ICL Group Ltd. (ICL) Q3 2026 Earnings Call Transcript

Hello, everyone. Thank you for joining us, and welcome to the ICL 3rd Quarter 2026 Earnings Call International. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Peggy Riley-Tharp, Vice President of Global Investor Relations. Peggy, please go ahead.

Hello, everyone. I'm Peggy Riley-Tharp, Vice President of Global Investor Relations for ICL Group. I'd like to welcome you and thank you for joining us today for our earnings conference call. This event is being webcast live on our website at icl-group.com, and there will be a replay available a few hours after the live call, and a transcript will be available shortly thereafter. Earlier today, we filed our reports on our presentations with the securities authorities and the stock exchanges in both Israel and the United States. Those reports, as well as the press release on our presentation, are available on our website. Please be sure to review the disclaimer on slide two of the presentation. Our comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance. The company undertakes no obligation to update any information discussed on this call at any time. With that, we will begin with the presentation by our CEO, Mr. Alad Aronson, followed by Mr. Asap Aparevich, our CFO. After the presentation, we will open the line for the Q&A session. I would now like to turn the call over to Alad.

Thank you, Peggy, and welcome, everyone, to review our third quarter 2026 earnings. On slide three, you can see some highlights. We delivered another quarter of growth in key results with sales of $1.9 billion, which were up 3% year-over-year. Adjusted EBITDA of $402 million increased 1% versus the prior year. This growth was achieved despite record high raw material prices and elevated freight and logistics costs. During the quarter, we successfully implemented price increases across few end markets and targeted a high-margin product mix. On an annual basis, gross margin improved 30 basis points in the third quarter to 32.9%, our highest rate since the fourth quarter of 2024. For the third quarter, we reported a 2% improvement in adjusted net income of $126 million, which translates to adjusted earning per share of $0.10. Operating cash flow was $256 million in the third quarter, while free cash flow was $66 million, as we delivered solid underlying cash generation. If you turn to slide four, I would like to share some business highlights for each of our current segments. For industrial products, a very strong quarter was driven by higher bromine prices and improving demand in key end markets. In potash, higher prices partially offset the strong currency headwinds and higher energy and logistic costs we experienced in the third quarter. Looking ahead, industry fundamentals remain constructive, supported by healthy global demand and continued supply and logistics constraints in key regions. For phosphate solutions, we outperformed the market as our diversified specialty offerings demonstrated resilience and helped partially offset higher sulfur prices and tight supply. We leveraged the flexibility of our production network to optimize capacity utilization and sales mix, prioritizing higher value applications and driving profitability. And our growing solution segment exercised discipline in terms of pricing, mix, and costs. Helping to navigate challenging global market conditions and soft demand in key markets. These actions help mitigate some of the market pressures in the third quarter. While I will return later in the call with strategic update, I would now like to turn things over to Asaf for a review of our financials, macro environment, and outlook.

