Joc O'Rourke
President and Chief Executive Officer at Mosaic
Good morning. Thank you for joining our third quarter 2022 earnings call. Mosaic delivered record third quarter revenues of $5.3 billion, which resulted in net income of $842 million, or earnings per share of $2.42. Adjusted earnings per share was $3.22 and adjusted EBITDA was $1.7 billion. These results are driving significant cash flow generation, which is allowing us to return significant capital to shareholders, while also continuing to invest in the business and strengthen the balance sheet. During the quarter, we returned roughly $670 million to shareholders, including $600 million of share buybacks.
Now, before diving into our operations, I'd like to address current market dynamics. Food security remains a concern around the world, global grain and oilseed stock-to-use ratios remain at 20-year lows and early data continues to suggest there may be further downside to total production once the fall harvest is complete. It is important to remember that the market was tight when the year began, well before the start of the war and issues over the last several months have further exacerbated the situation. Ukraine's production shortfall is significant. But weather issues like high temperatures and drought conditions in other major growing regions are having an even bigger impact on an already tight market.
In the U.S., weather delayed spring planting and the compressed planting window reduced nutrient applications. The growing season was further impacted by high temperatures and drought in some areas. Weather tends to be a significant factor in yield, but under fertilization doesn't help and you can only mine the soil for so long. Both are contributing to an expectation of weaker-than-normal North American harvest. And this was reflected in the most recent USDA yield forecast. In Brazil, fertilizer shipments appeared poised to have dropped around 10% year-over-year and while anemia [Phonetic] remains a threat despite the market counting on record-breaking corn and soybean production.
Beyond grains and oilseeds, we're seeing food security issues play out in other crops as well. Staples like rice are also seeing significant production shortages driving some countries like India to restrict exports. Because of this, we see a tight market for global grains and oilseeds continuing into 2023 and beyond.
The global fertilizer market remains tight with supply constraints in both potash and phosphate is still unresolved. Global potash supply remains impacted by the significant reduction in Belarusian exports, which we think will be down 8 million tonnes in 2022. Of the 4 million tonnes, they will export this year, we estimate about 2 million tonnes were shipped in the first quarter before the sanctions and Lithuania's decision to prevent Belarus from using exports. Belarus exports are down significantly from the first quarter and we do not expect much recovery through the rest of the year or for most of 2023. This means, the market will continue to be short of potash in 2023.
The phosphate market is also impacted by supply constraints. China production is down because of environmental concerns and exports are being restricted to ensure domestic availability and affordability. This year, we expect China's phosphate exports will be down by up to 5 million tonnes. Those restrictions could extend through at least the first half of 2023 and possibly beyond as China prioritizes securing domestic food supply and meeting growing industrial demand.
While global channel inventories of phosphate and potash remain below historic norms, certain regions especially in the areas where we do most of our business, saw inventories build in the first half of the year. But prices have retreated back to levels low enough to entice growers to step back into the market. We expect inventories to continue working lower through the end of the year and into early 2023. U.S. fall application has been trending back towards normal levels. We believe we could end the season with inventory significantly depleted, especially for phosphates. The U.S. is also experiencing low water levels on the Mississippi River, which is delaying supply coming through New Orleans.
In Brazil, the higher-priced inventory built during the first half of the year has slowed third quarter shipments. But sentiment is improving. Prices have retreated enough to encourage sales and we expect inventories will end the year much the same as where they started. The barter ratio suggests we're approaching a much more constructive environment for demand.
In India, importers are taking advantage of the price pullback in phosphates. India's phosphates inventory is still low, while farmer demand remains strong. Government subsidies remain at a level that is supportive of phosphate imports but are likely to leave the country short of adequate supply of potash.
To summarize, the strength of crop prices and more affordable fertilizer prices suggest nutrient demand will recover from the summer lull we experienced during the third quarter. Given the constructive ag backdrop, we believe our business is well positioned to benefit. In our phosphates business, Hurricane Ian forced us to shut down operations late in the third quarter, which delayed shipments at the end of September. Our team performed admirably and was able to get our Florida operations back up and running quickly following the hurricane. We estimate the shortfall in production to be in the range of 200,000 tonnes.
Looking forward, we now expect fourth quarter sales to be in the range of 1.7 million to 2 million tonnes. Our phosphate business is expected to benefit from lower raw material prices in the fourth quarter, particularly as low sulfur prices start flowing through our costs. We expect a fourth quarter benefit of $40 to $45 per tonne from lower raw materials in our North American phosphate business over the cost in the third quarter.
In our potash business, we are realizing the benefits of improved volumes from Esterhazy and from the addition of Colonsay. 11 of the 13 planned miners are now running at Esterhazy and improved operating rates at Colonsay together are driving higher volumes. We anticipate some turnarounds during the fourth quarter that will impact total production but expect sales volumes to be 2 million to 2.2 million tonnes.
Mosaic Fertilizantes continues to be a very good business, having earned $1.2 billion in EBITDA over the last 12 months. High inventories built during the second quarter led to slower than initially expected demand during the third quarter as shipments typically seen during quarter three didn't materialize. But pricing trends towards the end of the third quarter reached a level that is beginning to drive shipments and we've begun seeing that in our business. Some of the third quarter buyer hesitancy is impacting the fourth quarter, but we expect trends to begin normalizing as we finish out the year.
Before moving on, I'd like to address the next iteration of our transformation process. Over the last three years, we've extracted significant cost efficiencies in Brazil, lowered our cost profile in the potash business with transition to Esterhazy K3 and benefited from the combination of support functions across North America.
Our next area of focus is the realization of efficiencies through a digital transformation of how we manage our business. In our release last night, we introduced our global digital acceleration project, an initiative that will transform how we use data to manage a complex business across our global footprint. This effort will upgrade our core systems and allow for more seamless integration across sales, production, supply chain and global support functions.
Over the next several years, the total cost will be about USD200 million to USD250 million, split roughly evenly between SG&A and capital expenditures. As a result of this transformation, we expect to realize significant benefits in our sales and production planning and our cost and capital management. Similar to our early transformation efforts, this initiative will continue the trend of adding shareholder value. We expect this investment will have a payback in the range of three to four years.
Finally, I want to reiterate that we remain committed to our capital allocation strategy. Later this month, we expect to retire the remaining $550 million of long-term debt that completes our goal of $1 billion of long-term debt reduction. Our capex expenditures expectation this year remains unchanged at $1.3 billion and all remaining free cash flow after these commitments will be returned to shareholders through dividends and share buybacks.
During the quarter, we returned roughly $670 million to shareholders, which included $600 million of share repurchases. Over the last year, we've reduced our share count from approximately 380 million shares to 340 million shares. Putting all of this together, our outlook is quite strong. The global agriculture market continues to point to tight supply and demand for grains and oilseeds.
We strengthened our balance sheet. Our team has recovered from Hurricane Ian in Florida. Our potash business continues to benefit from our low-cost position at Esterhazy and the flexibility gained from restarting Colonsay. Our Brazil distribution business has a significant and growing footprint in an important agricultural market. We have positioned ourselves to maximize value across our business and this has allowed us to return significant capital to shareholders.
With that, let's move on to the fireside chat portion of our call. Paul?
