News Column

CF Industries Holdings, Inc. Reports Second Quarter Net Earnings of $312.6 Million

August 11, 2014



ENP Newswire - 11 August 2014

Release date- 07082014 - DEERFIELD, Ill. - CF Industries Holdings, Inc. (NYSE: CF) today reported second quarter 2014 EBITDA of $613.0 million and net earnings attributable to common stockholders of $312.6 million, or $6.10 per diluted share, compared to EBITDA of $912.8 million and net earnings attributable to common stockholders of $498.2 million, or $8.38 per diluted share, in the second quarter of 2013.

Nitrogen segment net sales in the second quarter of 2014 were $1.4 billion compared to $1.5 billion in the same period last year. Total company net sales are not comparable given the sale of the phosphate business.

Second quarter 2014 results included $28.6 million of non-cash pre-tax net mark-to-market losses on natural gas derivatives, $1.1 million of pre-tax losses on foreign currency derivatives and $7.0 million of expenses related to the capacity expansion projects. These items (decreased) after-tax earnings per diluted share by ($0.35),($0.01) and ($0.09), respectively.

The second quarter 2014 results also included approximately $20 million of idle plant costs associated with unscheduled downtime at the company's Woodward, OK, nitrogen complex. Second quarter 2013 results included$18.0 million of pre-tax unrealized losses on natural gas derivatives, $4.0 million of pre-tax gains on foreign currency derivatives and $1.1 million of expenses related to the capacity expansion projects, which increased/(decreased) after-tax earnings per diluted share by ($0.19), $0.04 and ($0.01), respectively.

First half 2014 EBITDA was $1.9 billion and net earnings attributable to common stockholders were $1.0 billion, or $19.24 per diluted share, compared to EBITDA of$1.6 billion and net earnings attributable to common stockholders of $904.7 million, or$14.80 per diluted share, for 2013. First half 2014 adjusted EBITDA was $1.1 billion excluding the $747.1 million pre-tax gain on sale of the phosphate business, and adjusted net earnings were $560.1 million, or $10.55 per diluted share excluding the$461.0 million after-tax gain.

During the second quarter, CF Industries experienced robust ammonia demand that contributed to record first half ammonia sales volume. At the beginning of the year the company had high ammonia inventories due to a poor fall 2013 application season caused by a late harvest combined with cold and wet weather. However, the company was able to continue to produce at high operating rates without undue concern because of its in-market storage capacity.

The company was able to generate a 33 percent increase in ammonia sales volume, and a 5 percent increase in total nitrogen product volume compared to the second quarter 2013, enabled by its unequalled logistical and distribution network. The strong sales performance enabled the company to generate robust cash flow as measured by EBITDA of $613.0 million, representing 42 percent of sales.

'The terrific efforts of our sales, logistics and distribution facilities teams enabled us to set a new ammonia sales volume record for the first half and generate strong financial results in the process,' said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. 'Our investments in our distribution systems to increase our inventory turns helped us achieve new ammonia loading records during the quarter.'

For the first half of 2014, North America had robust industry-wide ammonia shipments which drew down high inventory from the beginning of the year and resulted in very low inventories at the end of June. Even with the recent declines in corn prices, CF Industries anticipates a strong fall ammonia application season. Given the annual requirement for nitrogen application to grow grains, dealer and distributor demand for ammonia to restock their inventories for the fall has been strong.

North American urea, as priced at the U.S. Gulf, traded at a $10 to $30 per ton premium to the international markets throughout the first six months of 2014. CF Industries took advantage of this pricing environment by maximizing available urea production and focusing on domestic spot sales in the second quarter 2014. Strong domestic shipments and low imports during the first half of the year resulted in North American urea inventory levels that were believed to be very low at the end of the quarter.

However, imports are expected to increase in the second half of the year and prices in North America are anticipated to decline toward parity with international delivered prices. China's 2014 urea exports are likely to be approximately 10 million tons for the calendar year, compared to roughly 8 million tons in 2013.

Strong ammonia and urea shipments along with reduced UAN production contributed to lower UAN sales volume for CF Industries during the quarter. The company had a steady order flow during the quarter which allowed it to move its inventory through the system, but buyer preference for ammonia limited some UAN demand. Dealers and wholesalers came forward at the end of the quarter with strong demand to restock their inventories and the company was able to build an attractive order book for second half 2014 deliveries.

'We anticipate over 90 million acres of corn will be planted in 2015 and expect robust nitrogen demand during the second half of 2014,' stated Mr. Will. 'With the necessity of annual nitrogen application and historically low fertilizer costs relative to crop revenue, farmers continue to have strong incentives to apply appropriate levels of nitrogen.'

