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Basic Materials Earnings On Deck

Posted: Jul 22, 2009 09:05 AM by Billy Fisher

Tickers in this Article: SYT, VALE, MOS, UYM, FCX, NUE

The basic materials sector has been an extremely volatile place to be over the past year. Prices cratered in the second-half of 2008, but have staged a strong rebound in recent months. The Ultra Basic Materials ProShares Fund (NYSE: UYM), which is designed to correspond to twice the daily performance of the Dow Jones U.S. Basic Materials Index, has rallied 126% since hitting a 52-week low in early March. Here are a few basic materials companies to keep an eye on when they report their earnings in the coming days.

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Heavy Metal
In late April, Freeport-McMoRan (NYSE: FCX) noted that its Q1 average realized price for a pound of copper dropped to $1.72 from $3.69 in the year-ago quarter. Since then, the price of copper has rebounded and driven up the prices of shares of FCX. The stock is up over 120% so far this year.

When the company reports its Q2 earnings on Tuesday, analysts will be looking for the mining company to report a 69% drop in EPS on a 38% slip in sales year over year.

Analysts will also be looking to see if the company has been able to continue the cost reduction measures that FCX embarked upon in Q1. The company has been responsive to a tough market thus far, but investors should look for indicators that Freeport's environment may be improving.

On Thursday, the steel manufacturer Nucor (NYSE: NUE) reports its Q2 results. The steel industry as a whole has been the victim of declining steel prices and lagging demand since last summer. Year-to-date, shares of Nucor are down about 5%.

With the bar not being set very high, the company could beat expectations. Analysts are expecting the company to report a net loss of $0.60 per share on a 67% drop in sales. (For more on analyst expectations, be sure to read Analyst Recommendations: Do Sell Ratings Exist? and Analyst Forecasts Spell Disaster For Some Stocks.)

Harvesting Profits
Although Mosaic (NYSE: MOS) is set to report its quarterly earnings after the market close on Wednesday, investors have already shifted their focus to reports that the Brazilian mining company Vale S.A. (NYSE: VALE) is contemplating a $25 billion bid for the company. Shares of Mosaic have run up over 40% in 2009, but are still 75% off of their 52-week high from last summer.

Analysts are expecting Mosaic to report FY Q4 EPS of $0.11, down from $1.93 in the fertilizer company's year-ago quarter. They are projecting sales to fall 54% on a year over year basis. In Mosaic's Q3 earnings release in April, company management noted that the phosphate market was beginning to stabilize, but that potash sales were expected to remain weak.

The agribusiness company Syngenta AG (NYSE: SYT) will follow Mosaic when it announces its Q2 results on Friday. The company is coming off of a Q1 in which its quarterly sales fell by 4%. On the positive side, the firm's crop protection business saw an 8% pop in revenue versus its year-ago quarter. Syngenta shareholders have seen the stock appreciate over 20% year-to-date.

The Bottom Line
It has been a roller coaster ride for basic materials investors in recent months, but conditions have improved a great deal since the beginning of the year. The stocks mentioned here could give us a preview of what is to come for other major players in the sector. (Learn about sector rotation for portfolios in our article Sector Rotation: The Essentials.)

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By Billy Fisher

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