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Will Higher Prices Drive CF Industries' (CF) Q3 Earnings?

CF Industries Holdings, Inc.CF is set to release third-quarter 2018 results on Oct 31, after the closing bell.

In the last reported quarter, the fertilizer maker's earnings came in at 63 cents per share, which beat the Zacks Consensus Estimate of 42 cents.

Net sales increased more than 15% year over year to $1,300 million, driven by higher sales volumes across most segments and increased average selling prices across all segments. The figure also surpassed the Zacks Consensus Estimate of $1,199 million.

Notably, CF Industries surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with an average positive earnings surprise of 44.6%.

CF Industries has outperformed the industry in the past six months. The company's shares have returned around 14.3% compared with roughly 2.5% rise of the industry.

Will the company surprise investors again or is it heading for a possible pullback? Let's see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that CF Industries is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP : Earnings ESP for CF Industries is +36.36%. This is because the Most Accurate Estimate is at 21 cents and the Zacks Consensus Estimate is currently pegged at 15 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : CF Industries currently sports a Zacks Rank #1, which when combined with a positive ESP, make us reasonably confident of an earnings beat. You can see the complete list of today's Zacks #1 Rank stocks here.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play in Q3

CF Industries, during its second-quarter call, stated that it anticipates net global urea supply growth to be lower than the historical nitrogen demand growth of around 2% in the long run. The company sees 4.3 million metric tons for nameplate urea capacity start up for 2018. It also expects year-over-year increase in urea imports to Brazil during the second half partly owing to the expected lost production from the scheduled closure of two Petrobras urea plants in August. Further, the company also anticipates global supply of nitrogen to be constrained in the next few years.

CF Industries is likely to benefit from higher prices of nitrogen fertilizers. Higher production costs across Europe and China coupled with reduced production due to the enforcement of environmental regulations in China tightened global nitrogen supply and demand balance and boosted nitrogen prices during first-half 2018. These factors are expected to continue to drive prices in the third quarter.

However, the company has higher number of planned turnarounds in 2018 compared with the year-ago tally. Majority of turnaround activity is likely to take place in the third and the fourth quarters.

The Zacks Consensus Estimate for third-quarter total sales is pegged at $1,072 million, reflecting an increase of 23.2% from the year-ago quarter's tally but a 17.5% sequential decline from second-quarter figure.

For the third quarter, the Zacks Consensus Estimate for total sales in the Ammonia segment is currently pegged at $233 million, indicating an expected increase of 20.1% year over year. The same for average selling prices for the segment is pegged at $314 per ton, reflecting a rise of 33.6% from the year-ago quarter's tally.

The Zacks Consensus Estimate for total sales in the Granular Urea segment is currently pegged at $267 million, indicating an increase of 17.1% year over year. The average selling prices in the segment during the third quarter is expected to rise 25.6% year over year, as the Zacks Consensus Estimate is currently pegged at $245 per ton.

For the third quarter, the Zacks Consensus Estimate for total sales in the urea ammonium nitrate solution (UAN) segment is currently pegged at $278 million, indicating an increase of 14.4% year over year. The Zacks Consensus Estimate for average selling prices in the segment is pegged at $166 per ton, reflecting an expected rise of 15.3% from the year-ago quarter's tally.

The Zacks Consensus Estimate for total sales in the ammonium nitrate (AN) segment is currently pegged at $137 million, marking an increase of 1.5% year over year. The average selling prices in the segment during the third quarter is expected to rise roughly 8% year over year, as the Zacks Consensus Estimate is currently pegged at $217 per ton.

CF Industries Holdings, Inc. Price and EPS Surprise

CF Industries Holdings, Inc. Price and EPS Surprise | CF Industries Holdings, Inc. Quote

Other Stocks Poised to Beat Estimates

Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Nutrien Ltd. NTR has an Earnings ESP of +10.43% and carries a Zacks Rank #2.

Bunge Limited BG has an Earnings ESP of +2.11% and carries a Zacks Rank #2.

Arconic Inc. ARNC has an Earnings ESP of +6.42% and carries a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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