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CF Industries’s Revenue Decline: Light at the End of the Tunnel?

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CF Industries’s revenue segments

After the sale of CF Industries’s (CF) phosphate division to Mosaic (MOS), CF is left primarily with its nitrogen fertilizer segment. This segment combines sales from ammonia, urea, UAN, and other segments. Other segments include the sale of ammonium nitrate, urea liquor, diesel exhaust fluid, and aqua ammonia to industrial customers. VanEck Vectors Agribusiness ETF (MOO) holds invests 18.4% of its holdings in CF, Mosaic, Agrium (AGU), and PotashCorp (POT).

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Overall revenue decline

  • Revenue from the nitrogen segment in 2Q15 fell 9.5% to $1.3 billion compared to $1.5 billion in the corresponding quarter a year ago.
  • Granular urea contributed most to this change, with revenue falling 21% to $211 million from $267 million in the corresponding quarter a year ago.
  • This change was the result of an 11% fall in average selling prices as well as an 11% decline in shipments.
  • UAN revenue also fell 11% to $407 million from $456 million in the corresponding quarter a year ago.
  • The UAN segment’s decline came from a 9% fall in average selling prices of UAN and a 1% decline in shipments.
  • Revenue from the ammonia segment fell by 1% to $599 million from $604 million in the corresponding quarter a year ago as a result of a 5% decline in shipments. This decline was offset by a 4% increase in average selling prices.

Over the past five years, CF’s revenue growth rate has decelerated, but investors should focus on a more important measure, the gross margins. CF’s gross margins over the years may be the light at the end of the tunnel for investors. We’ll discuss gross margins later in this series, but before we do, we’ll explore why prices and shipments fell.

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