Why PotashCorp’s Gross Margins Fell in 1Q16
Why PotashCorp Missed 1Q16 Estimates
PotashCorp’s gross profits for 1Q16
Gross profit and margins are one of the key metrics for assessing the performance of commodities for companies like PotashCorp (POT), Intrepid Potash (IPI), the Mosaic Company (MOS), and CF Industries Holdings (CF). In the fertilizer commodities business, margins are thin and fertilizer prices can significantly impact a company’s margins. The PowerShares International Dividend Achievers (PID) holds about 2.4% in PotashCorp as a percentage of its total portfolio.
Gross margins
Overall, PotashCorp earned $234 million in gross profit from all three segments combined, which translated into an overall gross margin of 24%, a decline from 40% in the corresponding quarter a year ago.
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PotashCorp’s potash segment’s gross profits fell to $88 million in 1Q16 from $428 million in 1Q15, which resulted in margins declining to 23% from 64% year-over-year.
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According to the company, the potash segment’s margins declined as a result of weak potash prices and lower offshore shipment volumes.
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The phosphate segment’s gross profits declined to $39 million in 1Q16 from $58 million in 1Q15. It resulted in margins declining to 10% from 13% year-over-year.
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The nitrogen segment’s gross profits declined to $107 million in 1Q16 from $181 million in 1Q15, which resulted in margins declining to 25% from 38% year-over-year.
Why margins declined
Lower average realized prices for fertilizers across all three NPK segments impacted PotashCorp’s margins significantly. Adding to these lower prices, the company took a severance charge of $32 million under the potash segment and $27 million in impairment charges related to the company’s phosphate assets located in Aurora.
The company expects the potash segment’s margins to be in the range of $0.5 billion to $0.7 billion in 2016. The combined phosphate and nitrogen margins are expected to be in the range of $0.6 billion to $0.8 billion in 2016.
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