CF Industries’ profitability
CF Industries’ (CF) financial performance continued to disappoint investors in 4Q16. The company is the largest nitrogen fertilizer producer in the US. According to CF Industries, the company will import 30% of its 2017 nitrogen requirements. Falling fertilizer prices impact the company’s bottom line.
Overall, the gross margins for CF Industries’ combined segment contracted from 25.1% in 4Q15 to 10.8% in 4Q16. Similarly, the adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margins fell from 39.9% in 4Q15 to 15.3% in 4Q16. The company reported a net adjusted loss of 10.4% from a net profit margin of 15.1% in 4Q15.
Bear in mind that these margins are after adjustments. The adjustments include adding back loss on natural gas derivatives, expansion project expenses, plant expansion costs, a gain on foreign currency transactions, income tax adjustments related to the termination of the OCI agreement, and debt-related fees. Considering that the gross margins are thin, investors must tread with caution due to CF Industries’ 4Q16 earnings.
CF Industries’ profitability depends on how fertilizer and raw material prices perform. Prices will also affect the profitability of PotashCorp (POT), Mosaic (MOS), CVR Partners (UAN), and other players in the agricultural fertilizer industry (MOO) (SPX-INDEX).
You can track fertilizer prices each week on Market Realist’s site. Read Why Was Last Week Positive for Fertilizer Prices and Stocks for the latest update.