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Why Is CF (CF) Up 4.1% Since Last Earnings Report?

Zacks Equity Research
Petrobras (PBR) will receive $900 million as cash consideration from Murphy Oil for the formation of the JV.

A month has gone by since the last earnings report for CF Industries (CF). Shares have added about 4.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CF due for a pullback? 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, Revenues Top Estimates in Q2

CF Industries reported profit of $148 million or 63 cents per share in the second quarter of 2018 compared with profit of $3 million or a penny per share a year ago. Earnings in the reported quarter beat the Zacks Consensus Estimate of 42 cents.

Net sales increased around 15.6% year over year to $1,300 million in the quarter on higher sales volumes across most segments and increased average selling prices across all segments. Sales in the quarter surpassed the Zacks Consensus Estimate of $1,199 million.

Segment Review

Net sales at the Ammonia segment declined 3.8% year over year to $374 million in the reported quarter. Ammonia sales volumes fell 5% year over year to 1,094,000 tons. Average selling prices rose a modest 1.1% year over year to $342 per ton.

Sales at the Granular Urea segment rose roughly 38.9% year over year to $360 million. Sales volumes increased around 17.4% year over year to 1,434,000 tons on carry-over demand from the first quarter on account of unfavorable weather conditions during early 2018. Average selling prices for granular urea rose 18.3% year over year to $251 per ton.

Sales at the UAN segment increased 18.5% year over year to $339 million. UAN sales volume rose roughly 11.5% year over year to 1,820,000 tons in the quarter due to carry-over demand. Average selling prices rose 6.2% year over year to $186 per ton.

Sales at the ammonium nitrate segment increased 10.7% year over year to $124 million. Sales volumes rose around 5.3% to 568,000 tons. Average selling prices increased 4.8% year over year to $218 per ton.

Financials
 
CF Industries’ cash and cash equivalents were $728 million at the end of second-quarter 2018, down roughly 63.6% year over year.

Long-term debt was $4,695 million, down around 5.8% year over year.    

Outlook
 
CF Industries anticipates net global urea supply growth to be lower than the historical nitrogen demand growth of around 2%, over the long run. The company sees 4.3 million metric tons for nameplate urea capacity start up for 2018. It also expects a 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 over the next few years.

The company expects capital expenditures for new activities in the range of $400-$450 million in 2018, factoring in higher number of plant turnarounds in the second half compared with 2017.
 

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 250% due to these changes.

VGM Scores

Currently, CF has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second 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 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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