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CF Industries Holdings, Inc. Reports Nine Month 2019 Net Earnings of $438 Million, EBITDA of $1,314 Million

DEERFIELD, Ill.--(BUSINESS WIRE)--

Operational Excellence, Low-Cost Production Drive Cash Generation

Positive Industry Fundamentals in Near- and Longer-Term

Trailing 12-Month Net Cash from Operating Activities of $1.5 Billion

CF Industries Holdings, Inc. (CF), a leading global fertilizer and chemical company, today announced results for its third quarter and nine months ended September 30, 2019.

Highlights

  • Nine month net earnings of $438 million(1), or $1.97 per diluted share; EBITDA(2) of $1,314 million; adjusted EBITDA(2) of $1,285 million

  • Third quarter net earnings of $65 million(1), or $0.29 per diluted share; EBITDA of $341 million; adjusted EBITDA of $349 million

  • Trailing 12-month net cash from operating activities of $1,457 million, free cash flow(3) of $830 million

  • Cash and cash equivalents of $1,019 million on the balance sheet as of September 30, 2019

  • Company to redeem $750 million in debt by end of year

  • Repurchased approximately 1.5 million shares during the quarter

Overview of Results

CF Industries Holdings, Inc. today announced for the first nine months of 2019 net earnings attributable to common stockholders of $438 million, or $1.97 per diluted share; EBITDA of $1,314 million; and adjusted EBITDA of $1,285 million. These results compare to the first nine months of 2018 net earnings attributable to common stockholders of $241 million, or $1.03 per diluted share; EBITDA of $1,080 million; and adjusted EBITDA of $1,062 million.

For the third quarter of 2019, net earnings attributable to common stockholders were $65 million, or $0.29 per diluted share; EBITDA was $341 million; and adjusted EBITDA was $349 million. These results compare to third quarter 2018 net earnings attributable to common stockholders of $30 million, or $0.13 per diluted share; EBITDA of $308 million; and adjusted EBITDA of $299 million.

“The CF team’s outstanding execution and our company’s position on the low end of the global cost curve continue to drive substantial cash generation and an industry-leading free cash flow yield,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “Over the last 24 months, this superior cash flow generation has enabled us to repay $1.1 billion in debt, with another $750 million to be retired by the end of this year. Additionally, we repurchased more than 16 million shares for $750 million, distributed $550 million in dividends and invested approximately $400 million in growth. We believe our structural and operational advantages, along with positive nitrogen industry fundamentals, will continue to support our cash generation, allowing us to build on this track record in 2020 and beyond.”

________________________________________________________________

(1)

During the first nine months and third quarter of 2019, certain items impacted our financial results and their comparability to the relevant prior year periods. See the table accompanying this release for a summary of these items.

(2)

EBITDA is defined as net earnings attributable to common stockholders plus interest expense—net, income taxes and depreciation and amortization. See reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP measures in the tables accompanying this release.

(3)

Free cash flow is defined as net cash from operating activities less capital expenditures and distributions to noncontrolling interests. See reconciliation of free cash flow to the most directly comparable GAAP measure in the table accompanying this release.

Operations Overview

CF Industries continued to operate safely and efficiently. As of September 30, 2019, the company’s 12-month rolling average recordable incident rate was 0.61 incidents per 200,000 work hours.

Gross ammonia production for the first nine months of 2019 was approximately 7.6 million tons, and for the third quarter was more than 2.3 million tons. The company expects gross ammonia production during the fourth quarter to be higher than in the third quarter with less maintenance activity scheduled for the final three months of the year.

Sales Overview

Net sales in the first nine months of 2019 were $3.5 billion compared to $3.3 billion in 2018 due primarily to higher average selling prices across all major products. Net sales in the third quarter of 2019 were similar to the third quarter of 2018.

Total sales volumes for the first nine months of 2019 and third quarter of 2019 were similar to the prior year periods.

