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PotashCorp Set to Announce 4Q16 Earnings: What You Should Watch

PART:
1 2 3 4 5 6 7 8 9 10
Part 3
PotashCorp Set to Announce 4Q16 Earnings: What You Should Watch PART 3 OF 10

PotashCorp’s Gross Margins Estimate

PotashCorp’s gross margins

PotashCorp (POT) earns revenue from all three NPK (nitrogen, phosphorous, and potassium) crop nutrients. The company is the largest producer of potash by capacity globally and has earned higher margins from potash fertilizers in the past.

Over the past three years, POT’s gross margin averaged 33.0%. Let’s see what it has in store for the next 12 months.

PotashCorp&#8217;s Gross Margins Estimate

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PotashCorp’s gross margins

For PotashCorp’s upcoming 4Q16 earnings, Wall Street analysts are estimating that the company will report $243.0 million in gross income. On a revenue estimate of ~$1.1 billion, that would translate to a gross margin of 23.0%. That’s a sharp fall from a gross margin of 29.0% in the corresponding quarter a year ago. For the next 12 months, analysts estimate a slight contraction in gross margin to 22.0%, from 23.0% over the last 12 months.

Cost of goods fell

PotashCorp is a company with a large scale of operations, so it benefits from economies of scale. However, in the past, several potash players within the industry have expanded their production capacities so much that it has created an excess supply of fertilizers (MXI). That oversupply has affected the profitabilities of PotashCorp, Intrepid Potash (IPI), Mosaic (MOS), and Agrium (AGU).

Much of PotashCorp’s next 12-month gross margin contraction is due to lower sales, as we saw in the previous part of this series. However, analyst estimates indicate a significant optimization of POT’s cost of goods, which the company is fiercely seeking.

Next, let’s dig more deeply into POT’s profitability by looking at its EBITDA (earnings before interest, tax, depreciation, and amortization) margins.

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