CF Industries Holdings, Inc. CF is set to release second-quarter 2015 results after the closing bell on Aug 5.
In the last quarter, the fertilizer maker had delivered a positive earnings surprise of roughly 5.43% on the back of strong operations, higher order bookings and cash deployment. Let’s see how things are shaping up for this announcement.
Factors to Consider
CF Industries expects to deliver a strong performance in the second quarter compared with overall market conditions. The company anticipates robust nitrogen demand for 2015 based on expectations of over 89 million acres of corn being planted this year along with strong industrial demand.
Moreover, CF Industries expects ammonia demand to be strong during the second quarter. The company’s strong order book manifests this solid demand. However, ammonia shipments are projected to be lower for the first half of the year due to low ammonia inventory levels on hand at the beginning of 2015 compared with the same period a year ago.
Additionally, product pricing is anticipated to be favorable, given limited producer inventories, strong ammonia demand and orders that were booked earlier in 2015.
However, CF Industries continues to see pricing pressure in its nitrogen business. Urea prices have been under pressure due to higher supply from Chinese producers. The decline in prices in the urea market is expected to have an adverse impact on Urea Ammonium Nitrate (“UAN”) prices as well.
CF Industries has been gaining from falling natural gas prices. The company’s Nitrogen segment is enjoying the benefit of abundant natural gas supply, driven by an increase in production of North American shale gas and favorable weather.
North American UAN demand is also expected to be healthy due to increased nitrogen applications. However, rising UAN imports and lower urea prices are anticipated to lead to lower UAN prices.
Moreover, North American natural gas continues to provide a cost advantage compared with other feedstocks, further aiding the company’s near- and long-term cash generation prospects. Gas supply is also projected to increase throughout 2015, but at a slower rate.
Earnings Whispers
Our proven model does not conclusively show that CF Industries is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: Earnings ESP for CF Industries is -3.45%. This is because the Most Accurate estimate stands at $1.40, while the Zacks Consensus Estimate is pegged at $1.45.
Zacks Rank: CF Industries’ Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some 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:
Albemarle Corp. ALB has an Earnings ESP of +2.44% and a Zacks Rank #2 (Buy).
Thompson Creek Metals Company Inc. TC has an Earnings ESP of +100% and a Zacks Rank #3.
Axalta Coating Systems Ltd. AXTA has an Earnings ESP of +3.33% and a Zacks Rank #3.
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