ICL Group Ltd (ICL) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the ICL Second Quarter 2026 Earnings Call International. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions] I will now hand the conference over to Peggy Reilly Tharp, Vice President of Global Investor Relations. Peggy, please go ahead.

Hello, everyone. I'm Peggy Reilly 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 there ever. Earlier today, we filed our reports under 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 and our presentation are available on our website. Please be sure to review the disclaimer on Slide 2 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 begin with a presentation by our CEO, Mr. Elad Aharonson; followed by Mr. Asaf Alperovitz, 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 Elad.

Thank you, Peggy, and welcome, everyone, to a review of our second quarter 2026. We delivered another quarter of strong results with sales of $2.1 billion, which were up 17% year-over-year, adjusted EBITDA of $448 million also showed meaningful improvement and increased 28% versus the prior year, as you can see on Slide 3. Before we go into greater detail about the quarter, I would like to take just a few minutes to review our new segments and to discuss our enterprise-wide savings and efficiency measures initiatives elevate. First, I would like to turn to Slide 5 for a quick review of our 3 new strategic principles which we first shared with you on our third quarter earnings call last November. The first is to drive profitable growth by targeting specialty crop nutrition and specialty food solutions. The second is to maximize and improve the businesses that we have identified as core to ICL and this includes our phosphate, potash and bromine resources. The third is dedicated to portfolio optimization and cost efficiency. All 3 of these principles will benefit from our willingness to embrace new technologies like AI and our deep history of innovation to drive profitable growth, we identified 2 distinct businesses which you can see on Slide 6. We believe Specialty Crop Nutrition and Specialty Food Solutions have the potential to be significant growth engines for ICL. These are 2 areas where we already have deep experience and broad exposure and the future looks bright. As you know, ICL's growing solutions segment is already a global leader in specialty crop nutrition. On Slide 7, you can see that in 2020, our Specialty Crop Nutrition sales were $1 billion with EBITDA of approximately $60 million. In 2025, we delivered Specialty Crop Nutrition sales of $2 billion and EBITDA increased in excess of 3x to more than $200 million. Our research indicates then there is still meaningful runway for growth in this business, which will allow us to further strengthen our leadership position in these markets. Turning now to Slide 8 and our second growth engine, Specialty Solutions which is currently part of the Phosphate Solutions segment. We are already leading the $1.5 billion phosphate food specialties market. However, this represents a small piece of the total food billion. In order to accelerate our growth, we are expanding our focus into functional food ingredients. This sizable market provides exposure to approximately $35 billion in value with an expected average 5-year growth rate of approximately 6%. We are strongly positioned in this market with a clear ambition to double our sales and reach $1.5 billion in revenues by 2029. As we have begun executing our strategy, it has become increasingly clear that aligning our corporate structure with our end markets is the right approach for the future. As a result, and after a careful review, which is shown on Slide 9, we have decided to embrace a new organizational structure. This new structure will include dedicated food segment and will consolidate all of our industrial activities into 1 segment. It will also bring our potash and phosphate fertilizers together. We believe this new market-oriented organizational structure will strengthen management focus on our key growth engines and align the business with our strategic priorities. We expect this update to our reporting structure to provide investors with enhanced visibility into the performance growth drivers and value creation potential of our businesses. On Slide 10, you can see each of our 4 segments. Nutrition Solutions will bring together all of our food and briverage, health, nutrition and wellness offerings into 1 place. This will include our existing Food Specialties business along with the food and Pharma Solutions that previously resided in industrial products. Industrial products will be focused on performance and safety solutions for industrial markets. primarily electronics, energy and construction and will now include the industrial phosphate solutions that were formerly under postpaid business segment. This segment will lead our effort to unlock the full potential of high-growth markets such as advanced electronics, semiconductors, AI infrastructure, data centers, and next-generation computing positioning us as the forefront of some of the most dynamic and rapidly expanding industries worldwide. There will be no change to growing solutions which will remain focused on specialty plant nutrition for agriculture, turf and ornamental markets. Essential Minerals will include potash and phosphate fertilizers from our upstream mineral production sites including our potash resources in the Dead Sea and in Spain and our phosphate resources in the negative and in China, and we'll continue to serve the global bicultural markets. This change will take effect in the first quarter of 2027. However, 2025 performance snapshot of each of the new segment is shown on Slide 11. We believe this new structure will allow us to amplify our growth engines as we move ahead with our strategic priorities. If you will now turn to Slide 12, I would like to take just a few moments to introduce you to elevate our new cost transformation program. We have initiated this effort in order to reduce our cost base support our margin expansion, improved cash generation and strengthen our earnings power. Elevate is a corporate-wide effort to increase efficiency and productivity by realigning our cost structure to build a lean