CF Boosted by $491 M Tax Cut; 2018 Turnarounds Expected to Reduce Production, Sales

A $491 million tax benefit from new legislation boosted CF Industries Holdings Inc.’s fourth-quarter net income attributable to common shareholders to $465 million ($1.98 per diluted share) on net sales of $1.1 billion, compared to the year-ago loss of $320 million ($1.38 per share) and $867 million, respectively. CF, Deerfield, Ill., reported an adjusted net loss of $3 million ($0.02 per share), compared to a year-ago loss of $90 million ($0.39 per share). EBIDTA was $244 million, versus a year-ago loss of $135 million.

“Outstanding execution by the team in 2017 produced records for safe operations, production, and sales volumes,” said Tony Will, CF president and CEO. “In addition, we paid down $1.1 billion in debt during the quarter and recently exercised our right to purchase all of the publicly traded common units of Terra Nitrogen Co. LP (GM Feb. 9, p. 1). We estimate that full ownership of TNCLP would have added approximately $45 million to EBITDA, including anticipated cost reductions and network optimization benefits. Additionally, we estimate that full ownership of TNCLP and the debt reduction would have resulted in $110 million of additional free cash flow.”

CF noted that it achieved its highest quarterly sales volume in company history, and that for the year, it had record sales of approximately 20 million product tons and produced some 10.3 million st of gross ammonia.

CF is planning a higher number of turnarounds in 2018, reducing 2018 production volumes compared to 2017, with a likely commensurate impact on sales volumes.

CF said the U.S. still needs nitrogen imports, citing projections for 91 million acres each of corn and soybeans, and that nitrogen prices must go up to attract them. Despite a good fall ammonia season, CF believes there will be plenty of nitrogen demand this spring.

CF noted that July-December urea and UAN imports have been down. It said the NOLA urea price of $270/st FOB or above would be needed to attract imports. Although the coming up of even more domestic production in the past six months has been another reason for importers to be cautious about bringing in imports, CF told analysts that it believes some of the other domestic plants have not operated optimally, and that product is probably not in position. Ironically, in 2017 CF felt there were too many imports, particularly urea, and accused importers of dumping product on the U.S. market.

CF believes that once the spring season is over, the 2018 “reset” price will be higher than that of 2017. It noted that already in the fourth quarter, the average selling prices for all of its major product categories were up over year-ago pricing, largely due to a tighter global nitrogen supply and demand balance. CF also noted that its own ammonia sales benefit from the implementation of its long-term supply agreement with The Mosaic Co., which will be based on gas and production costs and not the volatile world market.

The company continued to tout its low cost production versus other areas of the world, particularly China and Eastern Europe, and noted that Chinese urea exports have declined 65 percent in the past two years, from 13 million mt in 2015 to 4.7 million mt in 2017. It also noted increased freight rates as well as good demand from India, Brazil, Australia, Mexico, and Turkey for urea, and that the U.S. dollar is currently weaker against key global currencies such as the ruble and RMB.

While there was an overhang in new nitrogen production coming online in 2017, CF believes that demand will soon catch up to supply in coming years, as much less new capacity is expected to come online.

Asked about the Caribbean Nitrogen Co.-Natural Gas Co. dispute in Trinidad, CF noted that via arbitration it was able to extend its own gas contract through 2023. CF owns 50 percent of the Point Lisas Nitrogen Ltd. ammonia plant. Going forward, it said Trinidad does face some pretty sizeable challenges around being competitive compared to North American gas. However, the company said it would rather give up the economics on one half of one plant and see all the rest of the production challenged on a global basis than have that be a low-cost production source.

Full-year net income was $358 million ($1.53 per share) on sales of $4.1 billion, up from the prior year loss of $277 million ($1.19 per share) on sales of $3.7 billion. However, the company had an adjusted full-year loss of $59 million ($0.25 per share), versus 2016 adjusted income of $109 million ($0.47 per share). EBITDA was $856 million, up from $395 million.

*Dollars in millions except per st amounts