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PotashCorp’s Potash Margins: What Does the Future Hold?

PotashCorp: An Analysis of Its 3Q15 Earnings

(Continued from Prior Part)

Gross margin

The gross margin is one of the key metrics for assessing the performance of commodities for companies such as PotashCorp (POT), Intrepid Potash (IPI), The Mosaic Company (MOS), and CF Industries Holdings (CF). In the fertilizer commodities business, margins are thin and fertilizer prices can significantly impact a company’s margins. The Market Vectors Agribusiness ETF (MOO) holds about 4% of PotashCorp as a percentage of its total portfolio.

Potash segment

  • The potash segment’s gross margin rose to 49%, or $294 million, in 3Q15, from 47%, or $295 million, in 3Q14. This was mainly because of an increase in shipments, which were up 8% year-over-year.

  • The company anticipates a full-year gross margin in the range of 1.4 billion to 1.5 billion for full-year 2015. The company had $1.4 billion and $1.5 billion gross margins in 2014 and 2013, respectively.

  • Earlier, we discussed how the company is planning to bring its cost of goods for potash lower. If the prices do not decline further and potash demand remains constant, the company should be able to enjoy better margins for the potash segment.

Nitrogen and phosphate segments

  • The nitrogen segment’s gross margin declined to $161 million, or 35% from 31%, in 3Q14.

  • Lower shipments and weak overall nitrogen prices led to a fall in gross margins.

  • The phosphate segment’s gross margins fell to 11%, or $50 million, from 14%, or $61 million, in 3Q14.

  • Although phosphates revenue increased, the fall was primarily a result of increased maintenance expenses and the company’s asset retirement obligations.

  • The company anticipates gross margins for both segments combined to come in at $1 billion to $1.1 billion in 2015. Gross margins for these two segments were $1.21 billion and $1.22 billion for 2014 and 2013, respectively.

In the next part, we’ll look at dividend yields for PotashCorp and its peers.

Continue to Next Part

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