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How Fertilizer Companies’ Earnings Margins Fared in 2Q16

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EBITDA margins

So far in this series, we’ve looked at the gross margins of eight agricultural fertilizer producers in the nitrogen, potassium, and phosphorous segments. While these companies may have taken steps to reduce their costs amid falling fertilizer prices, their EBITDA (earnings before interest, tax, depreciation, and amortization) margins have also contracted.

Let’s look at each company in detail.

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EBITDA margins

The median EBITDA margin for the above eight companies fell in 2Q16 compared to a year ago, which isn’t surprising given that significant fertilizer price falls have pressured margins.

CF Industries’ (CF) margin stood at 22% during the quarter. It contracted the most from 55% in 2Q15. CVR Partners (UAN) was next, with its margins contracting to 24% in 2Q16 from 45% a year ago.

PotashCorp’s (POT) EBITDA margins fell from 46% in 2Q15 to 39% in 2Q16. Mosaic Company (MOS) and Terra Nitrogen (TNH) saw their respective margins fall by 6% during the quarter. Mosaic’s EBITDA margin stood at 17%, while Terra Nitrogen’s margin stood at 64%. Bear in mind that Terra Nitrogen is an MLP.

Agrium (AGU), which has shown much more stability than its peers, saw its margin slightly dip by 1% to 16% during the quarter. Israel Chemicals (ICL) was the only company among those under review to have its margin rise to 19% in 2Q16 from 15% in 2Q15.

Given all that we’ve discussed so far, let’s now look at the median valuation multiples for these fertilizer companies (IYM).

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