Intrepid Potash’s gains
Intrepid Potash (IPI) was one of the top performers in 2017. Its stock rose as much as ~127% YTD (year-to-date) from $2.1 on January 3, 2017, to $4.72 at the closing on December 28. The S&P 500 Index (SPY) returned 19.9% and the VanEck Vectors Agribusiness ETF (MOO) returned 20.1% during the same period. Intrepid Potash’s peers like Mosaic (MOS), Israel Chemicals (ICL), and CVR Partners (UAN) significantly underperformed these benchmark indexes during the same period.
In the past three years, Intrepid Potash faced significant headwinds. Its sales decelerated and the growth turned negative YoY (year-over-year). The poor sales performance primarily stemmed from weakness in the market environment for Intrepid Potash’s key fertilizer product—potash fertilizer. Over the years, industry participants increased their capacity addition projects to capitalize on expected higher demand and market prices. However, the increase in production capacity tilted the demand and supply into an imbalance. As a result, fertilizer prices took a hit and companies were compelled to sell at lower-than-anticipated prices. Some producers even sold at or below the cost, which wasn’t sustainable.
The company’s sales come from two segments—Potash and Trio, which is also known as “langbeinite.” Intrepid Potash converted one of its facilities to only produce trio. In 1Q17, trio production rose 61% YoY. According to Intrepid Potash, the Trio segment commands a higher margin compared to the Potash segment.
Next, we’ll discuss how the company’s shift from potash to trio improved its bottom line.
In 3Q16, Intrepid Potash's debt-to-equity ratio rose to 39%, which gradually fell to 22% in 1Q17 and 15% in 3Q17.
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