CF 2Q net earnings triple, signs gas term sheet in Peru

CF Industries Holdings Inc. reported net earnings of $288.6 million ($5.02 per diluted share) on sales of $1.16 billion for the second quarter ending June 30, 2008, compared to the year-ago $93.6 million ($1.65 per share) and $848.9 million, respectively.

“CF Industries’ record performance in the second quarter reflects the strong fundamentals in today’s agricultural markets, as well as our ability to execute the company’s business plans to meet customer needs,” said Stephen Wilson, CF chairman and CEO. “The cold, wet spring resulted in lower volumes in our nitrogen and phosphate businesses. However, that impact was more than offset by record high prices for all major fertilizer products, which helped us achieve our first-ever billion dollar sales quarter.”

CF said the modest nitrogen decline was the result of the wet weather, reduced corn acreage, and a decision to reduce the sale of low-margin purchased UAN. Phosphate volumes were affected both by weather and the timing of export shipments.

Six-month net earnings were $447.4 million ($7.79 per share) on sales of $1.83 billion, versus the year-ago $150.8 million ($2.67 per share) and $1.32 billion, respectively.

Wilson cited USDA projections that corn inventories may be at near-record lows at the end of the 2008 marketing year. He said this could lead to 2009 corn acreage that could exceed the 93.6 million planted in 2007. Wilson noted that fortunately crop prices have so far outpaced increases in fertilizer prices, so crop economics remain positive for farmers.

Second-quarter nitrogen gross margins were $362.0 million on net sales of $848.6 million, versus the year-ago $122.8 million and $671.5 million, respectively. Six-month margins were $559.5 million on sales of $1.29 billion, versus the year-ago $213.5 million and $1.02 billion. Nitrogen sales under the Forward Pricing Program total 1.52 million st during the quarter, accounting for 72 percent of segment sales volume. Year-ago FPP sales were 70 percent of volume.

Though higher than year-ago levels, gas costs during the quarter were lower than the average daily market prices at major benchmark points.

Second-quarter phosphate gross margins were $107.9 million on sales of $312.4 million, up from the year-ago $54.8 million and $177.4 million, respectively. Six-month margins were $181.6 million on sales of $541.9 million, versus the year-ago $69.2 million and $298.9 million. Phosphate sales under the FPP totaled 330,000 st during the second quarter, accounting for 72 percent of segment sales. Year-ago figures were only 43 percent.

As of July 24, FPP bookings for the remainder of 2008 stood at 2.7 million st, compared to 2.1 million st last year.

Second-quarter results included $83.2 million in non-cash pre-tax realized gains from gas derivatives versus a year-ago loss of $36.3 million in this category. This figure was $152.8 million in the first half versus a year-ago gain of $2.2 million.

CF reported that in July it reached agreement with Block 88 Contractor Companies (B88CC) on a natural gas term sheet in Peru, where CF plans to build a major nitrogen complex. B88CC is developing Peru’s Camisea gas fields, which would provide the feedstock for CF’s plant. CF expects a definitive gas supply agreement will be signed by year end, and has also begun work with Technip on preliminary engineering for the complex. Although CF is still evaluating potential sites and has said it has its eye on one in particular, at this time it is not revealing which one.

CF said the Peru project ?Çô should it proceed ?Çô as well as a coal gasification project it continues to study for Louisiana, would both cost above $1 billion. Wilson told analysts that the coal project has a reasonable likelihood of being successful, though the company has not made a final decision on the matter. Initial costs were too high, and CF went back to the drawing board for an alternative proposal. CF also continues to weigh a uranium project, which Wilson says would likely cost in the neighborhood of $200 million.

* st thousand tons sold; Price is average selling price per st