What Analysts Expect for CF Industries’ Gross Margins
Earnings Preview: What to Expect from CF Industries in 1Q16
Gross profit and margins
CF Industries (CF) earns 41% of its gross profit from the sale of ammonia, which is followed by UAN (urea ammonium nitrate). UAN contributed about 34% to CF’s gross profits in 2015. Granular urea contributed 21% toward CF’s gross profits in 2015. Let’s look at overall expectations for the 1Q16 and fiscal 2016.
1Q16 estimates
For the upcoming 1Q16 report, analysts are estimating CF Industries (CF) to report $294 million in gross profits, which would result in a gross margin of 34.5%. This would be down from 40.5% in 1Q15. Because fertilizer sales are seasonal, let’s look at expectations for the next 12 months.
For 2016, the analysts are estimating the company to report $1.4 billion in gross profit, or 33% gross margins. This would be slightly lower compared to 2015 when the company reported a gross profit of $1.5 billion, which translated into a gross margin of 38.4%.
This underlines the weaker expectations for CF’s nitrogen fertilizers in 2016 when the corn acreage is expected to rise and could squeeze the growers’ margins.
Peers
PotashCorp (POT), which also produces nitrogen fertilizers, has similar expectations. It is expected to report gross margins of 32.4% for 2016, down from 39.2% in 2015. The Mosaic Company’s (MOS) gross margin is expected to fall to 15.6% in 2016 from 19.2% in 2015.
Agrium’s (AGU) gross margins are expected to fall to 24.7% in 2016 from 26.3% in 2015. Agrium can also be accessed through the PowerShares International Dividend Achievers ETF (PID), which invests about 1% in the company.
Companies such as CF, CVR Partners (UAN), and Terra Nitrogen (TNH) have fixed costs, so their gross margins are impacted by input costs and fertilizer prices. To learn more about the state of fertilizer prices, please read Fertilizer Happens: Your Update for the Week Ending April 22.
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