and agile company poised on growth. In addition, we will be leveraging AI to accelerate innovation, drive efficiency and improve decision-making. Taken together, these initiatives are expected to deliver more than $150 million in annual EBITDA improvement by the end of 2027, growing to more than $350 million annually by the end of 2028. On Slide 13, you can see our targeted savings. We expect approximately 50% to 60% of the projected EBITDA improvement to be driven by productivity gains and operational efficiencies. A reduction in external spend expected to deliver 30% to 40% of our goal while SG&A optimization efforts are forecasted to contribute the remaining 10% to 20%. While this is an ambitious effort, I know everyone at ICL is committed to taking the necessary steps to make this cost transformation program a reality over the next 2 years. Now let's turn to Slide 15 for a more detailed review of the second quarter. As discussed, we delivered sales of $2.1 billion, which were up 17% year-over-year. These results exceeded expectations and each of our 4 businesses contributed to this solid sales performance as higher prices for potash, bromine and phosphates contributed to the year-over-year improvement. Adjusted EBITDA of $448 million increased 28% versus the prior year. This growth was achieved even as we observed $100 million of higher raw material costs and more than $40 million of exchange rate impact. We also reported a 35% improvement in adjusted net income of $149 million, which translates to adjusted earnings per share of $0.12 an increase of 33%. Operating cash flow of $290 million improved 8% on an annual basis. and free cash flow of $94 million was up 34% in second quarter. Despite continued volatility in global markets during the second quarter, we stayed focused on disciplined execution managing the factors within our control and responding decisively to changing market conditions. We also benefited from our distinctive global presence with regionally diversified operations and from higher prices across the fertilizers, food and industrial markets we serve. Let's turn to our business segments and begin with Industrial Products. On Slide 16, you can see second quarter sales of $414 million were up 30% year-over-year while EBITDA of $130 million was up 88%. This was the segment's best quarterly performance since the end of 2022 and it was mainly driven by higher bromine prices and increased volumes. For flame retardants, overall sales increased. Bromine-based products benefited from higher prices and improved electronics end market demand. Sales of phosphorus-based flame retardants were stable despite muted demand in the construction end markets. for our clear brine fluids, which are used by the oil and gas industry during well completion. -- business remains solid, while sales decreased slightly due to timing shifts Demand in Europe and South America increased in the second quarter. Specialty Minerals, which includes Magnesia calcium carbonate and salt products reported increased sales with strong magnesia demand across a wide array of end markets. Overall, year-over-year improvement was also driven by growth in food and pharma demand, and this trajectory is expected to continue throughout the remainder of 2026. Turning to our Potash division on Slide 17. For the second quarter, sales of $468 million were up 22% year-over-year. EBITDA of $154 million was up 34%. Our average potash price for the second quarter was $376 CIF per ton. This amount was up 13% year-over-year and 4% sequentially. Potash production volumes came in at 1,058,000 metric tons in the second quarter and were up 11% or more than 100,000 metric tons versus the prior year. These gains were achieved has a strong focus on process optimization and cost reduction drove significant improvements in operational performance and resource efficiency. Once okayagain, we continue to maximize our product sales by prioritizing the best global markets, and we also benefited from higher potash prices in the quarter despite recent price increases potash remains relatively affordable compared to nitrogen and phosphate fertilizers, supporting continued demand. Now turning to review the Phosphate Solutions division on Slide 18. For the second quarter, sales increased 13% to $722 million. Higher prices for both commodity and specialty phosphates helped drive sales growth. Second quarter EBITDA of $136 million increased slightly as price increases were able to partially offset the impact of higher raw material prices. for our specialty food phosphates, sales increased in the second quarter, and this reflects not only price increases, but also volume growth from existing and new customers. Growth was across a variety of use cases, including dairy, meat and seafood, in expansion markets like China and India, our specialty food solutions are targeting consumer trends such as low sodium healthy for you and clean label. We are also developing a high-protein beverage prototype as we look to expand our participation in the GLP-1 category. This brings us to our growing Solutions business division on Slide 19. Sales for the second quarter increased 12% to $605 million with growth in most regions, while EBITDA of $50 million was down versus prior year in order to partially offset the pressure from higher raw material costs, geopolitical tensions and supply chain volatility, the growing solutions team focused on favorable price and mix disciplined SG&A management and commercial actions targeting profitability. On a regional basis, soft market conditions remained an issue in Brazil as overall demand was weak after a challenging April performance improved progressively in May and June. For Europe, both sales and profitability improved in the second quarter as we maintained our focus on optimizing product mix. Execution of this strategy has proven successful with a sharp focus on core countries and products, driving growth and profitability. During the quarter, Growing Solutions did a remarkable job of managing the areas under their control from optimizing its fixed cost base to reducing general and administrative expenses. I would now like to turn the call over to Asaf for a review of quarterly financials and our outlook for the remainder of 2026.

