|Bid||0.00 x 3200|
|Ask||0.00 x 800|
|Day's Range||3.21 - 3.34|
|52 Week Range||3.12 - 5.31|
|PE Ratio (TTM)||N/A|
|Forward Dividend & Yield||N/A (N/A)|
|1y Target Est||N/A|
Last week, which ended August 10, potash prices were flat to positive at the locations in the chart below. They started rising as a result of tighter supply and strong demand. Usually, the demand for fertilizer is inelastic since farmers need fertilizers to achieve yields in order to meet the global food demand.
The fertilizer sector remained under pressure between August 3 and August 13, with the benchmark VanEck Vectors Agribusiness ETF (MOO) declining 2.4% over the period and the S&P 500 Index falling 53 basis points. Clearly, the agribusiness sector was more impacted than the broader market indexes by trade war tensions and the Turkish currency crisis.
Previously in this series, we discussed how the potash supply-demand environment is expected to remain balanced. In 2018, potash prices have gradually risen, which indicates a reversal in the industry’s trend. Last year, the prices remained depressed, which was negative for companies like Intrepid Potash (IPI). The company had to amend its terms with creditors. Nutrien (NTR) and Mosaic (MOS) saw their potash segments’ (MOO) earnings decline.
The potash market was no different than nitrogen and phosphate. Potash prices were depressed due to oversupply. Recently, potash prices have been rising, which explains the supply-demand dynamics.
Oops, Mr. Market admits that he overreacted to the fertilizer producer's second-quarter 2018 earnings results released yesterday.
Intrepid Potash (IPI) reported its earnings on August 2. The company beat the top-line estimates and missed the bottom-line estimates. After the earnings release, Intrepid Potash stock fell almost 22.2% and settled at $3.26 per share. Intrepid Potash reported $51 million in sales, which beat the estimate of $44 million at the time of the report.
The Denver-based company said it had a loss of 1 cent per share. The potash and fertilizer producer posted revenue of $51 million in the period. Its adjusted revenue was $42.1 million. The company's shares ...
CF Industries (CF), which also reported earnings after the market closed, managed to beat estimates, and the stock rose 3.8%. During the second quarter, Nutrien reported consolidated sales of $8.1 billion, which rose 11% year-over-year, and this growth resulted in gross margin expansion to 26% from 23.4% in the corresponding quarter a year ago. Fertilizer companies (MOO) such as Nutrien, Mosaic (MOS), and Intrepid Potash (IPI) are cyclical and report better earnings when they enter the beginning of an upward industry cycle.
In this final part of the series, we’ll see how Mosaic’s (MOS) sales estimates and margin expansion are expected to trickle down to its bottom line—EPS. That, in turn, would translate to stock price appreciation.
Mosaic (MOS) has a significant exposure to phosphate fertilizers (XLB), but it also has a potash division that is a participant in the Canpotex consortium with Nutrien (NTR). For the upcoming second-quarter results, Wall Street analysts are estimating that Mosaic will report overall sales of $2.2 billion, a 27% YoY (year-over-year) growth from $1.8 billion in the second quarter of 2017. For each of the last four quarters, Mosaic has managed to beat analysts’ estimates.
The Mosaic Company (MOS) is scheduled to release its earnings on August 6 after the market closes. It has had a terrific run so far this year and easily outperformed the benchmark indexes.
Fertilizer affordability last week continued to improve after the Fertilizer Affordability Index reached a peak this year on July 12. The Affordability Index, which is issued by the Mosaic Company (MOS), fell to 0.74x from 0.76x a week ago. The lower the index level, the higher the affordability of fertilizers compared to the base year of 2005 when the index was set to one.
Potash fertilizer prices were broadly unchanged last week at the four locations discussed below. The granular potash prices in the NOLA (New Orleans) region remained unchanged at $238 per metric ton, and the granular potash prices in the Cornbelt region of the US also remained unchanged at $261 per metric ton. Similarly, outside the US, granular potash prices remained unchanged at $326 per metric ton in the Brazil region. As for the standard potash fertilizer prices in the Southeast Asia region, prices remained at $288 per metric ton, which was unchanged week-over-week.
MAP (monoammonium phosphate) prices continued to inch higher last week and hit new highs. Prices have continued to rise, indicating a favorable supply-demand environment for MAP fertilizers in the Brazil and NOLA (New Orleans) regions.
For many seasoned investors, EBITDA represent companies’ core profitability. Analysts expect CF Industries’ (CF) sales growth and gross margin improvement to trickle down to its core profitability.
Like CF Industries’ (CF) sales, its margins are also expected to expand YoY (year-over-year) in Q2 2018 and the next four quarters. In the second quarter, analysts expect CF Industries’ margins to expand 62% YoY to $279 million from $172 million. Analysts’ expectation of just an 8% sales increase suggests they expect a significant benefit from lower costs of goods per unit. Similarly, CF’s gross margins are expected to grow 78% YoY to $913 million in the next four quarters, to 20.6% from $12.7%.
Along with MAP (monoammonium phosphate) prices, potash prices also saw new highs at each of the four locations discussed below last week.
Last week was broadly positive for the agribusiness sector. The VanEck Vectors Agribusiness ETF (MOO) gained 39 basis points between its close on July 13 and its close on July 20. Over the same period, the S&P 500 Index was almost flat, while the fertilizer sector rose last week.
With a growth in margins, Intrepid Potash (IPI) is expected to deliver an improvement in earnings, not only in the upcoming second quarter but also in the next four quarters. For the upcoming second-quarter results, Wall Street analysts are estimating that Intrepid Potash will report EPS of $0.04 compared to -$0.03 in Q2 2017. For example, in July, two analysts (MOO) had “hold” recommendations and two had “sell” recommendations for Intrepid Potash.
For Intrepid Potash (IPI), its margins are expected to expand year-over-year, not only in the upcoming second quarter but also in the next four quarters. In the upcoming second quarter, Wall Street analysts are estimating that Intrepid Potash will report gross income of $14 million. Overall, gross margins are expected to expand in the next four quarters.
Intrepid Potash (IPI) is set to release its second quarter earnings on August 1. YTD (year-to-date), Intrepid Potash has underperformed the benchmark VanEck Vectors Agribusiness ETF (MOO), as you can see in the above chart. Intrepid Potash took several measures to turn the corner by managing production and resources to optimize its operations in a supply-rich environment.
Potash prices last week at each of the four locations in the chart below rose week-over-week. Similar to nitrogen and phosphate fertilizer prices, potash prices reached their peak so far this year at each of the locations.
Last week, potash prices were also broadly positive and managed to make new highs so far year-to-date. The increment in potash prices is in line with the overall trend in global fertilizer prices.