Key profitability metric
Gross margins for agricultural fertilizer companies (SOIL) such as Agrium (AGU), PotashCorp (POT), Intrepid Potash (IPI), and Israel Chemicals (ICL) have been under pressure recently. As a result of the capacity buildup of NPK (nitrogen, phosphorus, and potassium) fertilizers in the industry, prices have come under significant pressure.
The prices of fertilizers such as DAP (diammonium phosphate), MOP (muriate of potash), and urea have fallen in the double-digits percentage-wise year-over-year (or YoY) in 2016. Amid this fall, how have Agrium’s margins performed?
For the next four quarters ending in 3Q17, Wall Street analysts are estimating a gross income of $3.4 billion for Agrium. Considering the revenue estimate of $14.2 billion for the company in the same period, this would translate into a gross margin of 24.1%. Compared to the last four quarters’ worth of gross margins, this would reflect a YoY fall compared to 25.7%.
Earlier, we learned that Agrium’s sales are estimated to rise 2.6%, while its gross income is estimated to fall 3.8%. These estimates likely mean that the company’s 2.6% sales rise won’t be enough to offset the rise in its cost of goods in the next four quarters ending in 3Q17.
The cost of goods includes the raw material costs of NPK fertilizers such as nitrogen, ammonia, phosphate rock, and resource taxes. Keep in mind that Agrium also sources these products from other producers for its Retail segment.
Next, let’s turn to Agrium’s earnings margin.