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What's Making 1 Promising Chemical Stock React Badly

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Amid the boom in Latin America lately, Chile has produced substantial amounts of economic success. But the drop in commodities markets around the world has weighed on resource-reliant industries, and Sociedad Quimica y Minera (NYSE: SQM  ) is one of the companies that has suffered from that trend. On Tuesday, the company will release its latest quarterly results, and investors are nervous about whether SQM will be able to meet the growth expectations they have for the chemical company.

From potash to lithium and iodine, SQM makes many useful products that other businesses rely on. Let's take an early look at what's been happening with Sociedad Quimica y Minera over the past quarter and what we're likely to see in its quarterly report.

Stats on Sociedad Quimica y Minera

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$560.84 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Will Sociedad Quimica y Minera bounce back this quarter?
In recent months, analysts have gotten less optimistic about SQM's prospects, marking down their March-quarter estimates by $0.08 per share and cutting more than $0.20 per share from their 2013 and 2014 full-year consensus figures. The stock has reacted badly, falling almost 12% since late February.

SQM has put up fairly strong numbers recently. Back in March, the company reported a 19% gain in net profits for the full 2012 year compared to 2011, with higher gross margins for the year. CEO Patricio Contesse pointed to strength in potassium, lithium, and its industrial chemicals lines, as well as better margins in its iodine-production business.

Yet even with those sizable gains, SQM has faced large macroeconomic challenges. The financial crisis in Europe has hurt its business, with the company citing the weakness in European markets as having an impact on SQM's prospecst. Moreover, as a producer of potash-based fertilizers, the company has suffered from weak fertilizer prices. That's consistent with what we've seen from North American giants PotashCorp (NYSE: POT  ) and Mosaic (NYSE: MOS  ) , both of which have struggled from competition from cheaper nitrogen-based fertilizer producers have that capitalized on extremely cheap natural-gas input prices to offer their products at a much more competitive price.

Arguably, the biggest prospect SQM has is its lithium business, given the huge demand for lithium-ion batteries in recent years. Tesla Motors (NASDAQ: TSLA  ) has seen its Model S electric-vehicle surge in popularity, and Tesla could finally be the catalyst that leads to a sharp jump in the number of electric vehicles produced. That in turn could create the growth in demand that SQM and other lithium producers need in order to reverse their recent share-price weakness.

In SQM's report, look closely at how the company does both domestically and internationally. By pinpointing geographical areas of strength and weakness, you should be able to get clues to guide you not just about SQM but about the state of the industrial economy worldwide.

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Click here to add Sociedad Quimica y Minera to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

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10/24/2016 10:01 AM
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