Thank you, Elad, and it is a pleasure to be here today I'm excited to join ICL and to work with the entire global team as we execute a new strategic priorities. Over the coming months, I look forward to meeting many of our investors and analysts in person and we're spending time across the global operations, deepening my understanding of the business and its opportunities -- let us get started on Slide 21 with a quick look at quarterly changes in key market meters. On the positive side, the grain price index in the U.S. improved on a quarterly basis with corn, rice, soybean and we all trending up. However, farmer affordability remains an issue on a global basis. In the U.S., farmer sentiment declined in the second quarter as high input costs remained a top concern. In addition, inflation adjusted net income is forecasted to decline 2.6% in the U.S. in 2020. Turning to commodity prices. Spot brown prices reached a peak in April, and these higher prices helped a strong financial performance of our Industrial Products segment in the second quarter, while bromine prices moderated in May and June, they ticked back up in July of turbulence retuned in the Middle East. In the second quarter, potash prices in the U.S. increased nearly 10%, and on a sequential basis, which supported the stronger Potash division performance versus the prior year. Phosphate fertilizer prices were also higher in the second quarter, with key benchmark rates increased an average of 22% on a sequential basis However, production costs also escalated as geopolitical disruption drove higher costs for raw materials, particularly solar. As you know, sulfur is a key raw material for our phosphate products. In the second quarter, the spot prices so far increased 72% on a sequential basis and more than 210% on an annual basis, and these price increases impacted margin rates. In addition, other costs remained elevated, including ocean freight rates. Prices increased 45% on average in the second quarter due to disruptions in the Middle East and continued to increase in July. Finally, let's take a look at exchange rates. As you know, ICL is it is a dollar-denominated company. So as the shakes strengthens versus the U.S. dollar, it makes it more costly for operation in Israel. However, there was a slight reversal of this trend in July. Going forward, we will continue to use hedging strategies to help mitigate currency risks and to monitor changes in the dollar to check the exchange rate along with other significant currency fluctuations. Now if you will turn to Slide 22 for a look at our second quarter sales bridges. On a year-over-year basis, sales were up $303 million or approximately 17% with all 4 segments demonstrating growth. Turning to the right side of the slide, you can see a $206 million benefit from higher prices this quarter, which was enhanced by higher volumes. Excellent also had a positive impact on sales in the second quarter. On Slide 23, you can see our second quarter rested EBITDA, which improved approximately 28% versus the prior year with Electra Solutions, potash and phosphate solution all contributed. Higher volumes and prices contributed to the year-over-year improvement and were partly offset by the impact of exchange rate fluctuations and significantly higher raw material costs. while our growing Solutions segment also delivered higher sales and volumes supported by cost savings initiatives. These benefits were more than offset by significantly higher prices for nitrogen and sulfur. Turning to Slide 24 and a few more second quarter financial highlights. Our balance sheet remains strong with available cash resources to $2.2 billion. In the quarter, we delivered operating cash flow of $290 million, while free cash flow increased 34% and versus prior year to $94 million. Our net debt to adjusted EBITDA rate remained at a stable 1.5x, and we successfully completed our $800 million senior notes offering. Once again, we are distributing 50% of adjusted net income to our shareholders. This translates to a total dividend of $75 million in the second quarter and results in a trailing 12-month dividend yield of 4.1%. Before turning the call over to the operator, I would like to highlight that it is an exciting time to join I'm looking forward to working on an enterprise-wide cost saving and efficiency initiatives as we strive to reduce our cost base while supporting margin expansion, improving cash generation and strengthening our earning power. In addition, I believe our new organizational structure will strengthen management focus on a key growth engines and align the business with our strategic priorities. We expect this update to our reporting structure to provide investors with advanced visibility into the performance, growth drivers and value creation potential of our businesses. The new organizational structure will be implemented beginning in the first quarter of 2017 and will be reflected in both our internal and external financial reporting. In the interim, the team and I are available to assist you with any modeling questions in order to help make the transition seamless. Now turning to Slide 25 and a review of our guidance for 2020. We are reiterating our guidance and continue to expect consolidated EBITDA to be between $1.5 billion to $1.7 billion. This reflects the expected impact of higher raw material costs and currency headwinds. In the second quarter, we were successful in offsetting some of these higher costs through certain litigation action and as we consumed lower cost sulfur inventory. However, if silver prices remain at these currently elevated levels, we will see margin pressure in our phosphate products as we consume higher-priced inventory. While we expect continued challenges in the second half of the year, we remain focused on execution and are confident we have the right people, solutions and capabilities in place to where it is but not completely eliminate the impact of external forces. For potesales volumes, we continue to expect this amount to be between $4.5 million and 4.7 million metric tons due to operational improvements made in 2025. Finally, we expect our annual adjusted tax rate to be approximately 30%. And with that, I would like to turn the call to the operator for the Q&A session.

