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Will Higher Prices Drive CF Industries' (CF) Q2 Earnings?

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Will Higher Prices Drive CF Industries' (CF) Q2 Earnings?

CF Industries' (CF) Q2 results are likely to benefit from higher prices across most segments.

CF Industries Holdings, Inc. CF is set to release second-quarter 2018 results on Aug 1, after the closing bell.

In the last reported quarter, the fertilizer maker’s adjusted earnings came in at 27 cents per share, which beat the Zacks Consensus Estimate of 23 cents.

Net sales fell roughly 7.7% year over year to $957 million due to lower sales volumes across most segments, partly offset by increased average selling prices across most segments. The figure however, missed the Zacks Consensus Estimate of $1,051 million.

Notably, CF Industries beat the Zacks Consensus Estimate in all of the trailing four quarters, with an average positive earnings surprise of 88.3%.

CF Industries has outperformed the industry it belongs to over the past three months. The company’s shares have returned around 15.1% compared with roughly 7.2% rise of the industry.



Can 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 +8.33%. This is because the Most Accurate Estimate is at 46 cents and the Zacks Consensus Estimate is currently pegged at 42 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 carries a Zacks Rank #3, 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

CF Industries, during its first-quarter call, said that it expects demand in North America for nitrogen fertilizer to be on par year over year for the first half of 2018.  It expects a year-over-year increase in nitrogen imports into Brazil owing to the permanent closure of two Petrobras urea plants in the country in the coming months, partly offset by lower projected corn plantings.

The Zacks Consensus Estimate for revenues for CF Industries for the second quarter is pegged at $1,199 million, reflecting an increase of 6.7% from the year-ago quarter’s tally and a 25.3% sequential increase from first-quarter figure.

The Zacks Consensus Estimate for average selling prices for the Ammonia unit for the second quarter is pegged at $322 per ton, reflecting an expected fall of 4.8% from the year-ago quarter’s figure. The Zacks Consensus Estimate for the granular urea segment is pegged at $248 per ton, representing an expected increase of roughly 17% year over year.

Moreover, average selling price for the Urea Ammonium Nitrate (UAN) unit is expected to rise 4% year over year as the Zacks Consensus Estimate is pegged at $182 per ton. The Zacks Consensus Estimate for the Ammonium Nitrate (AN) unit is pegged at $230 per ton, representing an expected 10.6% year-over-year increase.

The company believes that the industry’s ability to supply the expected increase in volumes to all regions is likely to be challenged by considerable logistical constraints emerging from stretched trucking resources, poor rail service and tighter application windows. These factors are expected to aid the company in realizing higher prices across most segments on year over year basis.

With respect to volumes, ammonia sales are projected to remain flat year-over-year and increase roughly 73.5% sequentially as the Zacks Consensus Estimate is pegged at roughly 1,152,000 tons. The Zacks Consensus Estimate for granular urea sales volume is pegged at 1,302,000 tons, reflecting a rise of 6.6% on a year-over-year basis and 32.6% sequentially.  

UAN sales volume is expected to rise 12.5% year over year and 9.9% sequentially, as the Zacks Consensus Estimate is pegged at 1,835,000 tons. Moreover, the Zacks Consensus Estimate for sales volume for the AN unit is pegged at 545,000 tons, reflecting a rise of 1.1% on a year-over-year basis and 30.7% sequentially.

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:

Westlake Chemical Corp. WLK has an Earnings ESP of +3.09% and holds a Zacks Rank #3.  

The Chemours Company CC has an Earnings ESP of +2.38% and carries a Zacks Rank #3.

DowDuPont Inc. DWDP has an Earnings ESP of +0.90% and carries a Zacks Rank #3.

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Chemours Company (The) (CC) : Free Stock Analysis Report
 
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