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Taking a Closer Look at CF Industries’ Margins

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Gross margin

The gross margin is the most important measure we have for assessing the performance of agricultural fertilizer (MOO) companies like CF Industries Holdings (CF), Agrium (AGU), PotashCorp (POT), and Mosaic (MOS).

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Gross margin by segment

In the above chart, we compared CF Industries’ 3Q16 gross margins with product tons in 3Q15. Its gives us a better picture of each segment’s gross margin performance.

Ammonia’s gross margins fell the most from $93 per product ton to -$8 per product ton. UAN (urea ammonium nitrate) and granular urea followed. Their margins fell from $50 to -$4 and $72 to $18 per product ton. respectively. The AN segment’s gross margin per product ton remained negative, but it improved from -$50 to -$32.

The Other segment’s (supplying to industrial customers) gross margins fell from $55 per product ton to $34 in 3Q16.

It’s a negative

Overall, we see that CF Industries’ gross margins per product ton for each segment suffered significantly during 3Q16 except for the AN (ammonium nitrate) segment. Notably, the gross margin per product ton for UAN and ammonia were in the negative along with AN’s gross margins. It implies that the company sold its products below cost, which simply isn’t sustainable.

The falling gross margin per ton trickled down to the company’s bottom line. We’ll discuss this in the next part.

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