The Mosaic Company’s (MOS) Phosphate segment contributes the most to its gross margin. To put this in perspective, in 2Q16, the Phosphate segment contributed close to 66% toward the company’s gross margin, while the Potash segment contributed 33% to the company’s gross margin. The remaining amount came from Mosaic’s International Distribution segment.
For 3Q16, analysts estimate Mosaic’s gross margin to contract to 8.9% year-over-year, compared to 16.7% in 3Q15. For 2016, analysts expect its margin to contract to 10.4%, compared to 19.2% in 2015.
Commodities companies usually operate on very thin margins. A flattening yield curve has significantly impacted the gross margins of fertilizer companies. To know more about how the yield curve affects margins, read CF Industries Plants Seeds of Doubt in 2016.
In 2017, Mosaic’s margin is expected to expand to 13.2%, which resonates well with its sales estimates. When the realized selling price of fertilizer (IYM) falls faster than input costs, margins will likely contract. If the opposite happens, that is, if fertilizer prices rise faster than input costs, margins will likely expand.
Next, we’ll discuss earnings per share estimates for Mosaic.