Potash Corp. (POT) is set to release its fourth-quarter 2014 results before the opening bell on Jan 29.
In the last quarter, the fertilizer giant logged a roughly 9.5% negative earnings surprise. The company saw lower profit in the quarter, hurt by higher tax expenses and lower income from offshore investments.
Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Potash Corp. raised its annual gross margin estimates for potash for 2014 to $1.3–$1.4 billion (from $1.2–$1.4 billion) and annual sales volumes to 9.0–9.2 million tons (from 8.9–9.2 million tons).
For nitrogen, the company expects nitrogen fundamentals to remain strong, especially for ammonia through the December quarter. Even with gas supply restrictions at the company’s Trinidad facility, Potash Corp. expects higher sales in nitrogen, leading to record gross margin in 2014.
For phosphate, the company expects stable markets keeping its sales volumes at lower levels in the fourth quarter compared to the year-ago quarter due to the closing of its Suwannee River chemical plant.
Potash Corp. has also raised its global potash shipments expectations for 2014 to a band of 58 million to 60 million from 56.5 million to 58 million tons expected earlier. It sees a healthy potash demand in North America in the December quarter, lending support to shipments.
Potash Corp. has a strong geographic diversification and continues to invest in expanding its operational capability in potash. The company believes that the strain on the world's food supply is driving strong demand for its all three nutrients, especially potash. It also expects strong import demand from India for its potash segment.
However, Potash Corp. is exposed to a volatile pricing environment. Average realized potash price fell roughly 9% year over year in the third quarter. Pricing pressure may sustain in the December quarter.
Earnings Whispers
Our proven model does not conclusively show that Potash Corp. will beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Ranks #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Potash Corp. has an Earnings ESP of -8.70% — the difference between the Most Accurate estimate of 42 cents and the Zacks Consensus Estimate of 46 cents.
Zacks Rank: Potash Corp.’s Zacks Rank #2 (Buy) when combined with a negative ESP makes an earnings beat unlikely.
We caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
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:
Compass Minerals International Inc. (CMP) has an earnings ESP of +2.60% and carries a Zacks Rank #1 (Strong Buy).
Trecora Resources (TREC) has an earnings ESP of +5.00% and holds a Zacks Rank #2 (Buy).
Airgas, Inc. (ARG) has an earnings ESP of +0.81% and carries a Zacks Rank #3 (Hold).
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