CF Industries Holdings Inc. saw a drop in net income for the third quarter ending Sept. 30, 2008, to $47.1 million ($.82 per diluted share) versus the year-ago $86.5 million ($1.52 per share). CF cited $251 million in non-cash, pre-tax unrealized losses, or $2.88 per share on an after-tax basis, from mark-to-market adjustments on natural gas derivatives. During the year-ago quarter, the company reported $1.9 million ($.02 per share) in gains from gas derivatives.
Third-quarter net sales were up 75 percent, to $1.02 billion from the year-ago $582.9 million, due to substantial price increases for all products.
“CF Industries’ third quarter sales clearly reflect the strong pricing trends we’ve seen in global fertilizer markets for much of this year, with significantly higher prices for all our products,” said Steve Wilson, CF chairman and CEO. “This is typically a slow quarter for the North American fertilizer industry, as producers build inventory for the fall season. Despite that, our sales exceeded the billion-dollar mark for only the second time in the company’s history.”
Third-quarter gross margin was $120.9 million, versus the year-ago $151.3 million.
The nitrogen segment had a third-quarter gross margin in the loss column at $70.5 million on sales of $599.1 million, versus the year-ago positive margin of $80.2 million and $388.8 million, respectively.
CF estimates that it had about $11 million in pretax costs due to Hurricane Gustav, with $4 million of those being actual minor damage. The Donaldsonville complex, which went down Aug. 30 in preparation for the storm, had all units back in operation by Sept. 24. Electricity did not return to the area until Sept. 8. CF noted that logistics were also challenged by July flooding on the upper Mississippi River, followed by low water levels and the Gulf hurricanes. CF said its flexible distribution system was effective in restoring normal operations and product flow. Overall, nitrogen complexes operated at 84 percent of capacity during the quarter, with the higher postings at Medicine Hat, Alberta, offsetting Gustav-impacted Donaldsonville.
Nitrogen sales under the Forward Pricing Program totaled 960,200 st during the quarter, some 75 percent of segment sales volume. This compares to 53 percent for the year-ago quarter.
Third-quarter phosphate margins were $191.4 million on sales of $421.7 million, compared to the year-ago $71.1 million and $194.1 million. CF’s Plant City, Fla., phosphate complex operated at 99 percent of capacity during the third quarter.
Third-quarter phosphate sales under the FPP totaled 236,700 st, or 52 percent of segment sales volumes, down from the year-ago 45 percent and 72 percent in the second quarter 2008.
When announcing earnings Oct. 27, CF also said it has suspended activity with respect to the proposed gasification installation at Donaldsonville. It cited the high degree of uncertainty regarding several aspects of the project, including capital costs and future government policies on carbon dioxide emissions. As a result, CF said the project cannot be justified economically at this time.
CF said it continues discussions on the natural gas contract for its proposed nitrogen complex in Peru. CF said it and Technip, a leading engineering and project management firm, have made substantial progress on the project’s front-end engineering and design study, which they anticipate will be complete by year’s end.
CF also announced that during the third quarter it purchased a third dragline for use at its Hardee County, Fla., phosphate mine. When operational in 18 months, the line will significantly increase mine efficiency. In addition, it said the proposed uranium extraction project from its phosphate business is very much alive in concept.
As for the industry outlook, CF expects U.S. corn acreage will total more than 90 million acres next spring. The company also noted lower natural gas prices in its nitrogen business and lower ammonia and sulfur prices for phosphates.
Wilson told analysts that there was a lot of fear and loathing in the fertilizer markets right now. “We don’t think it is justified. For example, we don’t think farmers make their planting decisions for 2009 based on the October 2008 cash price for corn. This is typically the low point in the year for crop pricing. The December ’09 futures prices are a far better indicator, and that price provides the clear incentive to plant corn next spring. Yes, we are seeing price weakness for some fertilizer products, especially urea, and to a lesser extent UAN. It’s the off-season and even modest changes in supply can significantly affect prices at this time of year. After all, fertilizer is still a commodity.”
Wilson said even figuring corn at $4.43 per bushel and 153 bushels per acre, a farmer could still get a return after costs of $350 per acre.
Wilson said that once demand kicks in, prices here will need to reach levels that attract millions of tons of urea away from other markets. He also noted that Cornbelt prices of ammonia remain strong even though the fall application season is just beginning. He said there appears to be a lot of demand out there for ammonia if farmers can get it to the field.
As to whether the urea market has hit bottom, Wilson cited capacity shutdowns in Europe and Ukraine. “I don’t know whether this is the bottom. It’s beginning to feel like it is.”
Wilson said that CF has good forward order book for the fourth quarter, with about 1.5 million tons of nitrogen and phosphate contracted through year-end at attractive margins.
Wilson also noted that it has been moving potash through its distribution system with the help of its partner, Keytrade. Wilson said CF’s warehouse system has excess capacity, and it is looking to see if it can make a significant margin by moving product though the system this fall and next spring.
Nine-month results still remain ahead of last year. Nine-month net income was $494.5 million ($8.60 per share) on sales of $2.85 billion, up from the year-ago $237.3 million ($4.19 per share) and $1.9 billion. Nine-month gross margin was $862 million, up from the year-ago $434 million. Nine-month nitrogen gross margin was $489 million on sales of $1.89 billion, up from the year-ago $293.7 million and $1.4 billion, respectively. Nine-month phosphate gross margin was $373 million on sales of $963.6 million, versus the year-ago $140.3 million and $493 million, respectively.
| 3Q-08 | 3Q-07 | YTD-08 | YTD-07 | |
| Nitrogen | ||||
| Tons sold (000) | 1,282 | 1,346 | 4,666 | 5,012 |
| Ammonia | 111 | 116 | 717 | 916 |
| Urea | 547 | 618 | 2,001 | 2,003 |
| UAN | 615 | 605 | 1,912 | 2,049 |
| Other nitrogen | 9 | 7 | 36 | 44 |
| Avg Selling Price $/st | ||||
| Ammonia | 571 | 370 | 513 | 375 |
| Urea | 596 | 334 | 456 | 319 |
| UAN | 339 | 230 | 314 | 207 |
| Gas Cost | ||||
| Donaldsonville | 10.48 | 7.89 | 9.18 | 7.68 |
| Medicine Hat | 7.72 | 5.42 | 8.07 | 6.17 |
| 3Q-08 | 3Q-07 | YTD-08 | YTD-07 | |
| Phosphates | ||||
| Tons sold (000) | 457 | 497 | 1,383 | 1,468 |
| DAP | 404 | 394 | 1,167 | 1,188 |
| MAP | 53 | 103 | 216 | 280 |
| Domestic | 277 | 368 | 1,037 | 1,136 |
| Export | 180 | 129 | 346 | 332 |
| Avg Selling Price $/st | ||||
| DAP | 943 | 388 | 715 | 334 |
| MAP | 771 | 403 | 600 | 345 |