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CF Industries (CF) to Post Q4 Earnings: What's in the Offing?

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CF Industries Holdings, Inc. (CF - Free Report) is set to release fourth-quarter 2018 results after the closing bell on Feb 13.

The fertilizer maker swung to profit of $30 million or 13 cents per share in the third quarter of 2018 from a loss of $87 million or 37 cents a year ago. Earnings, however, missed the Zacks Consensus Estimate of 15 cents.

Net sales went up around 20% year over year to $1,040 million in the quarter, mainly driven by higher average selling prices across all segments. However, the figure trailed the Zacks Consensus Estimate of $1,072.2 million.

CF Industries surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 34%.

CF Industries shares have gained around 8.9% over a year, modestly outperforming the roughly 8% rise of the industry.

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

Factors to Watch For

CF Industries, in its third-quarter call, said that it expects the global market fundamentals, which drove higher global nitrogen prices during the third quarter, to continue through the fourth quarter and into first-half 2019.

The Zacks Consensus Estimate for fourth-quarter total sales for CF Industries is pegged at $1,297 million, reflecting an increase of roughly 18% from the year-ago quarter’s tally.

For the fourth quarter, the Zacks Consensus Estimate for total sales in the Ammonia segment is currently pegged at $320 million, indicating an expected decrease of 7% year over year.

The Zacks Consensus Estimate for total sales in the Granular Urea segment is currently pegged at $375 million, indicating an increase of 52.4% year over year. The same for the urea ammonium nitrate solution (“UAN”) segment is currently stands at $397 million, reflecting an increase of 37.8% year over year.

Moreover, the Zacks Consensus Estimate for total sales in the ammonium nitrate (AN) segment is currently pegged at $131 million, indicating an increase of 4.8% year over year.

CF Industries is gaining from higher nitrogen demand driven by healthy corn plantations and cyclical recovery in the nitrogen fertilizer industry. The company is also benefiting from higher prices of nitrogen fertilizers, which is helping it to generate strong margins and cash flows.

Higher production costs across Europe and Asia coupled with reduced production due to the environmental restrictions in China tightened global nitrogen supply and demand balance and boosted nitrogen prices in 2018. Higher prices are expected to support the company’s margins in the to-be-reported quarter.

CF Industries is also enjoying the benefits of low North American natural gas prices, driven by an increase in production of shale gas in the United States. This is providing the company production cost advantage. Rising energy costs outside of North America are increasing this cost advantage.

Lower natural gas costs helped the company to record solid operational performance and boost its earnings in the third quarter. CF Industries expects cost of natural gas to remain low in North America vis-à-vis the rest of the world. This should provide margin benefits in the fourth quarter.

What the Zacks Model Says

Our proven model does not show that CF Industries is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP 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:

Earnings ESP: Earnings ESP for CF Industries is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 49 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 #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

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 too have the right combination of elements to post an earnings beat this quarter:

Eldorado Gold Corporation (EGO - Free Report) has an Earnings ESP of +9.48% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

New Gold Inc. (NGD - Free Report) has an Earnings ESP of +100% and carries a Zacks Rank #3.

Quaker Chemical Corporation (KWR - Free Report) has an Earnings ESP of +2.99% and carries a Zacks Rank #3.

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