We will now begin the question-and-answer session.[Operator Instructions] So first question comes from the line of Benjamin Theurer with Barclays.

First of all, congrats on a very strong second quarter. My first question is, I would say, results related and the follow-up is on the new strategy. So first of all, looking at the results, there was clearly an impressive outcome in industrial products. with almost doubling on EBITDA on very store sales. So I just wanted to understand if you could kind of like help us bridge maybe how much really was driven by price versus what was then ultimately demand and the strength of it and how we should think about the top line and the profit for IP as we move into the second half, just given that it was such an outstanding quarter in this segment?

Thank you for your question, Ben. So we did with the IP and Bromine segment, we've seen strong performance, both in sales and EBITDA. As you noted, the bromine and as you are well aware, the bromine prices reached a peak in April, about $6,000 roughly per ton. In May and June, they slightly moderated. And currently, they are pretty much had 4,500. So going back to higher level. in terms of certain product lines, we've seen Flames doing solid with very strong performance. So overall, certainly, we enjoy the high prices in Q2. In April, we were able to lock in strong prices and transaction towards -- and now again, we are at 4,500 levels. So certainly, a pretty attractive prices as well. And did I answer your question? Any follow-up?

So yes, the second 1 is really about Elevate and just looking into the, call it, maybe stretching the downside risk and the upside potential here. Clearly, a lot of it comes down to operational efficiencies and productivity with roughly half of the savings. So I just want to understand like what you have identified and how comfortable you are with reaching first, the $150 million in first place and then actually being able to more than add more than double than that in the year after. So just wanted to understand what is it that gives you confidence to be able to achieve the roughly $350 million target within the 2-year time frame with a focus on the productivity, please?

So Ben, it's a great question. And you know us by now, and you know that we are, I'll say gently, we are a bit conservative. So probably you understand that if we say that we are going to hit the $350 million. So our internal target is even higher than that. That's just to be honest, -- and the reason for that is that ICL expanded in the last few years, and we have more than 40 production sites and a very complicated and widespread logistic supply chain. So with that, I think we have a lot of potential to be more allocate those savings. I think -- for the last few years, we didn't put a lot of effort or a focused effort in this part of the company. it's about time. And I'm quite confident that we'll be able to bring those numbers hopefully a bit more than.

Your next question comes from the line of Joel Jackson with BMO Capital Markets.

I have a few questions. I'm going to ask some 1 by one. Just back on -- I appreciate the color you gave a few seconds a few minutes ago. I know that prices are still good for bromine in Q3. But I mean, should we see earnings levels drop in Q3, Q4, somewhere between Q1 and Q2 levels?

Again, in the current level of 4,500 of bromine prices, I think prices are higher than what we've seen in -- they are lower than what we've seen in April. But we have the capabilities and agility, actually lock in transaction. So I think U2 does represent a pretty high level. But as it relates for Q3 and beyond, we'll just have to wait and see, please.

And then my second questions would be we all are quite aware day-to-day trials and crises in sulfur. You gave a bit of commentary about expecting lower phosphate margins in the second half of the year, if I heard correctly. But can you give us a sense of how you're handling sulfur we're starting to -- I mean, the market has got no sulfur supply but a lot of lower sulfur demand. How are you handling this? What should we expect in the second half?

So yes, the sulfur is probably 1 of the main issues for the remainder of the year, not only for us, you hear it from our colleagues as well. And basically, there are 2 challenges. One is the availability just to get sulfur and the other one, of course, is the price. Prices moved up along Q2 and now the spot prices in CFR terms are around 1,200 a bit more than that per metric. By now, we managed to secure the quantities for and begin of Q4, but it's still a challenge. So for now, we have no intention to reduce the production rate, both in Rotem and PH in China. Having said that, the cost of sulfur, the consumption cost is going to be higher than what we saw in Q1 and also in Q2. So yes, so for an issue. The bottom line, we continue to produce right now, we have the demand for the phosphate products, and we have enough sulfur at least for Q3, I believe we'll solve it also for Q4, but costs will continue to increase consumption cost.

Maybe just to add on that, I think that 1 of our key strengths and we are quite unique in the industry is our breadth and diversity of our product portfolio, the geographies and the markets and customers we serve. This diversification really provides the flexibility where we can optimize the software allocation across different customers and end markets and so forth. So to detail S&OP process, we can really optimize that. I think that's something that we will certainly continue to do as we move forward in the second half of the year.