Thank you a lot. I would like to get started with a review of our business segments and begin with industrial products. On slide 6, you can see third quarter sales of $347 million were up 18% year over year. While EBITDA of $100 million was up nearly 50%. These strong results were driven by higher bromine prices and solid performance from key business lines. For flame retardants, sales increased from both a bromine and phosphorus-based solutions. Brominated products benefited from higher pricing and continued growth in demand from the electronics and markets, while phosphorus products benefited from an improvement in construction and market demand. Sales increased for our cleaved brine fluids, which are used by the oil and gas industry during well completion. We saw stable demand for our specialty minerals products, which include magnesia, calcium carbonate, and soil products, with improvement in the food and pharma and markets. Turning to our potash division on slide 7, for the third quarter, sales of $469 million were up 4% year-over-year. EBITDA of $157 million declined approximately 7% on an annual basis as higher prices and volumes were unable to offset an increase in energy and transportation costs combined with exchange rate headwinds. Our average potash price for the third quarter was $370 per ton. This amount was up 5% year-over-year, but down 2% sequentially as we supplied a higher proportion of our volumes to India and China versus other markets as part of our annual contractual obligations. As you know, contract prices in these markets are generally below prevailing spot prices, resulting in a less favorable destination mix and some pressure on margins. Potash production volumes came in at 1,146,000 metric tons in the third quarter and were in line with the PIOU. Despite recent price increases, Potash remains relatively affordable, compared to nitrogen and phosphate fertilizers, supporting continued good demand in key markets. Now, turning to a review of our phosphate solution division on slide 8, where third quarter sales were $589 million. EBITDA was $118 million, as we delivered EBITDA margin of 20%. These solid results were achieved in spite of significantly higher raw material costs. As Elah discussed, the diversity of a phosphate solution business, including both speciality and commodity phosphates, which serve a broad range of end markets and applications, help to drive these solid results. For our specialty food phosphates, sales decreased in the third quarter. We saw continued growth in our new business pipeline and success in our regional expansions, which are focused on meeting the needs of local preferences. We are also benefiting from the continued consumer shift to good-for-you products. Our specialty industrial phosphates also delivered higher sales and profit with firm battery demand for electric vehicles in China. For phosphate fertilizers, quantity and profitability declined on lower demand and higher sulfur prices. In order to help manage these record-high sulfur prices, we proactively optimized phosphate production in China and in Israel in the third quarter. This included advancing maintenance activities, reducing overtime, and extending our holiday break. We are already seeing improvement in purchase prices, which we expect to benefit from in 2027. This brings us to our growing solution business division on slide nine. Sales for the third quarter were $538 million, while EBITDA was $44 million. While pressure from high raw material costs and supply chain volatility continued in the third quarter, the team did an excellent job of proactively and effectively managing controllable factors. This included taking pricing actions where prudent, while focusing on favorable mix and managing working capital. On a regional basis, soft market conditions remained an issue in Brazil as overall demand was weak. Customers delayed purchasing decisions and shifted to less premium products when possible. While the mood remains uncertain in Brazil, I would remind everyone that agribusiness accounted for 25% of the country's GDP in 2025. Brazil ranks among the largest producers of several agriculture outputs, and more than half of all soybeans traded internationally originate in Brazil. Over the coming years, global demand for food and agriculture products is expected to continue to grow, driven by population growth and rising income. And Brazil is uniquely positioned to meet this incremental demand. So, while the past few quarters have been challenging, our commitment to Brazil remained part of our long-term growth strategy. Turning briefly to a few other key regions. In North America, sales remained stable in the third quarter, while Asia delivered modest growth in both sales and profits. In many global regions, farmers are buying just in time, and we are actively working to increase our market share in those locations. For UOP, despite improved product mix, weaker demand, due to farmer affordability, impacted sales. Our key specialty agriculture products have continued to perform well, and our sales teams are working with customers to support their dynamic needs. During the quarter, GrowingSolutions did a remarkable job of concentrating effort on the right countries, categories, and products, while maintaining a commitment to cost-savings actions. We remain focused on navigating the current environment with discipline, while ensuring we are well-positioned to capture the upside when market conditions improve. Let us now turn to slide 10 with a quick look at quarterly changes in key market