CF Industries’ 3Q17 Gross Margins Are Still a Concern



Gross margins

Overall, CF Industries’ (CF) gross margins continued to be pressured by lower fertilizer prices. The company’s overall margins were almost flat year-over-year. Except for the AN (Ammonium Nitrate) segment, all segments saw a year-over-year contraction in gross margins.

Gross margins per ton

The AN segment’s gross margin per ton for 3Q17 expanded to $18 per product ton from a deficit of $18 per product ton in 3Q16.

On the other hand, the Granular Urea segment’s margins contracted from $18 to $7 per product ton. The Other segment’s gross margins per product ton fell from $21 to $17 in 3Q16.

In contrast, the Ammonia segment experienced a further deterioration in margins per product ton from a deficit of $8 in 3Q16 to a deficit of $12. Similarly, the UAN (Urea Ammonium Nitrate) segment also experienced a further deterioration in margins year-over-year with a deficit of $6 per product ton, down from $4.

Selling below cost

A deficit means the company sold products lower than the cost of production. When companies (MOO) such as CF Industries, PotashCorp (POT), Mosaic (MOS), or Intrepid Potash (IPI) sell at a deficit, they can cause concern for investors because selling below cost is usually unsustainable. Over recent months, producers in China closed their nitrogen facilities as a result of the high and unsustainable cost of production.

Next, we’ll discuss CF Industries’ profitability and analysts’ price target upgrades following the company’s earnings.

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