Average selling prices for the first nine months of 2019 were higher year-over-year across all major products due to a tighter global nitrogen supply and demand balance than the prior year period and logistical issues in North America that limited supply at some inland locations. Average selling prices for the third quarter of 2019 were similarly higher for urea, urea ammonium nitrate (UAN) and ammonium nitrate (AN), and were lower for ammonia due to greater global supply availability.

Cost of sales in the first nine months of 2019 and the third quarter of 2019 decreased primarily due to lower realized natural gas costs partially offset by higher freight and distribution costs.

In the first nine months of 2019, the average cost of natural gas reflected in the company’s cost of sales was $2.86 per MMBtu compared to the average cost of natural gas in cost of sales of $3.14 per MMBtu in the first nine months of 2018. In the third quarter of 2019, the average cost of natural gas reflected in the company’s cost of sales was $2.24 per MMBtu compared to the average cost of natural gas in cost of sales of $3.19 per MMBtu in the third quarter of 2018.

Market Overview

The company expects that nitrogen industry fundamentals will continue to improve in both the near- and longer-term as the global market continues to tighten over the coming years.

In the near-term, demand from import-dependent regions should support global pricing. In North America, corn crop futures continue to support an increase in planted corn acres over the next two seasons. Outside of North America, demand for urea from India and Brazil remains positive. Through September 2019, India has imported 5.9 million metric tons of urea, a 36 percent increase over the same period in 2018. India is expected to issue 1-2 more tenders through March 2020. Imports of urea to Brazil through September 2019 were 3.5 million metric tons, up approximately three percent year-over-year.

The company expects that global demand growth for nitrogen over the next four years will outpace net capacity additions given the limited number of facilities currently under construction around the world, none of which are in North America. The company also expects Chinese coal-based nitrogen complexes to remain the global marginal urea producer and thus set the global price floor. Net Chinese-produced urea exports are likely to be in a range of 1-3 million metric tons annually, with higher nitrogen prices bidding in additional Chinese export tons at times when urea supply is needed worldwide.

Over this same time period, producers in North America are expected to continue to benefit from access to low-cost North American natural gas. For calendar years 2020-2023, the NYMEX Henry Hub natural gas forward strip is below $2.56 per MMBtu, below the 2019 NYMEX settlements through October of $2.65 per MMBtu.

Capital Expenditures

Capital expenditures in 2019 are projected to be approximately $425 million.

Liquidity

As of September 30, 2019, the company had cash and cash equivalents of $1,019 million on the balance sheet, had no borrowings outstanding under its $750 million revolving credit facility and was in compliance with all applicable covenant requirements under its debt instruments.

The company is currently executing a $1 billion share repurchase program that is authorized through 2021. During the third quarter of 2019, the company repurchased approximately 1.5 million shares for $72 million. From February 2019, when the share repurchase authorization was announced, through September 30, 2019, the company has repurchased approximately 5.7 million shares for $250 million.

On October 9, 2019, the company announced that its wholly owned subsidiary CF Industries, Inc. has elected to redeem in full the entire outstanding $500 million principal amount of its 7.125% Senior Notes (the “2020 Notes”) due May 2020, in accordance with the optional redemption provisions provided in the indenture governing the 2020 Notes. The 2020 Notes will be redeemed on November 13, 2019. Based on market interest rates on October 28, 2019, the company estimates that the total amount for the redemption of the 2020 Notes will be approximately $513 million, including accrued interest.

On October 30, 2019, the company announced that its wholly owned subsidiary CF Industries, Inc. has elected to redeem on December 13, 2019, $250 million principal amount, representing 50% of the currently outstanding $500 million principal amount, of its 3.400% Senior Secured Notes due December 2021 (the “2021 Notes”) in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes. Based on market interest rates on October 28, 2019, the company estimates that the total amount for the partial redemption of the 2021 Notes will be approximately $257 million, including accrued interest.

