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CF (CF) Down 0.5% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for CF Industries (CF - Free Report) . Shares have lost about 0.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

CF Industries' Earnings & Sales Beat Estimates in Q2

CF Industries delivered profits of $190 million or 89 cents per share in the second quarter of 2020, down from $283 million or $1.28 per share in the year-ago quarter. Nevertheless, earnings per share beat the Zacks Consensus Estimate of 54 cents.

Net sales fell 19.8% year over year to $1,204 million in the quarter. However, the figure beat the Zacks Consensus Estimate of $1,144.7 million.

Segment Review

Net sales in the Ammonia segment fell 23% year over year to $364 million in the reported quarter. The company saw lower year over year sales volumes in the reported quarter. Average selling prices of ammonia fell year over year in the quarter, impacted by higher global supply. 

Sales in the Granular Urea segment declined 24% year over year to $329 million. Average selling prices for urea declined due to increased global supply availability. 

Sales in the UAN segment fell 8.2% year over year to $308 million. Sales volumes declined year over year, while average selling prices declined in the quarter due to higher global supply availability.

Sales in the AN segment declined 6.3% year over year to $118 million. Sales volumes rose year over year on the back of higher demand in Europe for agricultural applications. Average selling prices declined year over year due to increased global supply availability.

Financials

CF Industries’ cash and cash equivalents fell 34.4% year over year to $563 million in the second quarter. Long-term debt was $3,959 million at the end of the quarter, down 5.8% year over year.

Cash flow from operations amounted to $426 million in the reported quarter, up 10.1% year over year. The company did not repurchase shares during the second quarter. Since share repurchase authorization announced in February 2019, the company has around $560 million remaining under the program.

Outlook

CF Industries expects global nitrogen demand to remain positive into 2021. Further, global nitrogen requirements are driven by demand in India and Brazil. Demand for urea imports into Brazil remains positive. This is partly supported by improved farm incomes. The company expects total urea imports into Brazil to surpass 6.5 million metric tons in 2020.

Per the company, low global energy prices are boosting global nitrogen supply. However, lower global nitrogen prices led to the shutdown of three ammonia plants in Trinidad. North American nitrogen production facilities are expected to benefit from access to low-cost North American natural gas. In the long term, the company expects global demand growth for nitrogen to outpace net capacity additions.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 19.22% due to these changes.

VGM Scores

Currently, CF has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly 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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