metrics. On the positive side, the grain price index in the U.S. improved on both a quarterly and annual basis, with corn, rice, soybeans, and wheat all trending up. While the average grain price index increased again through October, This was solely due to a strength in rice, as corn, soy, and wheat all reversed course. Through October, farmer affordability improved, with U.S. farmers' sentiment decreasing sequentially. While high input costs remained a concern, farmers were more optimistic about their financial prospects and the investment environment than in the prior quarter. Turning to commodity prices. In the third quarter, spot potash prices in the U.S. increased approximately 3% on a sequential basis, which supported the growth in potash sales versus the prior year. For October, average prices ticked up another 2% versus the end of the third quarter. While phosphate fertilizer prices were up 15% on an annual basis, they declined approximately 4% in the third quarter, as affordability continued to impact demand. In the third quarter, the average sport price of sulfur increased more than 220% on an annual basis. These increases impacted margin rates for our phosphate solutions and growing solution segments in the third quarter. However, for October, the average price of sulfur declined by approximately 12% versus the third quarter, and we're seeing signs that purchase price pressure is beginning to ease. Given the normal lag between purchasing sulfur and consuming it, lower purchase prices should begin to benefit our results in the first quarter of next year. Oceanfront rates also remained elevated. For the third quarter, average bulk carrier ship prices increased 24% on an annual basis and 9% on a sequential basis. While these rates will remain subject to geopolitical uncertainty, we will continue to effectively manage rates and routes to help offset the full impact. Turning to slide 11 and a few other key indicators. While spot-bromming prices for the third quarter declined versus the second, they were up nearly 40% annually. This increase helped support a strong year-over-year financial performance of our industrial product segment in the third quarter. Bromming prices rebounded in October to first quarter levels, and we expect this increase to support strong fourth quarter performance in industrial products. For the food ingredients market, conditions remain constructive, supported by improving volumes, increased customer innovation, and reformulation activity. And continued demand for value-added specialty ingredients. Finally, let's take a look at exchange rates. As you know, ICL is a dollar-denominated company. So, as the shekel strengthens versus the U.S. dollar, it makes it more costly for operations in Israel. For the third quarter, the dollar strengthened versus the shekel by 3% on a sequential basis and another 2% in October. We will continue to use hedging strategies to help mitigate currency risk and to closely monitor changes in the dollar to shekel exchange rates, along with other significant currency fluctuations. Now, if you turn to slide 12 for a look at our third quarter sales bridges. On a year-over-year basis, sales were up nearly $60 million, or approximately 3%, and our diversified business models supported this increase in sales. While its trajectory of our four businesses will not always be ascending together, our diverse portfolio of food, industrial, and agriculture solutions provides offsets during times of seasonality and end-market inconsistency. Turning to the right side of the slide, you can see $171 million benefit from higher prices this quarter, including contribution from more favorable product mix, which was partly offset by $134 million of lower quantities. Exchange rates also had a positive impact on sales in the third quarter. On slide 13, you can see our third quarter adjusted EBITDA, which improved slightly versus the prior year, despite significant headwinds across several of our business segments. Higher prices, together with operational improvements, more than offset the impact of exchange rate fluctuations, record high raw material costs, and increases in energy and transportation expenses. Turning to slide 14 and a few more third-quarter financial highlights, our balance sheet remained strong with available cash resource of $2.2 billion. In the quarter, we delivered operation cash flows of $256 million, while free cash flow was $66 million. This was achieved despite an increase in inventory, primarily reflecting temporary software demand for commodity phosphates. And the impact of higher sulfur costs on inventory values. Our net debt to adjusted EBITDA rate remained at a stable 1.5 times, and once again, we are distributing 50% of adjusted net income to our shareholders. This translates to a total dividend of $63 million in the third quarter and results in a trading 12-month dividend yield of 4.1%. Now, turning to slide 15 and review of our guidance for 2026. We are reiterating on guidance and continue to expect consolidated EBITDA to be between $1.5 to $1.7 billion and are currently targeting to be ahead of the midpoint of this range. This continues to reflect the expected impact of high raw material costs and currency headwinds. For Porter's sales volumes, we continue to expect this amount to be between 4.5 and 4.7 million metric tons due to operational improvements made in 2025. We also continue to expect our annual adjusted tax rates to be approximately 30%. With that, I would like to turn the call back over to Elad for an update on a long-term strategy.

