Potash Corp. of Saskatchewan, Inc. (POT) is set to release its third-quarter 2014 results before the opening bell on Thursday, Oct 23.
In the last quarter, the fertilizer giant racked up a roughly 27.3% positive earnings surprise. This came on the back of a healthy demand environment in North America and higher sales volumes in its nitrogen business segment, leading to a higher gross margin.
Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Potash Corp. believes that the strain on the world's food supply is driving strong demand for all three nutrients of the company, especially potash.
The company has increased its annual gross margin estimates for potash for 2014 to $1.2–$1.4 billion (from $1.1–$1.3 billion) and annual sales volumes to 8.9–9.2 million tons (from 8.3–8.7 million tons). It is also aggressively slashing costs. The company has aimed to achieve its 2014 target of reducing per-ton cash costs by $15–$20 (from 2013's levels) although the third quarter will reflect its normal seasonal increase as it completes its required maintenance downtime.
Potash Corp. has a competitive advantage, stemming from its mining rights to the world's largest potash reserve. The company has a strong geographic diversification and continues to invest in expanding its operational capability in potash.
The company expects global demand to remain solid, backed by increased global shipments, thus raising its full year estimates to 56.5–58 million tons from its earlier view of 55–57 million tons.
Potash Corp. also expects strong import demand from India for its potash segment. It also sees a healthy potash demand in North America through the remainder of 2014, lending support to shipments.
However, Potash Corp. is exposed to a volatile pricing environment. Average realized potash price fell roughly 26% year over year in the second quarter. Pricing pressure is also witnessed across its nitrogen and phosphate segments due to weak market fundamentals. These challenges may sustain in the third quarter.
Earnings Whispers
Our proven model shows that Potash Corp. has the right combination of two key ingredients to beat earnings this season.
Zacks ESP: Potash Corp. has an Earnings ESP of +2.38% — the difference between the Most Accurate estimate of 43 cents and the Zacks Consensus Estimate of 42 cents. This indicates a likely positive earnings surprise.
Zacks Rank: Potash Corp.’s Zacks Rank #2 (Buy) increases the predictive power of its ESP. Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Stocks That Warrant a Look
Here are some other companies in the basic materials sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Westlake Chemical Corp. (WLK) has an Earnings ESP of +2.58% and a Zacks Rank #1 (Strong Buy).
LyondellBasell Industries N.V. (LYB) has an Earnings ESP of +2.21% and a Zacks Rank #2 (Buy).
Methanex Corp. (MEOH) has an Earnings ESP of +3.08% and a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment