CF Industries’ (CF) recent quarterly earnings seemed stronger after a string of quarters with negative EPS. Nutrien (NTR), Mosaic (MOS), and Intrepid Potash (IPI) saw similar trends as well. The fertilizer sector was in a down commodity cycle in which prices of fertilizers declined and led to challenges for fertilizer producers (MOO).
The market for fertilizers has been getting stronger with prices seeing an uptick so far in 2018. The company reported sales growth of 16% year-over-year in its second quarter due to the increase in realized fertilizer prices across its five segments. The demand also held strong in the rising price environment, as higher prices tend to have a negative impact on demand in the form of lower volume sales.
During the quarter, the company’s gross margins also expanded from 15.4% to 24% year-over-year. One of the key drivers of higher margins for the company during the quarter was the lower gas cost. Here, North America has an advantage over other continents. The benefits of being in a low energy cost region are amplified even more due to the higher cost in Europe and China. Further, regulatory changes in China served as a tailwind for the company.
In this series, we will discuss the above points and CF Industries’ performance outlook in more detail.