What: Shares of fertilizer company CF Industries Holdings, Inc. (NYSE:CF) fell 15% on Thursday, according to data provided by S&P Global Market Intelligence, hitting its low at 11:30 a.m. EDT on a weak earnings report.
So what: Sales fell 13.5% in the second quarter to $1.13 billion and net earnings fell 86.7% to $47 million, or $0.20 per share. On an adjusted basis, earnings were $0.33 per share compared to the $0.68 analysts expected.
Management said that demand is still strong but average selling prices are down across the board. A little improvement early in the month didn't last and that's why sales fell 13.5% in the quarter. Looking forward, demand is expected to be strong in 2017, but an oversupplied market will keep prices low. Long term, management is hoping that prices improve in 2018, which could lead to bottom-line growth again.
Now what: It's tough to see how CF Industries will improve in the foreseeable future given the pricing environment. And management's projected improvement in 2018 is so far in the future that it could turn out to be an inaccurate prediction. Until we see real pricing improvement, I don't see a reason to jump into the stock because there's just not much value based on the business' declining margins and profitability.