CF 4Q income down 89 percent; upbeat on corn/demand forecasts

CF Industries Holdings Inc. reported fourth-quarter net earnings attributable to common shareholders of $26.5 million ($0.11 per diluted share) on sales of $1.11 billion, down from the year-ago $238.3 million ($0.96 per share) and $1.22 billion, respectively. CF’s total tons of nitrogen sold were up at 3.98 million st from the year-ago 3.52 million st. Average natural gas costs dropped to $3.07/mmBtu from $4.07/mmBtu.

Full-year net earnings were $700 million ($2.96 per share) on sales of $4.31 billion, down from $1.4 billion ($5.42 per share). Total tons of nitrogen sold were up at 13.72 million st, an increase from 13.3 million st. Average natural gas costs were $3.07/mmBtu, down from $4.25/mmBtu.

“Our business model demonstrated its resiliency in the face of some of the most difficult market conditions seen in a decade. Even at today’s low prices, we remain highly profitable with a gross margin of over 25 percent, which includes the impact of the unrealized mark-to-market loss on our natural gas hedges. U.S. producers continue to enjoy cash margins of almost 50 percent,” said Tony Will, CF president and CEO.

During the fourth quarter, CF recognized an impairment charge of $62 million relating to its investment in its joint venture Point Lisas Nitrogen Ltd. in Trinidad due to continuing gas curtailments from the government-controlled gas supplier, with expectations curtailments will continue into the future. CF said current Trinidad gas prices do not justify the investment to bring on additional production.

Also for 2015, CF recorded a federal tax receivable of approximately $120 million that is expected to result in a tax refund. This results from the Protecting Americans from Tax Hikes (PATH) Act of 2015, which allows companies to deduct 50 percent of their capital expenditures in the year qualifying assets were placed into service. This receivable is primarily associated with the new urea plant and related offsites that were placed into service at CF’s Donaldsonville, La., complex during November 2015.

Fourth-quarter adjusted earnings were $180.1 million ($0.76 per share), compared to the year-ago $280.6 million ($1.12 per share). Full-year adjusted earnings were $915.7 million ($3.88 per share) versus 2014’s $1.03 billion ($4.02 per share).

Citing a weak fall ammonia application season, CF believes farmers will catch up in the spring, when they will be planting an estimated 95.5 million acres of corn, up 2.5 million acres from 2015. Wall Street welcomed this news and rewarded CF. Company shares moved up 8.42 percent, or $2.67, to close Feb. 18 at $34.37.

CF also told analysts that if the fertilizer supply system is stressed by the demand, CF will be there to take advantage of it due to its storage, infrastructure, in-region production, pipeline points, and barge and rail connections. CF expects rail service to be better this year due to less demand from the coal and oil industries.

Speaking of stress, CF said Chinese urea producers are seeing it, and that there are reports that operating rates from Chinese coal-based urea producers have declined to 66 percent in January from 73 percent in December. CF said fourth-quarter Chinese urea exports were also off 1.5 million mt from year-ago levels.

While noting that NOLA urea prices have recently shot up, CF touted itself as the low-cost producer, and said that even at $200/st FOB urea, the typical U.S. Gulf producer generates roughly 50 percent cash margins.

“Against this healthy backdrop, over the next roughly six months, we are about to grow significantly, adding 60 percent new production capacity to our portfolio with very similar margin structures to our current business,” added Will. CF noted that the new Donaldsonville urea plant began production in November, the UAN plant is in the process of being commissioned, and ammonia is expected to start up in mid-2016. The Port Neal ammonia and urea plants are expected to be mechanically complete in the second quarter, and CF is expected to close on its deal to acquire select OCI NV assets in mid-2016.

CF will pay a quarterly dividend of $0.30 per common share on Feb. 29.