CF (CF) Down 6.4% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for CF Industries (CF). Shares have lost about 6.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is CF due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
CF Industries' Q3 Earnings Miss, Lower Prices Hurt Sales
CF Industries logged third-quarter 2023 earnings of 85 cents per share, down from $2.18 in the year-ago quarter. The figure missed the Zacks Consensus Estimate of 94 cents.
Net sales fell around 45% year over year to around $1.27 billion in the quarter, missing the Zacks Consensus Estimate of $1.29 billion. Sales were hurt by lower average selling prices resulting from increased global supply availability as lower global energy costs led to higher operating rates.
Sales volumes rose year over year in the reported quarter on the back of higher urea ammonium nitrate and ammonia sales volumes, partly masked by lower granular urea sales volumes.
Segment Review
Net sales in the Ammonia segment decreased 56% year over year to $235 million in the reported quarter. It was below our estimate of $324 million. Average selling price per product ton was $308, which was below our estimate of $552. Ammonia adjusted gross margin per ton decreased for the first nine months of 2023 from the year-ago period due to lower average selling prices, partly offset by lower realized natural gas prices.
Sales in the Granular Urea segment fell around 48% year over year to $360 million. It was higher than our estimate of $255.9 million. Average selling price per product ton was $339, which lagged our estimate of $352. Granular urea adjusted gross margin per ton decreased for the first nine months of 2023 from the year-ago period mainly due to a decline in average selling prices, partly offset by lower realized natural gas prices.
Sales in the Urea Ammonium Nitrate segment fell around 41% year over year to $435 million. It lagged our estimate of $469 million. Average selling price per product ton was $223, which was below our estimate of $366. Adjusted gross margin per ton decreased for the first nine months of 2023 from the year-ago period mainly due to reduced average selling prices that more than offset a decline in realized natural gas costs.
Sales in the Ammonium Nitrate segment fell around 37% year over year to $114 million. It was lower than our estimate of $116.7 million. Average selling price per product ton was $275, which was below our estimate of $392. Adjusted gross margin per ton decreased for the first nine months of 2023 from the year-ago period due to lower average selling prices, partly offset by the impact of using lower-cost imported ammonia for ammonium nitrate production in the U.K. and reduced realized natural gas prices.
Financials
CF Industries ended the third quarter with cash and cash equivalents of $3.25 billion, up around 1% from the prior quarter. Long-term debt was $2.97 billion at the end of the quarter, flat sequentially.
Net cash provided by operating activities was $618 million in the reported quarter, down around 13% sequentially.
During the third quarter, the company repurchased 1.9 million shares for $150 million.
Outlook
Per the company, the global nitrogen supply-demand balance will continue to be positive owing to robust demand from agricultural and forward energy curves displaying an elevated cost curve. Energy price differences between producers in North America and marginal producers in Europe and Asia continue to be significantly higher than historical levels. These stronger differentials are expected to last for a considerable amount of time, based on forward energy curves. According to the company, there will continue to be considerable margin opportunities for low-cost North American producers on the back of the global nitrogen cost curve. The company also expects demand to remain solid through the end of this year and into 2024, led by India and Brazil.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
Currently, CF has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, CF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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CF Industries Holdings, Inc. (CF) : Free Stock Analysis Report