Thank you, Asaf. On slide 17, I would like to quickly review our new organizational structure, which will begin on January 1st, 2027. As you can see, all of our food and beverage, health, nutrition, and wellness solutions will be housed under our new nutrition solution segment. Our industrial phosphate products will join our existing industrial solution segment. Growing solutions will remain dedicated to specialty crop nutrition, while our commodity phosphates and our potash operations will join together to become our essential mineral segment. We believe this dedicated focus on the food, industrial, and agriculture end markets will drive long-term growth. On slide 18, you can see some of the expansion opportunities we are pursuing, both organically and via acquisitions. For food, we are actively integrating our boutique acquisition and are already cross-selling several innovative new products. These include functional ingredients for our bakery customers, such as solutions that provide optimal leavening and flavor control or that aid in door processing and preservation. In the confectionary space, we have developed fortified gummies with calcium and magnesium and are providing other cleaner label solutions for this segment. In our industrial products business, we plan to leverage our technological expertise in advanced chemical solutions for electronic materials and manufacturing processes, together with our global rich and deep supply chain knowledge. This will allow us to capture growth opportunities driven by AI infrastructure, robotics, cutting-edge semi-contractors, and related technologies.

For growing solutions, we are advancing our focus on developing biostimulants products to enrich fertilizer efficiency.

Through the use of state-of-the-art technology and by maximizing our advanced knowledge of fertilizer use and farmer needs, we are facilitating the development of new and innovative products for the agriculture industry. If you turn to slide 19, I would like to highlight our Elevate Cost Transformation Program. We expect approximately 50 to 60 percent of the projected EBITDA improvement to be driven by productivity gains and operational efficiencies. A reduction in external spend is expected to deliver 30 to 40 percent of our goal, while ASGNA optimization efforts are forecasted to contribute the remaining 10 to 20 percent. In total, Elevate is expected to deliver more than $350 million on annual basis by the end of 2028. For 2027, we expect to see more than $150 million in annual EBITDA improvement by year-end. Finally, please turn to slide 20, where I'd like to review a few strategic takeaways. This quarter was all about leading with resilience. Across our four business segments, we took proactive actions to effectively manage controllable factors. As a result, we delivered growth in third quarter sales and EBITDA, despite challenging global and industry conditions. We also reduced our operating costs while capitalizing on the dynamic market conditions. We remain committed to pursuing long-term profitable growth. Our transition to a new organizational structure in 2027 will help in directing our efforts. This new framework will help us in focusing on our growth engines and aligning our business with our strategic priorities and our customers' needs. Going forward, we will continue to maximize our core across the global food, industrial, and agricultural markets. As you saw this quarter, our diversified portfolio of product offerings Provides us with the flexibility to optimize our production utilization. It also enables us to benefit from global reach with strong local presence. We also look forward to delivering on our optimization and efficiency goals. As mentioned, our Elevate implementation is on track, and we expect to meet our 2027 savings target of more than $150 million. Looking ahead to 2027, we expect to enter this year from a position of strength. Industry fundamentals appear constructive, supported by healthy global demand, and continuous supply and logistic constraints in key regions. In 2027, we believe we can continue to benefit from our diverse portfolio. Which covers wide array of end markets. Our solid balance sheet will provide resilient foundation. Our new segment structure will sharpen our focus on our core businesses and growth engines and the customers we serve. And our Elevate program is expected to begin delivering meaningful cost savings. When combined, this position ICL for stronger performance and growth as conditions normalize. We look forward to successfully leveraging market and industry dynamics as opportunities emerged in 2027. And with that, I would like to turn the call over to the operator for the Q&A session.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ben Thurer with Barclays. Your line is open. Please go ahead.

Good day, and thank you very much for taking my question. First of all, congrats on a good third quarter. A combined question for you, Elad, probably, and feel free to chime in here as well. So as you look into the cost savings opportunities into 2027, so first of all, how confident are you with that $150 million to be achieved? And shall we think about this over the course of the year to be incremental to it? And then basically by year end, it would be an annualized number like that. And then obviously, in light of that, the market backdrop, and you've pointed it out just at the very end with the position of strength you're going in, strong balance sheet and the tightness in the market. So what would you think is a reasonable assumption for market growth into 2027 versus 26? What are the puts? What are the takes? That combination with Elevate, how should we think about your setup for 27? That would be my first question.

