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Why Mosaic’s Phosphate Segment Margins Contracted in 4Q16

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Phosphate margins

Gross margins for agricultural fertilizer companies such as Mosaic (MOS), PotashCorp (POT), Agrium (AGU), and CF Industries (CF) indicate how those companies survived amid falling fertilizer prices. It’s critical that companies maintain cost efficiency to remain competitive in the market (IYM).

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Gross margin rate

The gross margin rate for Mosaic’s Phosphate segment contracted in 4Q16 to 9.0%, from 12.0% in 4Q15. In its previous earnings call, Mosaic’s management guided a gross margin rate of “upper single digits,” which is what the company reported during the quarter.

In absolute numbers, the company reported a gross profit of $84.0 million in 4Q16, compared to $121.0 million in 4Q15. The weak margins were mostly due to weak average realized prices, which failed to rebound, as we saw in the previous part of this series.

Outlook

The weakness in 4Q16 will likely continue into 1Q17. In the earnings call, Mosaic management stated that it expects a gross margin rate in the upper single digits. That would compare to a 7.0% margin in 1Q16. Management also stated that its Phosphate segment will have an operating rate of “high 70 percent.”

In the next part, we’ll look at Mosaic’s International Distribution segment, starting with shipment growth for 4Q16.

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