CF Industries' (CF) Q4 Earnings Trail, Profit Tumbles

CF Industries CF saw its profits tumble in fourth-quarter 2015, dragged down by lower fertilizer prices. The fertilizer maker posted profit of $26.5 million or 11 cents per share in the reported quarter, a roughly 89% plunge from $238.3 million or 96 cents per share posted a year ago.      

Barring one-time items, earnings were 76 cents per share for the quarter, down from $1.12 per share recorded a year ago. The results also missed the Zacks Consensus Estimate of 86 cents.

For 2015, reported earnings were $2.96 per share, a roughly 45% drop  from $5.42 per share posted in 2014. Adjusted earnings were $3.88 per share, also down from $4.02 per share a year ago.

Sales fell roughly 8% year over year to $1,115.8 million in the quarter, but squeaked past the Zacks Consensus Estimate of $1,111 million. The top line was hit by lower pricing across most segments due to higher supply of fertilizers. Elevated supply in the global nitrogen market pressured pricing in the quarter, causing farmers to delay buying activities.

For the full year, sales fell 9% year over year to $4,308.3 million.

 

CF Industries Holdings Inc. (CF) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

 

Segment Review

Sales for the Ammonia segment slipped roughly 20% year over year to $375.5 million in the reported quarter. Ammonia sales volumes fell year over year, partly due to lower global demand for industrial applications, including phosphate production. Average selling prices also declined due to higher global supply and lower demand. A weather-shortened fall application season also impacted volumes and pricing in the quarter.

Sales for the Granular Urea segment fell 16% year over year to $194.1 million. Sales volumes in this segment rose as the new urea plant in Donaldsonville, LA, started production during the quarter, resulting in higher available tons. Average selling prices per ton for granular urea declined owing to ample global supply.

Sales in the UAN (urea ammonium nitrate solution) segment went down 13% year over year to $367.3 million. UAN sales volumes were essentially flat year over year as higher exports were offset by reduced domestic demand. Abundant global supply contributed to lower pricing in the quarter.

Sales in the AN (ammonium nitrate) segment more than doubled year over year to $115.1 million. Sales volumes rose due to the addition of CF Fertilisers UK sales. Average selling prices also went up in the quarter.

The Other segment’s sales climbed 51% year over year to $63.8 million. Higher sales volumes resulted from the acquisition of CF Fertilisers UK. Average selling prices declined due to higher global nitrogen supply.

Financials

CF Industries exited 2015 with cash and cash equivalents of $286 million, down roughly seven-fold year over year. Long-term debt was $5,592.7 million, up 22% year over year.

The company repurchased roughly 8.9 million shares worth $527.2 million during 2015.

Cash capital expenditures for the fourth quarter were $678 million, including $472.1 million related to capacity expansion projects. Cash capital expenditures for full-year 2015 were $2.5 billion.

Outlook

Moving ahead, CF Industries expects overall nitrogen fertilizer demand in North America to remain steady on a year over year basis in 2016 as an expected increase in corn acres will be offset by a projected decline in wheat acres. Corn planting for 2016 is expected to be around 90.5 million acres, a 2.5 million acre rise from 2015.

For the nitrogen market, CF Industries sees global capacity additions to fall significantly in 2017 and beyond. It expects nitrogen demand to grow by roughly 2% annually, which would require 4-5 new ammonia-urea complexes per year to address this demand.

For 2016, the company expects total cash capital expenditures of around $1.8 billion, comprised of roughly $1.2 billion for the capacity expansion projects and around $600 million of sustaining and other capital expenditures.

CF Industries, in Dec 2015, stated that the new urea plant at Donaldsonville, LA started production in Nov 2015 and had achieved consistent, stable production. The UAN plant is also mechanically complete and in the process of being commissioned for start-up. The ammonia plant in Donaldsonville is expected to start-up in mid-2016. The company also expects the ammonia and urea plants in Port Neal to be mechanically complete in second-quarter 2016.

In Aug 2015, CF Industries agreed to purchase the European, North American and Global distribution assets of Netherlands-based fertilizers and industrial chemicals producer – OCI N.V. – in a deal valued at around $8 billion, including assumption of roughly $2 billion in debt. The deal, which remains subject to approval by the shareholders of CF Industries and OCI and other closing conditions, is expected to close in mid-2016.

CF Industries also declared the initiation of its earlier announced nitrogen fertilizer strategic venture with CHS Inc. earlier this month.

CF Industries currently carries a Zacks Rank #3 (Hold).

Better-ranked companies in the basic materials sector include Koninklijke DSM N.V. RDSMY, Daqo New Energy Corp. DQ and American Vanguard Corp. AVD. While Koninklijke DSM and Daqo New Energy hold a Zacks Rank #1 (Strong Buy), American Vanguard carries a Zacks Rank #2 (Buy).

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