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Why CF Industries' earnings call is a must for investors

Why CF Industries' earnings call is a must for investors (Part 0 of 0)

Why fertilizer investors follow CF Industries’ earnings calls

Earnings call

CF Industries Holdings Inc. (CF) is one of the major nitrogenous fertilizer producers in the world, and earnings calls are great places for investors to sniff out information. So CF’s earnings calls can provide investors with valuable information about what’s happened, what’s happening, and what may happen.

CF Industries Holdings Earnings 2013-11-12Enlarge Graph

Earnings fall 33% from last year

On November 4, CF Industries Holdings Inc. (CF) reported $3.89 a share in diluted earnings before one-time items, compared to the average estimate of $3.92 by major research brokers. Investors often follow diluted earnings because they’re a more conservative measure of earnings that factors in possible reductions in current investors’ earnings shares if debt holders and managers exercise their options. The industry also excludes one-time items because a company’s share value primarily depends on future earnings potential, which tends to weigh more than one-time events in the past—unless the one-time expense or gain will repeat.

Company and industry drivers

Company-specific drivers like share buybacks, dividends, operating efficiency, and plant expansions do impact the values of companies’ stock prices, which appears to be supporting CF Industries Holdings’ share prices. However, changes in earnings and share prices are largely driven by industry fundamentals over the medium to long term. For this reason, MarketRealist.com primarily focuses on industry drivers rather than company-specific indicators.

Why follow more than one earnings call?

Because there are many drivers that impact earnings, there isn’t enough time for company management to present everything during earnings calls. Plus, a manager at one company may know or hear something that another manager may not. Since no company is exactly the same, investors can get a fuller picture of how the industry’s fundamentals are transforming by following a group of companies’ earnings calls that are relevant to current or prospective investments, instead of just one call.

Applicable peers

What managers discuss at CF Industries’ earnings call applies to other nitrogenous fertilizer producers, like Potash Corp. (POT), Agrium Inc. (AGU), and Terra Nitrogen Company LP (TNH)—the majority of which CF Industries owns. This also applies to the Market Vectors Agribusiness ETF (MOO), which invests in major agriculture firms across the world. While CF Industries’ phosphate operations might have been relevant to some of the companies mentioned above, it has now been sold to Mosaic Co. (MOS).

While CF’s 2013 third quarter earnings weren’t too far off from analysts’ estimates, they’re down about 33.55% from last year’s third quarter. Analysts often use year-over-year comparisons to adjust for seasonal factors that affect the demand and prices of fertilizers throughout the year. In the next few parts of this series, we’ll explore why earnings fell, what’s going on, and what managers see in the future.

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