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Why EBITDA Margins Matter to Fertilizer Stocks

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Why EBITDA?

The EBITDA (earnings before interest, tax, depreciation, and tax) metric is helpful in determining how much fertilizer companies’ (MOO) core earnings have improved. Since this measure excludes depreciation and amortization expenses, it is a more comparable measure since it takes away the high capital expenditure expense that fertilizer companies have.

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EBITDA margins

In the above chart, except for Israel Chemicals (ICL), the gross margins of the fertilizer companies are expected to expand in fiscal 2019, indicating that these companies could continue to see positive momentum in 2019.

Mosaic (MOS) is expected to see its gross margins expand to 21% in fiscal 2019 from just about 13% in fiscal 2018. Similarly, CF Industries’ (CF) EBITDA margins are estimated to expand to 17% in fiscal 2019 from 13% in fiscal 2018. Nutrien’s (NTR) EBITDA margins are estimated to expand year-over-year to 22% in fiscal 2019 from 19% in fiscal 2018.

Israel Chemicals, in contrast, is expected to experience sideways movement year-over-year in its EBITDA margins to 20% as a percentage of sales in fiscal 2019.

In the next part, we’ll discuss how the growth numbers we’ve discussed so far in this series translate into earnings growth for these fertilizer companies.

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