CF Industries Holdings, Inc. CF is set to release first-quarter 2015 results after the closing bell on May 6.
In the last quarter, the fertilizer maker had delivered a negative earnings surprise of roughly 5.2%. Its profit for the quarter plunged 27% year over year, hurt by higher natural gas costs and loss on derivatives.
Let’s see how things are shaping up for this announcement.
Factors to Consider
CF Industries anticipates 90 million acres of corn to be planted in 2015. Given the deficit of ammonia applicants across northern U.S. and Canada, demand for nitrogen is expected to be high in the first half of 2015 to support the plantations. The company’s strong order book manifests this solid demand. This is a boon for CF Industries considering that a decline in international ammonia prices has already been witnessed so far in 2015.
Although urea prices were unaffected by falling oil prices in the fourth quarter of 2014, the prices continue to be dependent on the cost structures of the Chinese producers that use coal as their primary feedstock. CF Industries anticipates Chinese exports to be at least 11 million tons in 2015.
UAN prices have also increased in comparison with 2014 prices due to higher buyer interest. Also, lower North American natural gas costs, compared with feedstock costs in other regions of the world, can support the company’s long-term cash generation prospects.
CF Industries anticipates total capital expenditures in the band of $2–$2.5 billion in 2015. This consists of $1.5–$2 billion for capacity expansion projects and $0.5 billion for other capital expenditures. The company remains on track with its capacity expansion projects in Louisiana and Iowa.
The project in Louisiana consists of new urea and UAN plants, which are expected to come on stream in third-quarter 2015 and fourth-quarter 2015, respectively, and a new ammonia plant which may come on stream in early 2016. Both projects will expand the company’s production capacity by 1.7 million tons or 25%.
However, CF Industries is exposed to cyclical changes. The prices of products are affected by demand and supply. Moreover, the company continues to operate with high debt levels.
Earnings Whispers
Our proven model shows that CF Industries is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. CF Industries has the right combination of the two key components.
Zacks ESP: CF Industries has an Earnings ESP of +3.69% – the difference between the Most Accurate estimate of $4.78 and the Zacks Consensus Estimate of $4.61.
Zacks Rank: CF Industries currently carries a Zacks Rank #3 (Hold).
CF Industries’ Zacks Rank #3 and ESP of +3.69% make us reasonably confident of a positive earnings beat.
We caution against stocks with a Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
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:
Alamos Gold Inc. AGI has an Earnings ESP of +50.00% and a Zacks Rank #3.
AuRico Gold Inc. AUQ has an Earnings ESP of +16.67% and a Zacks Rank #2 (Buy).
Agrium Inc. AGU has an Earnings ESP of +6.06% and a Zacks Rank #3.
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