CF Beats Analysts on 4Q Income, Misses on Revenues, Adj. EBITDA; Significant Demand Expected Soon

CF Industries Holdings Inc. reported fourth-quarter net income attributable to common shareholders of $860 million, exceeding the Wall Street projection (Bloomberg Consensus) of $828 million, and the company’s year-ago $705 million. Company sales of $2.61 billion missed analysts $2.85 billion estimate, but were ahead of the year-ago $2.54 billion. Adjusted EBITDA was $1.3 billion, up from the year-ago $1.26 billion, but below analyst projections of $1.39 billion.

CF missed analyst estimates on all three major categories (GM Feb. 10, p. 1) for full-year figures. Net earnings were $3.35 million on sales of $11.2 billion, up from the year-ago $917 million and $6.54 billion, respectively. Adjusted EBITDA was $5.9 billion, up from $2.74 billion.

“The CF Industries team delivered outstanding results in 2022, producing record financial performance for the fourth quarter and full year by working safely, operating our manufacturing and distribution assets extremely well, and serving our global customer base,” said CF President and CEO Tony Will. “At the same time, we drove significant progress across our clean energy and strategic initiatives by entering into our landmark carbon capture and sequestration partnership with ExxonMobil, commencing a front-end engineering and design study for our proposed blue ammonia plant in Louisiana, and being selected for advanced discussions with JERA Co. Inc., for the first significant volumes of ammonia as a clean energy source.

“Looking ahead, we believe that the global nitrogen supply-demand balance and global energy cost structure will continue to present attractive margin opportunities for our cost-advantaged network,” he continued. “As a result, we expect to drive strong cash generation in the years ahead, enabling us to make disciplined investments in our clean energy initiatives to meet what we believe will be significant global demand for low-carbon ammonia while we continue to return substantial capital to shareholders.”

CF projects 2023 gross ammonia production of 9.5 million st, down from 2022’s 9.8 million st. The fourth-quarter’s 2.44 million st was level with year-ago production.

CF expects to continue to export Donaldsonville ammonia to its Billingham plant in the UK for upgraded products until it sees better margin advantages. It estimates that some 20-30% of European ammonia capacity is currently curtailed.

CF said while nitrogen supplies were tight in first-quarter 2022, they loosened in the fourth quarter due to weak industrial demand in Europe and Asia, delayed purchasing in the agriculture sector, and a partial recovery of European ammonia operating rates. However, with spring application approaching in the Northern Hemisphere, CF believes substantial agriculture demand will emerge, supporting global nitrogen prices. CF said North American farm economics are expected to remain positive in 2023 supported by strong crop prices. It projects 91-93 million acres of corn in the US.

“Over the last two weeks, we have seen retailers and wholesalers begin to step back into the market at attractive price levels,” Bert Frost, CF Senior Vice President of Sales, Market Development and Supply Chain, told analysts. “The decrease in global nitrogen pricing has improved farmer economics dramatically and should spur demand globally that was discouraged at higher prices. We expect significant demand to emerge in North America in the coming weeks as the value chain moves into catch-up mode that will likely last into and through the second quarter.”

Frost cited lower inventories at the farm and retail level due to the extent of the fourth-quarter 2022 and first-quarter 2023 purchasing slowdown. He added that for the current fertilizer year, nitrogen exports are significantly higher, while imports are lower.

The company believes Brazil urea imports will remain strong due to high crop prices, increases in planted acres, and improved farm income levels.

CF expects India to remain a major urea importer in 2023, though it noted that overall imports may be down due to increased domestic production.

A higher-than-normal level of nitrogen imports are expected into Europe, according to CF, due to lower-than-normal ammonia operating rates.

On a long-term basis, CF said the global supply-demand balance will remain tight into at least 2025 due to agriculture-led demand and forward energy curves that point to challenging production economics for producers in Europe and Asia. Even though energy prices have recently compressed, said CF, Europe and Asia’s prices remain well above historical levels.

Under current measures, CF believes Chinese urea exports will be 2-3 million mt versus 2.8 million in 2022. However, it said if government restrictions are loosened, they could grow to 3-5 million mt.

While ammonia from Russia was significantly lower in 2022 due to the situation with the pipeline to the port of Odessa, it said other Russian nitrogen exports were at near-normal levels.

Production (000 st) 4Q-22 4Q-21 2022 2021
Ammonia        2,441 2,452 9,807 9,349
Gran Urea 1,143 984 4,561 4,123
UAN 32 1,827 2,135 6,706 6,763
AN 355 390 1,517 1,646
Ammonia 4Q-22 4Q-21 2022 2021
Net Sales ($/M) 804 778 3,090 1,787
Gross Margin ($/M) 388 291 1,599 625
Sales Volumes (000 st) 895 1,180 3,300 3,589
Avg Selling Price ($/st) 898 659 936 498
Gas Costs ($/mmBtu) 6.88 6.00 7.18 4.21
Gran Urea 4Q-22 4Q-21 2022 2021
Net Sales ($/M) 605 662 2,892 1,880
Gross Margin ($/M) 301 375 1,564 888
Sales Volumes (000 st) 1,033 1,018 4,572 4,290
Avg Selling Price ($/st) 586 650 633 438
UAN 4Q-22 4Q-21 2022 2021
Net Sales ($/M) 845 732 3,572 1,788
Gross Margin ($/M) 458 372 2,083 669
Sales Volumes (000 st) 1,690 1,838 6,788 6,584
Avg Selling Price ($/st) 500 398 526 272
AN 4Q-22 4Q-21 2022 2021
Net Sales ($/M) 189 151 845 510
Gross Margin ($/M) 50 13 248 35
Sales Volumes (000 st) 367 374 1,594 1,720
Avg Selling Price ($/st) 515 404 530 297
Other 4Q-22 4Q-21 2022 2021
Net Sales ($/M) 165 217 787 573
Gross Margin ($/M) 59 104 367 170
Sales Volumes (000 st) 479 569 2,077 2,318
Avg Selling Price ($/st) 344 381 379 247