What happened

Shares of potassium fertilizer producer Intrepid Potash (NYSE:IPI) managed to stave off investor pessimism after the company released first-quarter results, marching their way to a more-than-20% gain last month. While the company is in the midst of a turnaround and demonstrating gradual progress, there wasn't actually much to like in the most recent earnings report.

As a result, last month's gain seems to have more to do with recent momentum in the stock, which has risen 80% in the last 12 months -- most of which has been realized since last December -- after struggling for most of 2016. With that in mind, here's a breakdown of Intrepid Potash's results from the first three months of the year.

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Image source: Getty Images.

So what

The fertilizer producer didn't have the scale of much larger peers to survive the long price slump without making dramatic changes. Those included a shift to lower-cost solar production processes, lower sales volumes to trim mounting losses, a new focus on diversifying revenue streams, and debt reduction efforts.

Intrepid Potash showed signs of progress on all fronts to start the year, but it doesn't seem to be happening quickly enough. Total revenue was down sharply from the first quarter of 2016 as potash production volumes were greatly reduced. Meanwhile, gross margin on the company's leading fertilizer brand, Trio, worsened as production volumes increased.  

Metric

Q1 2017

Q1 2016

Change (YOY)

Potash revenue

$27.2 million

$53.7 million

(49.3%)

Trio revenue

$21.1 million

$19.6 million

7.8%

Total revenue

$48.3 million

$73.3 million

(34%)

Gross profit

($2.9 million)

($9.1 million)

N/A

Earnings per share

($0.17)

($0.24)

N/A

Potash average selling price (per metric ton)

$240

$216

11.1%

Trio average selling price (per metric ton)

$202

$316

(36.1%)

Data source: Intrepid Potash.YOY = year over year.

The company's gross margin improved thanks to its solar production processes for potash, which utilizes evaporation ponds to concentrate product. While significant weather events affected production rates in 2016 and should lead to much greater production in 2017, potash production volume decreased 45% in the first quarter of this year compared to last year. That didn't allow Intrepid Potash to take advantage of higher selling prices, although gross profit swung $13 million in the right direction.

Meanwhile, production volumes of Trio products increased 66% over the comparison period, but gross profit declined $8 million to a $5.2 million loss. Worse, selling prices decreased greatly. The company needed exactly the opposite production-to-selling-price relationship between its potash and Trio products.

IPI Chart

IPI data by YCharts.

Now what

Even with the new strategy being implemented, Intrepid Potash faces a difficult uphill climb. Recent equity offerings used to pay down long-term debt balances have resulted in significant levels of dilution for shareholders, with a 66% increase in the number of shares outstanding in the first three months of 2017. Wall Street appears to be riding the momentum of this stock in the last six months, but I'm not sure the long-term prospects are too enticing given the broader fertilizer landscape.

Maxx Chatsko has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.