Sharp Earnings Cuts in Ag Space (BG, MOS, CF, AGU, POT, DE)
As we continue to go deeper into Q3 earnings season, some of the sharpest earnings downward revisions in past two months are coming out in Ag space. This is primarily due to on-going commodity sell off that is starting to manifest itself in the Ag sector with crop nutrient prices tumbling. Here is what we are seeing on the street from companies that have not yet reported:
Agrium (AGU) – Earnings on November 5
Q3 EPS Estimate 3 months ago: $1.08
Q3 EPS Estimate Today: $0.69
Q4 EPS Estimate 3 months ago: $1.51
Q4 EPS Estimate Today: $1.39
Mosaic (MOS) – Earnings on November 3
Q3 EPS Estimate 3 months ago: $0.77
Q3 EPS Estimate Today: $0.53
Q4 EPS Estimate 3 months ago: $0.93
Q4 EPS Estimate Today: $0.78
CF Industries (CF) – Reports on November 4
Q3 EPS Estimate 3 months ago: $0.76
Q3 EPS Estimate Today: $0.73
Q4 EPS Estimate 3 months ago: $1.14
Q4 EPS Estimate Today: $1.09
Important to keep in mind two things when looking at these earnings cut: 1) similar cuts were observed in POT and BG that already reported and yet they still missed expectations and cut guidance, 2) we are seeing analyst take down notches mostly for Q3 estimates, little bit in Q4 and very little for FY2016. In fact many are looking for growth to return next year. If BG and POT reports are telling us anything, it is that FY2016 estimates are too high and need to come down. Until that happens we don’t see this sector bottoming.
We have been watching the developments closely and it all started off in mid September when Mosaic updated guidance on signaling weaker potash and phosphate volumes and prices to reflect continued sluggishness in Brazilian demand due to credit and currency effects. The company cut 3Q15 volumes at the lower end of the 1.6-2.0 million metric tons guidance range, and prices at the low end of the $260-$280/mt guidance. Other parts of the product spectrum were also lowered sharply. Total FY2015 P&K Volume now stands at 8.4 million mt vs. 9.75 million after Q2 earnings in August.
While Mosaic blamed the shortfall on maintenance downtime at Colonsay Mine, since that guidance cut here are some developments in individual stocks which point to broader slowdown sweeping through the sector while the consensus view is still catching up:
September 22 – UBS cuts Mosaic PT from $52 to $49, cites Mosaic guidance was in response to weaker than anticipated crop nutrient conditions primarily driven by delayed fertilizer purchases in Brazil and North America.
October 2 – Piper Jaffray cuts Mosaic PT from $35 to $28 on further continued in nutrient pricing following discussions with industry peers.
October 5 – Potash withdraws proposal to acquire K+S citing “challenging macroeconomic conditions have contributed to a significant decline of global commodity market.”
October 7 – HSBC cuts Potash from Buy to Hold while reading the tea leaves that management doesn’t see the rebound any time soon.
October 14 – UBS cuts Agrium PT from $118 to $115; cuts nitrogen urea benchmark prices to $275/mt (from $300/mt) in 2016 and $250/mt (from $300/mt) in 2017 as lower Chinese coal prices and weakness in the RMB have led to a falling & flattening cost curve.
October 14 – UBS cuts Potash PT from $33 to $27; cuts potash benchmark price forecasts to $275/mt (from $300/mt) in 2016 and $250/mt (from $300/mt) in 2017 as increasing competition both in the U.S. and globally weighs on pricing. Also cuts phosphate prices for 2016 and 2017.
October 21 – TD Securities cuts Agrium PT from $120 to $105; Says double whammy of 12-month delay in completing the Borger nitrogen plant expansion are headwinds for 2016 along with low crop prices affecting farmers incomes.
October 26 – Citi downgrades CF and Yara. Cites the outlook looks increasingly challenged with downside risks and few positive drivers. Potash and urea prices are under pressure; phosphate looks slightly better given a more modest supply growth outlook.
October 27 – Intrepid cuts forecast, says realized 3Q potash prices declined -11% qtr/qtr, reflecting weak domestic demand and excess supply.
October 29 – Potash cuts outlook, sees FY2015 EPS at $1.60 vs. $1.73 consensus.
October 29 – Bunge sharply misses earnings, reports Q3 EPS of $1.24 vs. $1.55 estimate on revenues of $10.8B vs. $12.74B estimate. Cuts capex by $125M to preserve cash flows.