During the quarter the company made significant strides in its strategic initiatives. Progress continued with its two major capacity expansion projects that, when complete, will increase the company's nitrogen production and potential cash generation capacity by roughly 25 percent.

The projects are progressing in line with schedule and budget expectations as pile driving is essentially complete, equipment is arriving at both sites, and structural steel erection is proceeding. Construction of non-production facilities, including urea warehouses and ammonia storage tanks, is well underway at both locations.

CF Industries completed its 2012 $3.0 billion share repurchase program with the repurchase of 3.1 million shares during the quarter for $756.8 million. The authorization was completed well before its termination date of December 31, 2016. In total, 13.6 million shares were repurchased through the program since the beginning of 2013. This brings the company's total shares repurchased since the completion of the Terra acquisition to 23.2 million shares, representing a 32 percent reduction in shares outstanding.

Subsequent to the end of the quarter, the company's board of directors approved a 50 percent increase in the company's quarterly cash dividend from $1.00 to $1.50 per share, and authorized an additional $1.0 billion share repurchase program through December 31, 2016. The new authorization, coming immediately on the conclusion of the prior program, is a continuation of the company's commitment to return excess cash to shareholders.

'Our belief in the sustainability of our cash flows and our dedication to growing shareholder value is evidenced by our capital deployment actions,' stated Mr. Will. 'We are increasing our dividend and putting in place a new share repurchase program, while at the same time investing in high return growth projects that will increase the value of CF Industries.'

For 2014, the company expects total capital expenditures of approximately $2.2 billion. This consists of approximately $1.7 billion for the capacity expansion projects and $0.5 billion of sustaining and other capital expenditures.

The reduction from the previously forecast total of $2.5 billion of capital expenditures during 2014 is related to more defined construction plans and vendor payment timing as engineering concludes on the capacity expansion projects. The pace of spending is expected to increase during the second half of the year as major components are delivered and mechanical system construction continues.

Attractive North American natural gas costs, in comparison to feedstock costs in other regions of the world, continue to support CF Industries' long-term cash generation prospects. While natural gas prices were higher than in 2013 following the coldest winter in 30 years, prices moderated from levels seen during the first quarter as increased gas production resulted in significant storage injection rates which have averaged more than 100 billion cubic feet per week over the last 12 weeks.

CF Industries' effective gas cost for the quarter averaged $4.19 per MMBtu. In the middle of the second quarter the company entered into third quarter hedges to manage its production costs and mitigate its exposure to short-term volatility in natural gas prices at a time when industry-wide natural gas inventory levels were well below the five-year average and the potential existed for high demand for cooling needs if a hot summer season developed.

The company now has 90 percent of its gas required for production in the third quarter hedged against the NYMEX in a range of $4.25 to $4.60per MMBtu, and 90 percent of October's needs hedged in a range of $3.50 to $4.00 per MMBtu.

The long-term outlook for CF Industries is positive as a number of factors support the company's growth and cash generation potential. Global population growth, higher protein diets and use of crops as a source of renewable fuels all are driving demand for more grain. The limited ability to bring into production additional arable land globally requires increased yields.

The need for increased yields drives demand for nitrogen fertilizer, the nutrient that must be applied every year to promote plant growth. With a focus on nitrogen production, and the enduring structural advantage of low-cost North American natural gas, CF Industries is well positioned to generate sustainably strong cash flow.

The company recognized revenue in the second quarter of 2014 from sales of phosphate inventory that remained in its distribution system after closing the sale of the phosphate business to The Mosaic Company in the first quarter. After the second quarter of 2014 the phosphate segment will cease to have reported results. Please refer to the 'Nitrogen Segment Results' below for a discussion of items impacting the business during the second quarter.

Nitrogen Segment Results

Comparison of 2014 to 2013 periods:

Net sales decreased due to a decline in overall average selling prices compared to the prior year period, partially offset by an increase in volume sold.

Gross margin decreased due to lower selling prices, an increase in natural gas costs and higher cost absorption due to unscheduled down time, including approximately $20 million related specifically to the Woodward, OK complex. Cost of sales included net mark-to-market unrealized losses on hedges of $28.6 million and $18.0 million in the second quarter of 2014 and 2013, respectively.

The company's ammonia plants in aggregate operated at approximately 96 percent of rated capacity during the second quarter of 2014, including the impact of unscheduled downtime at Woodward, OK.

