CF Industries Earnings: An Early Look

Earnings season is in full swing, with huge numbers of companies having already given their latest numbers to investors, and CF Industries (NYSE: CF  ) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Companies that enhance farm productivity have been in hot demand lately, as high crop prices encourage farmers to use any means necessary to boost yields from their land. Combined with low input costs, CF has seen its nitrogen-based fertilizer segment take off. But will the good times last? Let's take an early look at what's been happening with CF Industries over the past quarter and what we're likely to see in its quarterly report next Tuesday.

Stats on CF Industries

Analyst EPS Estimate

$6.97

Change From Year-Ago EPS

(2.2%)

Revenue Estimate

$1.59 billion

Change From Year-Ago Revenue

(7.6%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will CF Industries grow like a weed this quarter?
Analysts have been fairly optimistic in their assessment over the past three months of CF's earnings, with modest increases in earnings-per-share projections for 2012's fourth quarter and more aggressive jumps of $0.25 for the current quarter. The stock has shared that enthusiasm, rising more than 10% since mid-November.

The fertilizer sector has been one of the hottest industries in the market over the past several years, with global demographic trends supporting substantial rises in farm commodity prices. Yet recently, the type of fertilizer you make has played a big role in comparative success. Earlier in the cycle, potash producers Mosaic (NYSE: MOS  ) and PotashCorp (NYSE: POT  ) had huge margins from high prices and relatively low production costs. But more recently, with potash mining-related costs on the rise, PotashCorp and Mosaic have fallen behind.

Meanwhile, as natural-gas prices hit all-decade lows, the nitrogen-based fertilizers that CF and majority-owned Terra Nitrogen (NYSE: TNH  ) make have seen increased demand, leading to much better margins than for potash-based fertilizers. To a lesser extent, that has also helped rival Agrium (NYSE: AGU  ) , which straddles the industry with both potash and nitrogen fertilizer production.

So far, trends in natural-gas prices seem to support continued tailwinds for CF Industries. Shale plays in the U.S. continue to produce huge amounts of natural gas, and another relatively warm winter has led to reduced demand for the fuel, keeping prices low. With gas prices being the primary unpredictable variable for the company, a favorable outlook for continued low prices bodes well for the company.

In CF Industries' report, watch for early reports of spring fertilizer demand from the agricultural sector. If early planting activity happens again this year, it could point to another promising year for CF.

Will potash beat out nitrogen?
The main theme in fertilizer lately has been cheap natural gas giving nitrogen-based fertilizers an edge over potash. But as the global leader in potash production, PotashCorp aims to regain its lost glory. Click here now to access The Motley Fool's new premium research report on PotashCorp, in which we cover precisely what these barriers-to-entry are and detail several other key reasons why this company presents such a compelling investment opportunity today.

Click here to add CF Industries to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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