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PotashCorp Misses Estimates in 2Q17, Stock Unchanged

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Part 9
PotashCorp Misses Estimates in 2Q17, Stock Unchanged PART 9 OF 9

PotashCorp: 2Q17 Gross Margin Review and Analysis by Segments

Gross margins

PotashCorp (POT) saw its margins fall in 2Q17. Overall, the company’s margins contracted from 23.1% to 22.8% year-over-year. The potash segment, the company’s strongest segment, delivered robust margins in 2Q17.

PotashCorp: 2Q17 Gross Margin Review and Analysis by Segments

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Margins by segments

The potash segment’s gross margins expanded from 41.0% in 2Q16 to 53.0% in 2Q17. The expansion was driven by two factors: PotashCorp’s meaningful lowering of costs and potash prices seeing strong upward momentum. The company’s cost of production fell 35.0% in 2Q17, and potash prices rose 13.0% year-over-year, which led to an improvement in potash margins.

The nitrogen and phosphate segments didn’t see a meaningful margin movement in 2Q17. The nitrogen segment’s margins contracted significantly year-over-year to 18.4%, compared to 34.4% in 2Q16. The phosphate segment’s gross margin remained in negative territory in 2Q17, at -11.1%. In 2Q16, it was -4.3%.

Weakness in the nitrogen and phosphate segment’s margin was primarily driven by a weakness in realized prices for these products.

PotashCorp’s 2Q17 earnings release has many positive updates for potash producers such as Intrepid Potash (IPI). But for nitrogen and phosphate producers (XLB) such as CF Industries (CF), Mosaic (MOS), and CVR Partners (UAN), the outlook remains subdued.

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