uploads///PotashCorp Next  Month Gross Income and Margin Estimates

PotashCorp’s Gross Margins Are Expected to Expand in 2Q17



Gross margins

PotashCorp (POT) operates three segments that sell potash, phosphates, and nitrogen fertilizers. The potash segment is one of the most important segments for the company. Historically, the potash segment is the largest contributor to the company’s overall gross income. In 1Q17, the potash segment contributed almost 60% towards the company’s overall gross income.

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2Q17 gross margins

PotashCorp’s gross margins are expected to improve YoY (year-over-year) in its 2Q17 earnings. Wall Street analysts expect the company’s gross margins to expand from 23% on gross income of $243 million in 2Q16 to 28% on gross income of $296 million in 2Q17.

The gross income above shows 22% growth YoY, while revenue is expected to only grow 2% YoY. The trend is also expected for margins in the next four quarters. Sales are expected to grow by 11 basis points, while the gross income is expected to grow 20% in the next four quarters. The company’s gross margin expansion will likely come from its cost saving efforts. Later, we’ll discuss how these benefits could translate into earnings growth.

Potash segment

PotashCorp is one of the lowest cost potash producers compared (MOO) to Intrepid Potash (IPI), Agrium (AGU), and Mosaic (MOS). Not surprisingly, the potash segment also earned higher margins compared to the other two segments. In 1Q17, the potash segment delivered a gross margin of 37%, while the nitrogen segment delivered 26% gross margins and the phosphate segment delivered 3.5% gross margins.

The potash segment will likely continue to deliver strong margins for PotashCorp. The segment might be the primary driver for margin expansion in 2Q17. We’ll provide an update after the company reports its earnings.

Next, we’ll discuss PotashCorp’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin expectations.


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