Gross margin is the most important measure to use for assessing the performance of agricultural fertilizer companies such as CF Industries (CF), Agrium (AGU), PotashCorp (POT), and Mosaic (MOS). CF and MOS currently form 8% of the VanEck Vectors Agribusiness (MOO) ETF portfolio.
- We saw earlier that both average selling prices and shipments declined during the quarter. This negatively impacted revenue by 9.5%.
- As a result of a decline in shipments, average realized prices and gross profit were also negatively impacted by $28.5 million and $67.1 million respectively.
- However, gross margins (calculated as gross profit over sales) during the quarter rose 51% to $667 million from 42% in the corresponding quarter a year ago.
- This was primarily a result of lower natural gas costs, as we discussed in the previous part of this series.
- The company’s cost of sale per ton for nitrogen products was $173, which fell 24% from $227 in the corresponding quarter a year ago.
- To put the cost reduction from natural gas prices in context, CF Industries benefited by $130 million during the quarter.
This low-cost production is a motivation for CF to add more capacity, which the company recently initiated with the acquisition of OCI, a Dutch company with a global footprint. We will discuss the OCI acquisition next.