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ICL Group: Beyond the EPS Hurdles – A Case for Long-Term Growth

Edwin FosterMonday, May 19, 2025 3:21 am ET

15min read

ICL --

The ICL Group, a global leader in specialty minerals and chemicals, has long balanced the dual pressures of volatile commodity markets and the promise of high-margin specialty products. Its Q1 2025 financial results reveal a company at an inflection point: revenue grew to $1.8 billion, yet adjusted diluted EPS remained stagnant at $0.09, down slightly from $0.08 in the prior-year period. While this might seem contradictory, a deeper dive into its business segments and strategic reinvestment priorities reveals a compelling narrative for long-term investors. Let us dissect whether ICL’s valuation truly reflects its growth potential.

The Revenue Growth: Sustainable or a Flash in the Pan?

ICL’s top-line expansion stems from its specialty-focused segments, which now account for over 75% of total sales. Key drivers include:

Industrial Products: Flame retardant volumes surged, offsetting price declines, while phosphorous solutions gained traction in Europe and the U.S.
Phosphate Solutions: White phosphoric acid sales rose 15% year-on-year, driven by global industrial demand. Despite headwinds in Chinese battery materials (due to market saturation), ICL’s strategic moves—such as its partnership with Shenzhen Dynanonic and the Battery Materials Innovation Center—position it to capitalize on the energy transition.
Growing Solutions: Acquisitions like the Custom Ag Formulators and a new ag-biologicals platform are expanding its reach into high-growth agrochemical markets.

The question remains: Is this growth sustainable? Consider that Potash sales dipped, but only due to legacy contracts with China and India at below-market rates. Once these contracts expire, ICL’s potash margins could rebound. Meanwhile, its specialties divisions are shielded from commodity volatility, with demand underpinned by construction, electronics, and agriculture—sectors with structural growth.

Why the EPS Lag? Reinvestment vs. One-Time Costs

The subdued EPS reflects two critical factors:
1. Strategic reinvestment: ICL is pouring capital into high-margin initiatives. For instance, its $50 million Battery Materials Innovation Center in St. Louis signals a long-term bet on lithium-ion demand. Similarly, the ag-biologicals acquisition expands its margin-rich portfolio.
2. Deferred costs: Adjusted metrics exclude security-related charges in Israel, fire expenses at Ashdod Port, and early retirement costs—items totaling roughly $25 million. These are non-recurring, yet they cloud short-term EPS.

Crucially, adjusted EBITDA margins at 20% (despite a slight dip from 21% in 2024) suggest underlying profitability remains intact. The real story lies in specialties-driven EBITDA guidance of $950 million–$1.15 billion in 2025, which implies margin expansion if operational hiccups at Dead Sea and Iberia are resolved.

Catalysts for Margin Expansion and EPS Recovery

ICL’s valuation hinges on executing three critical levers:
1. Cost discipline: Reducing potash production costs at Dead Sea (which contributed to 19,000 tons of incremental volume) and optimizing ICL Iberia’s output could stabilize margins.
2. Trade policy tailwinds: Rising protectionism in agriculture (e.g., China’s phosphates export restrictions) benefits ICL’s vertically integrated model.
3. Specialty market penetration: Its battery materials and ag-biologicals divisions are targeting high-margin niches. For instance, the global ag-biologicals market is projected to grow at 12% CAGR through 2030.

The Risk-Return Trade-Off: A Compelling Buy?

ICL’s stock trades at 12.5x 2025E adjusted EPS, well below its five-year average of 15x. This discount reflects near-term risks:
- Geopolitical instability in Israel.
- Potash’s cyclical pricing.
- Pandemic-related supply chain bottlenecks.

Yet these risks are priced into the stock. Meanwhile, liquidity remains robust at $1.49 billion, and the dividend—though trimmed slightly—is still solvent at $0.0426 per share. For investors with a 3–5-year horizon, the asymmetry is clear: the upside from margin expansion in specialties outweighs the downside of short-term operational headwinds.

Conclusion: ICL is a Specialty Leader in Disguise

ICL’s Q1 results underscore its transition from a commodity player to a specialty minerals powerhouse. While EPS volatility persists, the underlying health of its high-margin segments, strategic reinvestment, and sector tailwinds argue for a buy rating. Investors should focus on the 2025 guidance for specialties EBITDA and monitor margin trends. With a 28% effective tax rate likely reverting to 20–25% and potash pricing stabilizing, ICL’s EPS could rebound sharply in 2026.

For those willing to look past the noise, ICL Group offers a rare opportunity to own a company at the intersection of industrial innovation, agricultural sustainability, and the energy transition—all at a discount. The time to act is now.

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