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The Gory Details on Chemical & Mining Co. of Chile's Double Fumble

Chemical & Mining Co. of Chile (NYSE: SQM  ) reported earnings on May 30. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 31 (Q1), Chemical & Mining Co. of Chile missed estimates on revenues and missed estimates on earnings per share.

Compared to the prior-year quarter, revenue increased and GAAP earnings per share improved significantly.

Margins grew across the board.

Revenue details
Chemical & Mining Co. of Chile reported revenue of $529.6 million. The two analysts polled by S&P Capital IQ expected a top line of $565.4 million on the same basis. GAAP reported sales were 10% higher than the prior-year quarter's $480.0 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.57. The three earnings estimates compiled by S&P Capital IQ averaged $0.58 per share. GAAP EPS of $0.57 for Q1 were 36% higher than the prior-year quarter's $0.42 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 53.5%, 1,440 basis points better than the prior-year quarter. Operating margin was 40.3%, 800 basis points better than the prior-year quarter. Net margin was 28.3%, 510 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $611.2 million. On the bottom line, the average EPS estimate is $0.57.

Next year's average estimate for revenue is $2.47 billion. The average EPS estimate is $2.47.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 1,442 members out of 1,470 rating the stock outperform, and 28 members rating it underperform. Among 254 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 248 give Chemical & Mining Co. of Chile a green thumbs-up, and six give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Chemical & Mining Co. of Chile is outperform, with an average price target of $60.61.

Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. Motley Fool newsletter services have recommended buying shares of Chemical & Mining of Chile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On June 01, 2012, at 11:52 AM, rickEEE wrote:

    Your article on the “gory details” of SQM’s “double fumble” clearly illustrates what is wrong with the way the media reports actual earnings versus estimates. The assumption seems to be that something must be wrong with a company if it misses its earnings estimates (so you use terms like “double fumble” and “gory details”). Nobody seems to realize is that the estimates were wrong and that is why the actual earnings do not match. It is the analysts predictions that miss the actual values and not the other way around. Look at the two charts in your article. Only in the 3-2011 quarter do the estimates nearly match the actual values. In four of the five quarters shown, the estimates do not match the actual. That means that 80% of the time, the estimates were wrong. So why would you even bother to write an article comparing results with predictions that have been wrong 80% of the time?

    We tend to oversimplify an estimate into a single average number. There are no error bars and usually the range of estimates is not reported. There is no range of expected values with probabilities assigned to them. Even the television weatherman predicts rain with a probability rounded to the nearest 10%. We just don’t do that when discussing earnings predictions. Anyone who has had any training in statistics knows the problem of averaging when the sample size is very small. The S&P Capital estimates are averaged from three analysts for EPS and just two analysts for revenues. If two of the three EPS estimates exactly matched the actual earnings and one estimate was off target, the one bad estimate would cause the averaged estimate to miss the actual earnings. Consider that the NBA basketball is about 9.5” inches in diameter and the hoop is 18 inches in diameter. The hoop is almost twice the diameter of the ball, but any time the ball goes through the hoop it counts as a score. Your earnings estimates are like the basketball. Trying to make the estimated earnings match the actual earnings is analogous to putting the basketball through the hoop. Expecting the estimates to exactly match the actual earnings is like trying to put a basketball through a hoop that exactly matches the size of the ball. It isn’t going to happen.

    We do not know the analyst’s assumptions when the earnings and revenues estimates are made, so we really can’t understand the difference between the predicted and actual values. The truth is that the estimates and actual values in your charts are pretty good matches. Some of the difference is just statistical noise. There really is no significant “double fumble” unless it is a minor double fumble by the analysts as they tried to guess the actual earnings and revenues. If the estimates did not match actual values because of major surprises like flooding at a mine, disruptions in rail or ocean shipping, drought in South America, or increased competition from other fertilizer companies then you would have real “gory details” to report. You don’t have any. The gory details and double fumble promised in your headline are really not supported by your article. Your headline follows Erickson’s First Law of Media Behavior (“The purpose of media is to inflame not inform.”). All you have to report is earnings and revenues that are close to the estimates, and you provide no details to explain the minor differences. Sorry, but your ten-second takeaway is about 9 seconds too long.

  • Report this Comment On June 04, 2012, at 10:00 AM, Geezwad wrote:

    I just want to balance out the previous comment, which was longer than the article. He gets a "A" on verbosity.

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