Okay. Hi, good morning. So let's start with Elevate. We have a very specific plan for 2027 now, and I have a high level of confidence that we'll achieve the $150 million in Elevate. The spread between the different quarters, I don't have it right now, but I think there are high chances that we'll meet the overall $150 million for 2022. As for the market, it differs between the different segments. So potash, we feel the market is stabilized, the demand is there. I don't see any drama towards 2027. Phosphate, I would say demand will go up. I'm talking about the phosphate fertilizers now. Demand will go up most probably because farmers will not be able to skip another season. And some of them did skip the 2026 season because of the affordability. So as we see sulfur prices going down, probably prices will go down a bit also, and demand will go up. That's about the phosphate fertilizers. As for the industrial sector, right now, I don't see a real drama. Bromine prices nowadays, Q4, are higher than Q3. I hope it will stay like that for 2027, but it's still too early to say.

Let me just to complement a little bit. So in terms of Elevate, just to remind us that we have three levers, increased productivity that we discussed, the reduced external spread and the optimization of the SG&A, our OPEX. As it relates to our focus, we are very, very focused and engaged and confident in our ability to present these savings. We will start realizing the savings in Q1 of next year, and we'll see a gradual increase naturally, because that's the way things develop. And we are very confident in our ability to achieve this goal, both for next year and, as we indicated, at least $250 million for 2028.

Okay, perfect. And then my second question is even more short-term in nature. If you look at your LTM EBITDA, basically, I mean, you're sitting very strong on a year-to-date basis, and then obviously last year, you would be really almost at the high end of what is your guidance range of 1.5 to 1.2%. You sit on the call. I feel confident to be about 1.6, but let's just say within 1.6 and 1.7, what could go right, what could go wrong? What are the shorter-term risks to be, let's say, at the lower end 1.6? What would be the opportunities to be at the higher end 1.7 for 2026?

So thank you for this question. It's very important for me to clarify one thing about sulfur, which is a major factor for this year. And the peak of the sulfur purchase prices we saw back in August. Since August, the sulfur prices that we buy are getting lower and lower. However, it takes time to consume the sulfur from the inventory all the way to the finished goods and then out of the inventory. And so in that respect, Q4 will reflect higher cost of sulfur in the P&L versus Q3. However, the good thing is that purchase prices are still going down. And that's why we think in that respect, 2027 will be much better. That will be, as for now, that's the main headwind for Q4. As for the rest, I already said, bromine prices are relatively good. Potash prices, I don't see any... We are suffering a bit from the weak agriculture season in Brazil. As you all know, the second semester, that's the high season for agriculture in Brazil. And honestly speaking, it was a soft season for Brazil. So, it can happen that Q4 will be a bit lower, for sure lower, from the first semester of this year. However, coming towards 2027, we'll see much better focus.

Okay, perfect. Thank you very much. I'll pass it on. Thank you.

As a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open. Please go ahead.

Hi, good morning. It's Evan on for Joel, or good evening. Question on pod, I was trying to use. Just talked about it there, but on Q4 for Potash, should we see margins lower considering the flat to down global pricing and higher logistics and energy costs? And could the Q4 volumes overcome this for an EBITDA perspective?

I don't expect much changes in Q4 as it relates to Potash versus Q3. Overall, we can say that the fundamentals for potash are quite constructive and strong. We see pretty healthy demand. As you know, Joel, prices were not elevated to the level we've seen for phosphate and nitrogen. And I think that we do see some upside potentially on the demand. We know that China are replenishing inventory, as you know. Contract negotiations, we still expect to see the resolution of that, and we do expect for 2027 to see a strong demand. But between Q3 and Q4, we don't expect any dramatic change.

Thank you.

Sure.

This concludes the question and answer session. I will now turn the call back to Elad Aronson for closing remarks.

Okay. Thank you, everyone, for participating in this call. Again, Q3 was a resilient quarter for us, taking everything into account. I think we performed very well, and I believe 2027 could be even better. Thank you, and see hearing you next time. Thank you very much. Thank you very much.

This concludes today's call. Thank you for attending. You may now disconnect.