products, partially offset by lower ammonia and sulfur input costs. Included with expenses for the first nine months of 2023, we recognized a $233 million non-cash impairment of our White Springs property, plant and equipment, while we had non-cash impairment reversals of our Phosphate assets of $780 million for the first nine months of 2022.
• Sales volumes increased in the third quarter of 2023 due to higher phosphate fertilizer demand, which was partially offset by hurricane-related downtime at our White Springs facility. Sales volumes for the first nine months were lower than the previous year primarily due to lower production impacting our industrial and feed sales.
• Net realized selling price decreased in the third quarter and first nine months of 2023 primarily due to lower fertilizer net realized selling prices, while lower industrial and feed net realized selling prices in the third quarter reflect the typical lag relative to spot fertilizer prices.
• Cost of goods sold per tonne decreased in the third quarter and first nine months due to lower ammonia and sulfur costs, partially offset by higher depreciation from reversal of impairments in 2022.

Corporate and Others

• General and administrative expenses were higher in the third quarter and first nine months of 2023 primarily due to higher staffing costs and higher depreciation and amortization expense.
• Share-based compensation was a recovery in the first nine months of 2023 due to a decrease in the fair value of share-based awards compared to an expense for the comparative period in 2022 reflecting the increase in fair value. The fair value takes into consideration several factors such as our share price movement, our performance relative to our peer group and return on our invested capital.
• Other expenses were higher in the third quarter and first nine months of 2023 compared to the same periods in 2022 due to higher foreign exchange losses primarily from our South American Retail region. The first nine months of 2023 included a $92 million loss on Blue Chip Swaps incurred through trade transactions to remit cash from Argentina. The loss is a result of the significant divergence between the Blue Chip Swap market exchange rate and the official Argentinian Central Bank rate. This was partially offset by an $80 million gain in the first nine months of 2023 from amendments due to design plan changes to our other post-retirement benefit plans.

Eliminations

• Eliminations are not part of the Corporate and Others segment. The elimination of gross margin between operating segments of $32 million for the third quarter of 2023 was lower than the elimination of $51 million in the same period of 2022 as crop input volumes, selling prices and margins related to our intersegment sales decreased. For the first nine months of 2023, there was a recovery of $72 million compared to an elimination of $75 million in the same period in 2022. This variance is due to the timing of release of intersegment inventories held by our Retail segment.

Finance Costs, Income Taxes and Other Comprehensive Income

• Finance costs were higher in the third quarter and first nine months of 2023 compared to the same periods in 2022 primarily due to higher interest on short-term debt from increased commercial paper interest rates and higher average short-term and long-term debt balances.
• Income tax expense was lower in the third quarter and first nine months of 2023 as a result of lower earnings compared to the same periods in 2022. The effective tax rates for the third quarter and first nine months of 2023 were 54 percent and 41 percent compared to 24 percent and 25 percent for the comparative periods in 2022. The increase in effective tax rates was a result of the impacts of the non-cash impairments of assets, the loss on Blue Chip Swaps and a change in recognition of deferred income taxes in 2023.
• Other comprehensive loss was lower primarily driven by changes in the currency translation of our foreign operations, our investment in Sinofert Holdings Ltd. (“Sinofert”) and an actuarial gain on our defined benefit plans in 2022 with no similar transaction in 2023. In the third quarter and first nine months of 2023 compared to the same periods in 2022, we had lower foreign currency translation losses on our Retail foreign operations mainly due to improvements of Canadian and Australian currencies relative to the US dollar. In the third quarter and first nine months of 2023, we had lower fair value losses on our investment in Sinofert due to share price decreases, compared to the same periods in 2022.

Liquidity and Capital Resources

Sources and Uses of Liquidity

We continued to manage our capital in accordance with our capital allocation strategy. We believe that our internally generated cash flow, supplemented by available borrowings under new or existing financing sources, if necessary, will be sufficient to meet our anticipated capital expenditures, planned growth and development activities, and other cash requirements for the foreseeable future. Refer to the “Capital Structure and Management” section for details on our existing long-term debt and credit facilities.

Sources and Uses of Cash

Financial Condition Review

The following balance sheet categories contain variances that are considered material: