Margin expectations

Most agribusiness companies are expected to report year-over-year sales growth in fiscal 2018. Let’s look at how this growth could affect their margins. Because these companies operate in countries with different tax bases and have different debt levels, we’ll use EBITDA (earnings before interest, tax, depreciation, and amortization) as a measure of operating margins.

A Look at Agribusiness Companies’ Margins in 2018

EBITDA margins

As shown in the above chart, almost all companies are expected to see improved EBITDA margins in fiscal 2018, which was not the case in fiscal 2017. The expected improvement may indicate two things:

  • the agribusiness environment is expected to improve in fiscal 2018
  • these companies may be able to achieve wider year-over-year margins through cost optimization

Among the above companies, PotashCorp (POT) has the widest EBITDA margin, which may be due to its dominance of the potash market through cost leadership. The company is expected to report an EBITDA margin of 39%, compared with 35% in fiscal 2017. Monsanto (MON) and CF Industries (CF) are also expected to deliver wider margins in fiscal 2018, of 31% and 30%, respectively. These companies are leaders in their industries (XLB).

In fiscal 2018, Intrepid Potash’s (IPI) EBITDA margin is expected to widen to 35% from 17% in fiscal 2017. In the wake of declining prices, Intrepid Potash diverted some of its production capacity away from high-cost potash production. This shift appears to be paying off.

Agribusiness companies’ EBITDA margins are also forecast to expand in fiscal 2019. Next, we’ll discuss what’s expected for these companies’ earnings per share.

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