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CF Industries (CF) Q2 Earnings Preview: Stock to Disappoint?

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CF Industries (CF - Free Report) is set to release second-quarter 2017 results after the closing bell on Aug 2.

The fertilizer maker delivered a negative earnings surprise of 44.44% in first-quarter 2017. The company posted a loss of $23 million or 10 cents per share in the quarter, as against a profit of $26 million or 11 cents recorded a year ago. Barring one-time items, adjusted earnings came in at 5 cents per share for the quarter, missing the Zacks Consensus Estimate of 9 cents.

CF Industries missed the Zacks Consensus Estimate in three of the trailing four quarters while beating in one with an average negative surprise of 121.48%.

CF Industries’ shares have lost around 20.9% over the past six months, underperforming the roughly 8.1% decline of its industry.

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

Factors to Watch For

CF Industries continues to bear the brunt of pricing pressure. The company is also exposed to challenging agriculture market fundamentals.

CF Industries saw lower average selling prices across all segments in the first quarter. Urea prices have been under pressure due to higher nitrogen supply. High supply levels in the global nitrogen market due to capacity additions pressured pricing in the first quarter and remain a headwind in the June quarter.

Abundant nitrogen supply driven by new production capacity is expected weigh on global prices through 2017. CF Industries, in its first-quarter call, said that it anticipates uneven nitrogen pricing environment to continue through 2017. The company also noted that excess global nitrogen supply continues to pressure marginal producers in China and other regions. Additional nitrogen capacity is expected to come onstream globally during second-half 2017 including a significant increase in North America.

Nevertheless, CF Industries sees demand for nitrogen in North America to be relatively strong during the spring application season for nitrogen-consuming crops. It should also gain from its efforts to expand production capacity.

Earnings Whispers

Our proven model does not conclusively show that CF Industries is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive  Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Zacks ESP: The Earnings ESP for CF Industries is -25.00% as the Most Accurate Estimate stands at a loss of 10 cents while the Zacks Consensus Estimate is pegged at a loss of 8 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 #5 (Strong Sell). 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.

Stocks That Warrant a Look

Here are some 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 Corporation (WLK - Free Report) has an Earnings ESP of +5.04% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chemours Company (CC - Free Report) has an Earnings ESP of +4.44% and a Zacks Rank #2.

Endeavour Silver Corp. (EXK - Free Report) has an Earnings ESP of +100% and a Zacks Rank #3.

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