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Bear of the Day: CF Industries (CF)

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Global surpluses in your core competency dampens growth levels, and puts pressure on a company’s pricing power as well.  This is the situation facing our Zacks Bear of the Day, CF Industries (CF - Free Report) who is dealing with global nitrogen supply surpluses due high stockpiles of the commodity in China, India, and Pakistan.  Further, this supply glut is not expected to be reduced as a wetter and colder than expected spring has delayed ammonia applications in the Midwest United States.   

This Zacks Ranked #5 (Strong Sell) is the holding company for the operations of CF Industries, Inc. CF Industries, Inc. is a major producer and distributor of nitrogen and phosphate fertilizer products. CF Industries operates world-scale nitrogen fertilizer plants in Louisiana and Alberta, Canada; conducts phosphate mining and manufacturing operations in Central Florida; and distributes fertilizer products through a system of terminals, warehouses, and associated transportation equipment located primarily in the Midwestern United States.

Recent Earnings Data

In early May, CF announced Q1 17 earnings where they missed the Zacks consensus earnings estimate, but beat the Zacks consensus revenue estimate.  On a year over year basis, the company saw several negative trends; cost of sales increased by +18.3%, gross margins fell -11.4%, Net earnings declined from +$26 million to a net loss of $23 million, and adjusted net earnings per diluted share diminished from $0.43 to $0.05.

Price and Earnings Consensus Graph

Due to the lack of pricing power, and increased cost of sales, the stock price and future earnings estimates have been declining for quite some time.

CF Industries Holdings, Inc. Price and Consensus

CF Industries Holdings, Inc. Price and Consensus | CF Industries Holdings, Inc. Quote

Declining Earnings Estimates

Over the past 60 days, earnings estimates for Q2 17, Q3 17, FY 17 and FY 18 have all seen significant downgrades; Q2 17 fell from $0.23 to $0.02, Q3 17 dropped from -$0.10 to -$0.31, FY 17 plummeted from $0.25 to $-0.37, and FY 18 was cut by more than half as it fell from $0.90 to $0.39.

Bottom Line

Unfortunately, this global surplus is not expected to decline in the near term which will make the next quarter or two a bit  challenging for CF Industries.  

If you are inclined to invest the Basic Materials-Fertilizers segment you would be best served by looking into either Potash Corp (POT) who currently carries a Zacks Rank #1 (Strong Buy), and or Sociedad Quimica Minera (SQM - Free Report) who currently has a Zacks Rank of #2 (Buy).

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