uploads///Phosphate Segments Gross Profits and Margins

Why Did the Margins for Mosaic’s Phosphate Segment Decline?

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May. 6 2016, Published 4:34 p.m. ET

Phosphate segment’s margins

Gross margins for agricultural fertilizer companies such as Mosaic (MOS), PotashCorp (POT), Agrium (AGU), and CF Industries (CF) give us a view into how cost-efficient a company was over the period in review.

Amid falling commodity prices, it’s critical that companies aggressively drive cost efficiencies in order to remain competitive in the market (NANR).

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Gross margin rate

The gross margin rate for Mosaic’s Phosphate segment fell significantly in 1Q16 to 7% from 19% in 1Q15. In absolute numbers, the company reported a gross profit of $64 million in 1Q16 compared to $221 million in 1Q15.

The weakness in margins was mostly due to the weakness in average realized prices, which failed to rebound as expected by the company’s management. Further, the company stated that phosphate margins were also impacted by the “timing of raw material cost,” which we will discuss in more detail in the next part of this series.

Outlook

The 1Q16 weakness is expected to continue in 2Q16, as management guided a gross margin rate of about 10% in its earnings call. This would be significantly lower compared to 21% in 2Q15. It was lower primarily due to the falling costs of raw materials. The company stated that it expects margins to stabilize as it moves into the rest of the year.

You can also access Mosaic through the VanEck Vectors Agribusiness ETF (MOO), which invests 2.5% in the company.

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