A Review of CF Industries’ Margins



CF’s margins

In the earlier parts of this series, we saw how CF Industries (CF) sales performed as a result of movements in fertilizer prices and shipment volumes. We saw that over time, the company’s sales declined primarily as a result of a decline in prices, which impacted margins as well.

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Margins contract

The gross margins and EBITDA (earnings before interest, tax, depreciation, and amortization) margins have also contracted over the years. In the recent four quarters, the company’s gross margins stood at 10% as a percentage of total sales, contracting significantly from 26% in the corresponding four quarters a year ago. If we look at the levels in 2013, we find that the gross margins were even higher.

EBITDA margins also contracted over the same period. The recent four quarters’ EBITDA margins stood at 22% compared to 30% in the corresponding four quarters.

The margins contracted as a result of unfavorable price movements which we discussed earlier. Some producers even sold below cost experiencing a gross deficit for the quarter. Some even curtailed their production indefinitely.

As we move towards 2018, the growth in realized prices will be key to how the stocks will perform for producers (MXI) such as Terra Nitrogen (TNH), Mosaic (MOS), and Intrepid Potash (IPI).

Next, we will discuss valuation multiple for CF Industries.


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