ICL Group Ltd Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Second quarter sales were $1.832 billion, up ~5% year-over-year and 4% quarter-over-quarter. Consolidated adjusted EBITDA was $351 million. Adjusted diluted earnings per share were $0.09. Operating cash flow was $269 million, up over $100 million from first quarter.
• Division Details:
  • Industrial Products: Stable quarter, bromine prices upward with fluctuations, flame retardants sales mixed.
  • Potash division: Sales and EBITDA figures, price and volume details, impact of maintenance and war-related issues, supply prioritization.
  • Phosphate Solutions division: Sales growth, price mix, raw material cost impact, business segments performance.
  • Growing Solutions division: Sales and EBITDA growth, regional performance, acquisition impact.
• Other Highlights: Strong balance sheet with available resources ~$1.5 billion, net debt to adjusted EBITDA rate 1.5x, operating cash flow improvement, successful debt offering extending past 2030, S&P reaffirmed BBB- credit rating with stable outlook, shekel strengthening affecting expenses, dividend distribution of $55 million with trailing 12-month yield 2.6%, focus on capital allocation, cost savings, and efficiency efforts.

Segment Performance

• Industrial Products: Second quarter sales were $319 million, up slightly year-over-year. EBITDA was $69 million. Higher prices for most products couldn't offset lower volumes and product mix shift. Bromine market prices trended upward with fluctuations. Flame retardants sales were slightly down, while phosphorus-based products improved due to higher volumes and prices post-U.S. antidumping measures, and bromine-based flame retardants were down. Clear brine fluid sales to oil and gas industry improved in North America but drilling is seasonal.
• Potash division: Second quarter sales were $383 million with EBITDA of $115 million. Average potash price was $333 CIF per ton, up 11% year-over-year and from first quarter. Potash sales volume was 971,000 metric tons, down over 180,000 metric tons year-over-year. Faced onetime and ongoing items including maintenance shutdown and war-related issues. Prioritized supply to Europe in second quarter and will deliver final 40,000 tons to China and India at 2024 rates in third quarter.
• Phosphate Solutions division: Strong second quarter sales of $637 million, up 11%. EBITDA was $134 million, down vs prior year. Volumes generally higher but prices mixed for commodity and specialty phosphates. Commodity phosphate prices benefited from favorable weather and China export restrictions, while specialty phosphate prices under pressure due to excess supply. Raw material costs, especially sulfur, increased. Food phosphate sales flat but growth in dairy protein and plant protein. Industrial phosphates and battery materials had sales growth, with YPH joint venture in China benefiting from higher prices and volumes.
• Growing Solutions business division: Strong second quarter sales of $540 million, up 9% year-over-year. EBITDA of $56 million, improved 24%. In North America, sales up with higher volumes and profitability despite challenging agriculture economy. Europe sales improved as higher prices offset lower volumes. Asia gross profit improved with increase in Specialty Agriculture products. Specialty Agriculture sales increased in most major regions. Recent acquisitions contributing, including Lavie Bio integration.

Revenue contribution: Europe represented approximately 31% of sales, Asia at 22%, South America 22%, North America 20%.

Guidance

• For Specialties-driven businesses (Industrial Products, Growing Solutions, Phosphate Solutions), expect EBITDA between $0.95 billion and $1.15 billion in 2025.
• Potash sales volumes expected to be between 4.3 million and 4.5 million metric tons, reflecting production impact at Dead Sea due to ongoing war-related issues and the brief war with Iran in June.
• Effective annual tax rate for 2025 expected to average ~30%.
• Continue to fulfill a small amount of 2024 annual potash contracts with China and India in third quarter.
• Third quarter trends expected to improve versus the first half of the year.

Risks

• Global and Local Uncertainties: War-related issues in Israel, including personnel call-ups affecting maintenance operations.
• Raw Material Costs: Increase in raw material costs, especially sulfur, impacting Phosphate Solutions division.
• Market Demand: Potential demand destruction in agricultural market due to imbalance between fertilizer prices and agricultural commodity prices; soft construction end markets globally with varying conditions in U.S., Europe, and China.
• Currency Fluctuations: Shekel strengthening versus U.S. dollar leading to higher expenses as business is done in dollars.
• Brazil Market Challenges: Liquidity issues, high interest rates, and potential trade issues with the U.S. affecting operations in Brazil.

Question and Answer

Q: About the Potash business and its implications in the quarter and guidance, A: Aviram explained that the guidance was lowered due to production gaps accumulating, but the second half is expected to track towards initial goals, with challenges in Dead Sea and Spain also considered.

Q: On Growing Solutions, regarding top line vs EBITDA growth and future outlook, A: Elad said growth is due to mix change and better prices, Aviram mentioned Brazil market details including liquidity, interest rates, and trade issues with U.S.

Q: About global fertilizer demand destruction and construction market, A: Aviram stated there may be demand destruction but not affecting ICL significantly, and discussed weak construction markets in U.S., Europe, and China due to various factors.

Q: On Growing Solutions and IP Q3 outlook and potash price expectation, A: Elad said Growing Solutions Q3 should be strong due to Brazilian market, IP Q3 relatively same, and Aviram mentioned potash price expected to be better in Q3 with move to 2025 contracts and better quantities.

Q: On potash inventory, sales range, and leadership style, A: Elad said inventory won't be dramatically lower, Aviram stated the sales range is due to unknowns, and Elad said he'll share strategy review in future quarters after further review.