Environmental, Health & Safety Performance

As of June 30, 2014, CF Industries' 12-month rolling average recordable incidence rate was 1.6, compared to the most recently available 3-year average of 2.8 for the company's broad set of peer chemical companies.

'Safety is an instrumental factor in CF Industries' success,' said Mr. Will. 'I would like to thank our employees for their commitment to maintaining this focus and continued pursuit of achieving the highest standards of safety and environmental stewardship.'

Balance Sheet and Cash Flow Items

As of June 30, 2014, CF Industries had total liquidity of $3.8 billion including its $1.0 billion undrawn revolving credit facility. Total long-term debt was $4.6 billion.

The company repurchased 3.1 million shares during the quarter for $756.8 million at an average share price of approximately $246 per share. This completed the company's existing $3.0 billion share repurchase program, resulting in 13.6 million shares being repurchased at an average price of approximately $220 per share.

Total cash capital expenditures during the quarter were $292.6 million. Of this, $209.5 million related to the capacity expansion projects, bringing year to date cash expenditures to $487.7 million and project announcement to date cash expenditures to$964.7 million.

Dividend Payment

On August 6, 2014, CF Industries' Board of Directors declared a quarterly dividend of$1.50 per common share. The dividend will be paid on August 29, 2014, to stockholders of record as of August 18, 2014.

About CF Industries Holdings, Inc.

CF Industries Holdings, Inc., headquartered in Deerfield, Illinois, through its subsidiaries is a global leader in the manufacturing and distribution of nitrogen products, serving both agricultural and industrial customers. CF Industries operates world-class nitrogen manufacturing complexes in the central United States and Canada and distributes plant nutrients through a system of terminals, warehouses, and associated transportation equipment located primarily in the midwestern United States.

The company also owns 50 percent interests in GrowHow UK Limited, a plant nutrient manufacturer in the United Kingdom; an ammonia facility in The Republic of Trinidad and Tobago and KEYTRADE AG, a global plant nutrient trading organization headquartered near Zurich, Switzerland. CF Industries routinely posts investor announcements and additional information on the company's website at www.cfindustries.com and encourages those interested in the company to check there frequently.

Note Regarding Non-GAAP Financial Measures

The company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that EBITDA, a non-GAAP financial measure, provides additional meaningful information regarding the company's performance, liquidity and financial strength.

Management believes that adjusted net earnings attributable to common stockholders, adjusted diluted earnings per share and adjusted EBITDA, each a non-GAAP financial measure, provide meaningful information regarding the company's operating performance because they exclude the impact of the phosphate sale and allow investors to better evaluate ongoing business performance.

Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's reported results prepared in accordance with U.S. GAAP. In addition, because not all companies use identical calculations, EBITDA and the adjusted items included in this release may not be comparable to similarly titled measures of other companies.

Safe Harbor Statement

All statements in this communication, other than those relating to historical facts, are 'forward-looking statements.' These forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements. These statements include, but are not limited to, statements about future strategic plans and statements about future financial and operating results.

Important factors that could cause actual results to differ materially from our expectations include, among others: the volatility of natural gas prices in North America; the cyclical nature of our business and the agricultural sector; the global commodity nature of our fertilizer products, the impact of global supply and demand on our selling prices, and the intense global competition from other fertilizer producers; conditions in the U.S. agricultural industry; reliance on third party providers of transportation services and equipment; risks associated with cyber security; weather conditions; our ability to complete our production capacity expansion projects on schedule as planned and on budget or at all; risks associated with other expansions of our business, including unanticipated adverse consequences and the significant resources that could be required; potential liabilities and expenditures related to environmental and health and safety laws and regulations; future regulatory restrictions and requirements related to greenhouse gas emissions; the seasonality of the fertilizer business; the impact of changing market conditions on our forward sales programs; risks involving derivatives and the effectiveness of our risk measurement and hedging activities; the significant risks and hazards involved in producing and handling our products against which we may not be fully insured; our reliance on a limited number of key facilities; risks associated with joint ventures; acts of terrorism and regulations to combat terrorism; difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery; risks associated with international operations; losses on our investments in securities; deterioration of global market and economic conditions; our ability to manage our indebtedness and loss of key members of management and professional staff.

More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available in the Investor Relations section of the CF Industries website. Forward-looking statements are given only as of the date of this release and we disclaim any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Contact:

Dan Swenson

Senior Director

Investor Relations

Tel: 847-405-2515

Email: dswenson@cfindustries.com


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Source: ENP Newswire


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