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Will Potash Corp (POT) Disappoint this Earnings Season?

Zacks Equity Research
Updated

Potash Corporation of Saskatchewan Inc. POT is set to release second-quarter 2017 results before the opening bell on Jul 27.

 

Potash Corp.’s earnings of 18 cents per share for first-quarter 2017 topped the Zacks Consensus Estimate of 10 cents. Net sales for the first quarter declined 9% year over year to $979 million but exceeded the Zacks Consensus Estimate of $928 million.

 

The company’s earnings topped the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with an average beat of 20%.

 

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

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Potash Corporation of Saskatchewan Inc. Price and EPS Surprise

 

Potash Corporation of Saskatchewan Inc. Price and EPS Surprise | Potash Corporation of Saskatchewan Inc. Quote

Factors to Consider

Potash Corp. expects full-year 2017 earnings in the range of 45 cents–65 cents per share that includes merger related charges of 5 cents per share. The company expects total potash sales volume in the range of 8.9–9.4 million tons in 2017. It projects potash gross margin of $600–$800 million for the year. 

Potash Corp. expects combined gross margin for nitrogen and phosphate in the band of $150–$400 million for 2017.

 

Potash pricing remains under pressure due to elevated global inventories. Higher supply, low global energy prices and weak agricultural fundamentals have also contributed to a softer nitrogen pricing environment. Challenging market fundamentals and weak pricing also continue to hurt profitability in the company’s phosphate business which is expected to continue through 2017. The company saw lower pricing across all of its businesses in the first quarter.

 

Potash Corp. also remains affected by macroeconomic uncertainties and is exposed to other issues such as price volatility and currency exchange fluctuation. The company also faces challenging agriculture market fundamentals impacted by cautious buying by farmers. 

 

Nevertheless, Potash Corp. is expected to benefit from improving demand for potash. Potash Corp. saw healthy demand for potash in the first quarter and expects consistent customer engagement through 2017, supported by healthy consumption trends.

 

Potash Corp.’s shares have moved up 3.3% in the last one year, underperforming the industry’s 6% 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 -11.77%. This is because the Most Accurate estimate is 15 cents and the Zacks Consensus Estimate is 17 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 #4 (Sell).

 

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 That Warrant a Look

 

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

 

Westlake Chemical Corporation WLK has an Earnings ESP of +5.04% and a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here.

 

The Chemours Company CC has an Earnings ESP of +4.44% and a Zacks Rank #1.

 

Endeavour Silver Corp. EXK has an Earnings ESP of +100% and a Zacks Rank #3.

 

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Chemours Company (The) (CC) : Free Stock Analysis Report
 
Westlake Chemical Corporation (WLK) : Free Stock Analysis Report
 
Potash Corporation of Saskatchewan Inc. (POT) : Free Stock Analysis Report
 
Endeavour Silver Corporation (EXK) : Free Stock Analysis Report
 
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