Potash Corp (POT) Q3 Earnings: Disappointment In Store?

Potash Corporation of Saskatchewan Inc. (NYSE:POT) is set to release third-quarter 2017 results before the opening bell on Oct 26.

Potash Corp.’s earnings of 16 cents per share for second-quarter 2017 narrowly missed the Zacks Consensus Estimate of 17 cents. Net sales for the second quarter increased 7.4% year over year to $1,004 million and exceeded the Zacks Consensus Estimate of $936 million.

The company’s earnings topped the Zacks Consensus Estimate in two of the trailing four quarters, while missing in two, with an average beat of 18.5%.

Let’s see how things are shaping up for this announcement.

Potash Corporation of Saskatchewan Inc. Price and EPS Surprise

Factors to Consider

Potash Corp. expects full-year 2017 earnings in the range of 45-65 cents per share which includes merger related charges of 6 cents per share. The company has revised total potash sales volume guidance and now expects sales in the range of 9-9.4 million tons (up from 8.9-9.4 million tons) in 2017. It projects potash gross margin of $650-$850 million for the year.

Capital expenditures for the year are projected at $600 million. Potash Corp. expects combined gross margin for nitrogen and phosphate in the band of $150–$300 million for 2017.

The company expects effective income tax rate to be negative in the range of 3-6% and selling and administrative expenses in the range of $220-$230 million for 2017.

Potash Corp. remains exposed to a weak pricing environment. The company witnessed lower pricing across its nitrogen and phosphate businesses in the last reported quarter. Challenging market fundamentals and weak pricing continue to hurt profitability in the company’s phosphate business which is expected to continue through 2017. Nitrogen pricing environment is also expected to remain challenging through the balance of 2017 as the global markets continue to adapt to considerable capacity increase.

Nevertheless, the company is expected to gain from healthy demand for potash in the to-be-reported quarter. Potash Corp. expects consistent customer engagement through the remainder of 2017, supported by healthy consumption trends. The company sees strong consumption in China in the second half of 2017 driven by higher crop acreage and nutrient affordability.

Potash Corp.’s shares have moved up 7.5% in the past three months, underperforming the industry’s 13.4% gain.

Earnings Whispers

Our proven model does not conclusively show that Potash Corp. is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for Potash Corp. is currently pegged at -8.33%. This is because the Most Accurate estimate is 11 cents and the Zacks Consensus Estimate is 12 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Potash Corp. currently carries a Zacks Rank #5 (Strong Sell). Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks With Favorable Combination

Here are some companies in the basic materials space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

FMC Corporation (NYSE:FMC) has an Earnings ESP of +0.88% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Westlake Chemical Corporation (NYSE:WLK) has an Earnings ESP of +5.14% and sports a Zacks Rank #1.

Ingevity Corporation (NYSE:NGVT) has an Earnings ESP of +2.94% and flaunts a Zacks Rank #1.

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