CF (CF) Up 4.2% Since Last Earnings Report: Can This Continue?

It has been about a month since CF Industries (CF) last reported its earnings. Shares have risen about 4.2% in that time, outperforming the S&P 500.

Will the recent positive trend continue until the next earnings release, or will CF face a recession? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

CF Industries’ earnings and sales are erratic in the first quarter

CF Industries reported first-quarter 2024 earnings of $194 million, or $1.03 per share, compared with $560 million, or $2.85 per share, in the year-ago quarter. Earnings per share missed the Zacks Consensus Estimate of $1.47.

Net sales declined 26.9% year-over-year to $1.47 billion in the quarter. This figure is under the Zacks Consensus Estimate of $1.474 billion.

Average selling prices in the reported quarter were lower than in the first quarter of 2023 as lower global energy costs lowered the global market clearing price required to meet global demand.

Segment overview

Ammonia net sales declined 5.2% year-over-year to $402 million in the quarter. It exceeded our estimate of $325 million. The increase in ammonia sales volumes results from the consideration of contractual obligations fulfilled by the recently purchased Waggaman ammonia plant and the postponement of spring ammonia applications in North America to the first quarter of 2024 due to favorable weather conditions.

Sales in the granular urea segment declined 33.4% year over year to $407 million. This topped our estimate of $367 million. Sales volumes of granulated urea decreased compared to the previous year due to lower availability of ammonia for modernization and reduced supply availability as a result of difficult weather conditions that caused downtime at urea plants.

Sales in the Urea and Nitrate segment declined 36.3% year-over-year to $425 million. This was below our estimate of $522 million. Average UAN selling prices declined in the reported quarter as lower global energy costs lowered the global market sale price needed to meet global demand.

AN segment sales declined 28.3% year-over-year to $114 million. This is more than our estimate of $109 million. Average AN selling prices declined as lower global energy costs lowered the global market sale price necessary to meet global demand.

Financial

CF Industries’ cash and cash equivalents at quarter-end were approximately $1.77 billion, down approximately 37% from the prior-year quarter. At the end of the quarter, long-term debt was approximately $2.97 billion, unchanged year over year.

Cash flow from operations was $445 million in the reported quarter, compared to $947 million reported in the prior year.

Capital expenditures in the first quarter were $98 million. The Management Board anticipates that capital expenditures in 2024 will amount to approximately USD 550 million.

The story continues

Perspectives

On a CF basis, the global nitrogen market entered a long supply position early in Q2 2024 as a result of lower-than-expected demand in Europe and India, as well as purchases in North America being halted as bad weather delayed spring fieldwork. Management anticipates that global demand will continue to be strong in the near future due to recovering industrial demand and agricultural economics, while global nitrogen trade flows will adjust to accommodate the additional nitrogen supply available for international trade.

Over the longer term, management anticipates a tightening global nitrogen supply-demand balance as growth in global nitrogen productivity over the next four years is not expected to keep pace with the estimated 1.5% annual increase in global nitrogen demand for traditional uses and additional demand for clean energy applications. Continued problems with the availability and costs of natural gas are expected to reduce global production.

How have estimates changed since then?

Investors have witnessed a downward trend in estimate revisions over the past month.

As a result of these changes, the consensus estimate moved by -16.56%.

VGM results

At this point, CF has a weak D growth score, a rating with the same momentum score. However, the stock is rated A for Value, putting it in the top 20% of investors for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, CF carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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