Will Fertilizer Fallout Hurt or Help CF Industries Holdings, Inc. (CF) Earnings?

CF Industries Holdings, Inc. (NYSE:CF) will release its quarterly report next Tuesday, and the fertilizer company’s stock has been volatile given some unusual weather patterns and other factors affecting fertilizer demand. Yet with a big shakeup in the fertilizer industry, the big question is whether CF earnings will continue to drop from recent peaks or benefit from the weakness of some of its competitors.

CF makes fertilizers in two primary segments: nitrogen-based fertilizer and phosphates. That division has helped it benefit from trends that have favored nitrogen fertilizers while maintaining a diversified portfolio. But perhaps the best move it has made is to keep its exposure to the potash industry at minimal levels, given recent turmoil in that part of the fertilizer market. Let’s take an early look at what’s been happening with CF Industries Holdings, Inc. (NYSE:CF) over the past quarter and what we’re likely to see in its quarterly report.

Stats on CF Industries

Source: Yahoo! Finance.

Will CF earnings keep falling this quarter?
Analysts have had less optimistic views about the prospects for CF Industries Holdings, Inc. (NYSE:CF) earnings in recent months, cutting their June-quarter estimates by almost 5% and their full-year 2013 views by nearly 6%. The stock has managed to overcome those headwinds somewhat, with a 4% gain since late April.

CF came into the quarter on a relatively positive note, with the company overcoming a slight drop in revenue by raising net income 10% to record levels. By taking advantage of rising prices for nitrogen fertilizer by ramping up its production almost to full capacity, CF Industries Holdings, Inc. (NYSE:CF) was able to offset relative weakness in its phosphate business. Moreover, even with rising natural gas prices, CF Industries Holdings, Inc. (NYSE:CF)’s hedging strategy started producing unrealized gains, reversing earlier losses from hedging.

Still, the North American market has been a difficult one for fertilizer companies so far this year. In contrast to benign weather conditions last year that encouraged fertilizer use early in the season, this season’s cold and wet conditions led to a late start, and both CF Industries Holdings, Inc. (NYSE:CF) and Agrium Inc. (USA) (NYSE:AGU), both of which focus on North America, have needed to play catch-up. Yet with expectations for a strong planting season, farmers might well have simply deferred purchases into the second quarter, which in turn could lead to potential upside surprises.