Potash Corp (POT) To Post Q1 Earnings: What's In The Cards?

Potash Corporation of Saskatchewan Inc. (NYSE:POT) is set to release first-quarter 2017 results before the opening bell on Apr 27.

Potash Corp.’s earnings of 7 cents per share for fourth-quarter 2016 missed the Zacks Consensus Estimate of 9 cents. The company’s earnings missed the Zacks Consensus Estimate in two of the trailing four quarters, beat once and came in line on another occasion, with an average negative surprise of 1.56%.

Net sales for the fourth quarter plunged 25.5% year over year to $928 million and missed the Zacks Consensus Estimate of $1,028 million.

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

Factors to Consider

Potash Corp. expects full-year 2017 earnings in the range of 35–55 cents per share. The company anticipates total potash sales volume in the range of 8.7–9.4 million tons in 2017. The positive outlook for potash market is underlined by lower dealer inventories and healthy consumption trends in key buying regions, including the North American market, Latin America, China and India.

While market fundamentals have been challenging in 2016, the company sees an improved environment in 2017. Potash Corp. witnessed healthy demand for potash in the fourth quarter and expects consistent customer engagement through 2017, supported by healthy consumption trends.

Potash Corp. has a competitive advantage stemming from its mining rights to the world’s largest potash reserve. The company will benefit from expanded operational capabilities and improving demand for potash.

Potash Corp. and Agrium (NYSE:AGU) entered into agreement to merge their business and create a fertilizer powerhouse with a pro forma enterprise value of $36 billion. The proposed merger will create the world’s largest crop nutrient supplier and the integrated company will be better placed to counter headwinds in the crop nutrient markets. The transaction is expected to conclude in mid-2017, subject to customary closing conditions.

The combined entity will also be well positioned to serve customers and growers with low-cost, high-value products and services, and complementary assets. It is also anticipated to generate annual operating synergies worth $500 million, of which roughly $250 million is likely to be achieved by the end of the first year following the completion of the transaction.

However, Potash Corp.’s shares declined 17.3% in the last three months, underperforming the loss of 15.3% incurred by the Zacks categorized Fertilizers industry.

Potash Corp. is reeling under the effects of the depressed prices of crop nutrients. Potash pricing is expected to remain under pressure in the near term due to elevated global inventories. Depressed potash and nitrogen prices are projected to affect margins in these businesses in first-quarter 2017.

Agriculture market fundamentals remain weak and there is a persistent negative sentiment among agriculture investors that can create uncertainty in the near term. The prevailing softness in agricultural commodity pricing remains a concern for fertilizer companies as it is hindering fertilizer use by farmers, given the adverse effect of lower crop pricing on growers’ income.

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 (Expected Surprise Prediction) 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 -50.00%. This is because the Most Accurate estimate is 5 cents and the Zacks Consensus Estimate is 10 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 #3, which when combined with a negative ESP, makes surprise prediction difficult.

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:

The Hi-Crush Partners LP (NYSE:HCLP) has an Earnings ESP of +100% and sports a Zacks Rank #1.

Methanex Corporation (NASDAQ:MEOH) has an Earnings ESP of +13.04% and flaunts a Zacks Rank #1.


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