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CF (CF) Down 6.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for CF Industries (CF). Shares have lost about 6.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.

CF Industries' Earnings & Sales Miss Estimates in Q1

CF Industries delivered profits of $90 million or 40 cents per share in the first quarter of 2019, up from $63 million or 27 cents in the year-ago quarter.

Barring one-time items, adjusted earnings per share came in at 27 cents that missed the Zacks Consensus Estimate of 28 cents.

Net sales rose 4.6% year over year to $1,001 million in the quarter, mainly driven by higher average selling prices for UAN, granular urea and AN. However, the figure missed the Zacks Consensus Estimate of $1,016 million.

Segment Review

Net sales in the Ammonia segment declined roughly 11.8% year over year to $187 million in the quarter. Ammonia sales volumes fell 8.7% year over year to 606,000 tons. Average selling prices of ammonia fell roughly 3.1% year over year to $309 per ton.

Sales in the Granular Urea segment rose roughly 29.9% year over year to $343 million. Sales volumes increased around 20.6% year over year to 1,184,000 tons. Average selling prices for granular urea rose 7.8% year over year to $290 per ton.

Sales in the UAN segment went down around 9.5% year over year to $256 million. UAN sales volume fell 24% year over year to 1,268,000 tons in the quarter. Average selling prices rose roughly 18.8% year over year to $202 per ton.

Sales in the AN segment rose around 27% year over year to $127 million. Sales volumes rose around 20.1% to 501,000 tons. Average selling prices increased 5.4% year over year to $253 per ton.

Financials
 
CF Industries ended the first quarter with cash and cash equivalents of $671 million, down roughly 28.3% year over year. Long-term debt was $4,700 million in the reported quarter.   

Cash flow from operation was $306 million, up 8.5% year over year. The company repurchased roughly 1.5 million shares under the earlier announced $1.5-billion share repurchase plan authorized through 2021.

Outlook
 
CF Industries expects strong nitrogen fertilizer demand in North America during the first half of 2019. Cold and wet weather affected first-quarter results and persisted in the second quarter, which delayed spring fertilizer applications throughout North America.

Per the company, throughout the first quarter and into May, weather conditions caused considerable disruptions to rail and barge transportation. It anticipates the logistical challenges to support strong in-region nitrogen pricing in the spring application season.

The company projects net urea exports from China in 2019 will be in line with 2018 levels. Demand for urea from Brazil and India is likely to support the global market. Urea imports to Brazil are expected to increase for 2019 due to the closure of two Petrobras urea plants.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 15.13% due to these changes.

VGM Scores

Currently, CF has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been 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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