Plant problems, market conditions put LSB in loss column

Plant problems and market conditions conspired to put LSB Industries Inc.’s Chemical segment’s operating income in the loss column for the fourth quarter and full year ending Dec. 31, 2015. The unit had a fourth-quarter loss of $10.3 million on net sales of $87.4 million, compared to year-ago income of $4.5 million and $115.1 million, respectively. The full-year loss was $41.8 million on sales of $428.1 million, compared to 2014 income of $51.3 million and $483.6 million.

Company-wide, LSB reported a fourth-quarter loss of $11 million ($0.48 per diluted share) on net sales of $157 million, compared to a year-ago income of $657,000 ($0.03 per share) and $187.2 million, respectively. It reported a full-year loss of $38 million ($1.67 per share) on sales of $711.8 million, compared to 2014’s net income of $19.3 million ($0.83 per share) and $761.2 million, respectively.

“Our fourth quarter fell short of our expectations,” said Dan Greenwell, LSB president and CEO. “Results for our Chemical business were weaker than the fourth quarter of 2014 due to unplanned downtime at our Pryor facility, lower sales of ammonium nitrate to the mining sector, and lower selling prices for agricultural chemicals, which were down approximately 16 percent compared to the prior-year period. Looking at the current year, fertilizer prices appear to have stabilized, and we believe that due to the contracted fall fertilizer application season, demand for fertilizers will be stronger this spring and pricing will firm up from current levels.

“Additionally, we were disappointed with the unplanned outage at our Cherokee facility,” Greenwell added. “Cherokee operated efficiently and consistently during 2015 with the exception of two weeks in December, and its ammonia plant operated at an on-stream rate of 94 percent for the full year of 2015. We are continuing to take positive steps with equipment replacement and upgrades at both the Pryor and Cherokee plants to increase on-stream rates in 2016.”

Both Pryor and Cherokee are now producing at normal rates. The company took a $3.5 million writedown on Pryor ammonia assets in the fourth quarter. LSB anticipates that Pryor will go down for a turnaround in late summer/early fall and Cherokee in late summer.

As earlier reported, LSB expects its new El Dorado ammonia plant to come up in the second quarter and be within budget (GM Feb. 19, p. 12). Greenwell told analysts that he expects the plant to actually begin production in April, and ramp up for full production during the rest of the quarter. The company is upbeat on plant economics once the ammonia plant comes up. LSB reiterated that it will continue to review strategic alternatives, including asset sales or the separation of its two businesses. In the past, LSB has listed the completion of the ammonia plant as an important milestone prior to moving ahead with these alternatives.

To date, El Dorado has been pressured by the high cost of purchased ammonia and the loss of the Orica contract for explosives grade ammonium nitrate, as well as lower ammonium nitrate prices. Also during the quarter, LSB bought forward natural gas in a falling gas market, having an average of $3.05/mmBtu for the quarter, though down from the year-ago $3.89/mmBtu. As of March 1, LSB said it has booked about 40 percent of its forward gas at $2.75/mmBtu. Purchased ammonia costs were down at $415/st from the year-ago $593/st.

For the Chemical unit, fourth-quarter Agricultural sales were down 20 percent, to $39.6 million from the year-ago $49.3 million, while Industrial/Mining/Other (IMO) were off 27 percent, to $47.8 million from $65.8 million. In the Ag sector, total tons sold were about level, though pricing was off.

For 2016, LSB expects sales to be up for both the Ag and IMO sectors, mainly due to the El Dorado expansion coming online. Within the Ag sector, it projects UAN sales of 365,000-390,000 st, AN 185,000-210,000 st, and ammonia 110,000-130,000 st. In the IMO sector, nitric acid sales are expected to be 540,000-570,000 st, AN 110,000-135,000 st, AN solution 55,000-65,000 st, and ammonia 150,000-175,000 st.