Nutrien (NTR) reported its second-quarter earnings on August 1 after the market closed. The company comfortably beat the top-line and bottom-line estimates, leading to a 5.9% pop to $57.6 in the after-hours market session. CF Industries (CF), which also reported earnings after the market closed, managed to beat estimates, and the stock rose 3.8%.
Digging into margins
During the second quarter, Nutrien reported consolidated sales of $8.1 billion, which rose 11% year-over-year, and this growth resulted in gross margin expansion to 26% from 23.4% in the corresponding quarter a year ago. Despite the growth in sales and margins, the company’s net margins from continuing operations contracted to 9.1% from 9.6% a year ago in the second quarter. Overall, the company reported adjusted EPS of $1.48 versus the mean consensus of $1.38 per share at the time of the report.
What drove the results?
Fertilizer companies (MOO) such as Nutrien, Mosaic (MOS), and Intrepid Potash (IPI) are cyclical and report better earnings when they enter the beginning of an upward industry cycle. Nutrien’s better-than-expected results were driven by strong demand for inputs required for crops, higher realized prices for fertilizers, and an increase in offshore sales. The company stated that it also benefited from lower costs of production during the quarter.
The company also highlighted that higher nitrogen fertilizer prices benefitted its nitrogen segment, which was also the case for CF Industries.