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CF (CF) Down 37.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for CF Industries (CF). Shares have lost about 37.9% 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 Miss Estimates in Q4

CF Industries recorded profits of $55 million or 25 cents per share in the fourth quarter of 2019, up from $49 million or 21 cents in the year-ago quarter. However, earnings per share missed the Zacks Consensus Estimate of 26 cents.

Net sales fell 7% year over year to $1,049 million in the quarter. It also lagged the Zacks Consensus Estimate of $1,057.8 million.

The top line was hurt by lower year-over-year selling prices across all major products that more than offset increased sales volumes.

Full-Year Results

For 2019, earnings were $2.23 per share, up from $1.24 per share a year ago.

Revenues were $4,590 million for the full year, up around 4% year over year, driven by higher average selling prices across most key products. Sales volumes for the year were flat year over year.

Segment Review

Net sales in the Ammonia segment rose roughly 6% year over year to $266 million in the reported quarter. Ammonia sales volume rose year over year due to increased supply availability as a result of higher production. Average selling prices of ammonia fell year over year due to higher global ammonia supply availability.

Sales in the Granular Urea segment declined roughly 31% year over year to $239 million. Sales volumes fell year over year due to lower volumes of product availability as a result of planned maintenance activities and the company’s move to build inventory ahead of the spring fertilizer application season. Average selling prices for urea fell year over year due to increased global supply availability.

Sales in the UAN segment went down around 2% year over year to $336 million. Sales volumes and average selling prices were both flat year over year in the quarter.

Sales in the AN segment rose roughly 21% year over year to $117 million. Sales volumes rose year over year on the back of higher demand in the United States. Average selling prices declined year over year due to increased global supply availability.

Financials

CF Industries’ cash and cash equivalents fell roughly 58% year over year to $287 million at the end of 2019. Long-term debt was $3,957 million at the end of the year, down roughly 18% year over year.  

Cash flow from operation was $320 million for the reported quarter, up around 19% year over year. The company repurchased roughly 1.9 million shares during the reported quarter. It is currently executing a share repurchase program worth $1 billion that is authorized through 2021.

Outlook

The company expects global nitrogen demand to be positive over the near term as application seasons develop in different regions globally. In North America, crop futures and an expected return to traditional planting conditions in the region are projected to support a rise in nitrogen-consuming planted corn and coarse grain acres in 2020 on a year-over-year basis.

CF Industries also envisions demand to remain strong in India this year. It expects a new urea tender in India in late March or early April 2020. CF Industries also sees demand in Brazil to be favorable in 2020, backed by reduced domestic urea production.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

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VGM Scores

At this time, CF has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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