Will CF Industries (CF) Surprise This Earnings Season? - Analyst Blog

CF Industries (CF) is set to release its third-quarter 2014 results after the bell on Nov 5.  
 
In the last quarter, the fertilizer maker delivered a roughly 5.6% negative earnings surprise. Its profit for the quarter slid year over year on a double-digit decline in sales, hurt by lower fertilizer pricing.

Let's see how things are shaping up for this announcement.

Factors to Consider

CF Industries should benefit from healthy U.S. corn plantations and abundant natural gas (a major feedstock in producing nitrogen fertilizer) supply, driven by increased production of shale gas in North America. The company sees robust nitrogen demand through the second half of 2014.

CF Industries is also making significant progress on its two capacity expansion projects (in Louisiana and Iowa), which will increase its annual nitrogen production capacity by 25% when the plants come on stream. CF Industries plans to spend roughly $1.7 billion on capacity expansion projects this year and expects higher spending on construction activities in the third and fourth quarters.

However, CF Industries continues to see lower nitrogen sales. Lower prices for major nitrogen products may continue to hurt sales and margins in this business in the September quarter as did in the last quarter. Urea prices have been under pressure due to higher supply from Chinese export producers. China's exports are expected to be roughly 10 million metric tons this year, higher than around 8 million metric tons in 2013.

Earnings Whispers

Our proven model shows that CF Industries is likely to beat earnings in the third quarter because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings ESP (Expected Surprise Prediction) for CF Industries is 2.65%. This is because the Most Accurate estimate stands at $3.49 while the Zacks Consensus Estimate is pegged lower at $3.40. This indicates a likely positive earnings surprise.

Zacks Rank #3 (Hold): CF Industries' Zacks Rank #3 increases the predictive power of its ESP.

Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

Other Stocks to Consider

Here are some other stocks in the basic materials sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
 
Orion Engineered Carbons SA (OEC) has earnings ESP of +11.77% and holds a Zacks Rank #3 (Hold).

Trinseo SA (TSE) has earnings ESP of +6.67% and retains a Zacks Rank #3 (Hold).

The Scotts Miracle-Gro Company (SMG) has earnings ESP of +4.17% and sports a Zacks Rank #3 (Hold).