Earlier in this series, we saw estimates for Agrium’s (AGU) sales growth over the next four quarters. We also discussed that while the company’s sales are expected to rise, its gross margin is expected to fall over the same period, implying a rise in its cost of goods.
Will the company make up in operating costs what it loses in its gross margin?
Over the next four quarters ending in 3Q17, Agrium’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin is estimated to expand to 12%, compared to its average of 11% in the last four quarters, which ended in 3Q16. In this way, it seems that what Agrium is losing in its gross margin, it will recover in its EBITDA margin.
Fertilizer companies (XLB) such as PotashCorp (POT), Intrepid Potash (IPI), and The Mosaic Company (MOS) have taken steps to control their operating costs over the years. However, downward pressure on fertilizer prices has suppressed growth.
Cost savings through synergies
Companies have looked into expanding their markets and further controlling costs through synergies. Synergies were key to Agrium and PotashCorp’s deciding to merge. While these two companies don’t have significant overlap, they’re still awaiting regulatory clearance from the Canadian government on their merger.
Next, we’ll look at earnings estimates for Agrium over the next four quarters ending in 3Q17.