CHS Inc. Distribution

CHS Inc. (CHS) is entitled to semi-annual distributions resulting from its minority equity investment in CF Industries Nitrogen, LLC (CFN). The estimate of the partnership distribution earned by CHS, but not yet declared, for the third quarter of 2019 is approximately $49 million.

Consolidated Results

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

(dollars in millions, except per share

and per MMBtu amounts)

Net sales

$

1,038

$

1,040

$

3,541

$

3,297

Cost of sales

810

867

2,594

2,622

Gross margin

$

228

$

173

$

947

$

675

Gross margin percentage

22.0

%

16.6

%

26.7

%

20.5

%

Net earnings attributable to common stockholders

$

65

$

30

$

438

$

241

Net earnings per diluted share

$

0.29

$

0.13

$

1.97

$

1.03

EBITDA(1)

$

341

$

308

$

1,314

$

1,080

Adjusted EBITDA(1)

$

349

$

299

$

1,285

$

1,062

Tons of product sold (000s)

4,752

4,765

14,555

14,606

Supplemental data (per MMBtu):

Natural gas costs in cost of sales(2)

$

2.24

$

3.16

$

2.87

$

3.11

Realized derivatives loss (gain) in cost of sales(3)

0.03

(0.01

)

0.03

Cost of natural gas in cost of sales

$

2.24

$

3.19

$

2.86

$

3.14

Average daily market price of natural gas (per MMBtu):

Henry Hub

$

2.33

$

2.90

$

2.57

$

2.91

National Balancing Point UK

$

3.42

$

8.40

$

4.56

$

7.98

Unrealized net mark-to-market loss (gain) on natural gas derivatives

$

2

$

(3

)

$

3

$

(11

)

Depreciation and amortization

$

223

$

233

$

663

$

667

Capital expenditures

$

143

$

133

$

297

$

278

Production volume by product tons (000s):

Ammonia(4)

2,336

2,456

7,564

7,424

Granular urea

1,206

1,296

3,836

3,675

UAN (32%)

1,584

1,595

4,810

4,957

AN

552

474

1,585

1,355

_______________________________________________________________________________

(1)

See reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP measures in the tables accompanying this release.

(2)

Includes the cost of natural gas and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method.

(3)

Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives.

(4)

Gross ammonia production including amounts subsequently upgraded into other products.

Ammonia Segment

CF Industries’ ammonia segment produces anhydrous ammonia (ammonia), which is the company’s most concentrated form of nitrogen, containing 82 percent nitrogen. The results of the ammonia segment consist of sales of ammonia to external customers. In addition, ammonia is the “basic” nitrogen form that the company upgrades into other nitrogen products such as urea, UAN and AN.

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

(dollars in millions,

except per ton amounts)

Net sales

$

187

$

192

$

847

$

778

Cost of sales

188

181

654

641

Gross margin

$

(1

)

$

11

$

193

$

137

Gross margin percentage

(0.5

)%

5.7

%

22.8

%

17.6

%

Sales volume by product tons (000s)

720

657

2,548

2,415

Sales volume by nutrient tons (000s)(1)

590

539

2,089

1,981

Average selling price per product ton

$

260

$

292

$

332

$

322

Average selling price per nutrient ton(1)

317

356

405

393

Adjusted gross margin(2):

Gross margin

$

(1

)

$

11

$

193

$

137

Depreciation and amortization

41

33

123

110

Unrealized net mark-to-market loss (gain) on natural gas derivatives

1

(1

)

1

(3

)

Adjusted gross margin

$

41

$

43

$

317

$

244

Adjusted gross margin as a percent of net sales

21.9

%

22.4

%

37.4

%

31.4

%

Gross margin per product ton

$

(1

)

$

17

$

76

$

57

Gross margin per nutrient ton(1)

(2

)

20

92

69

Adjusted gross margin per product ton

57

65

124

101

Adjusted gross margin per nutrient ton(1)

69

80

152

123

_______________________________________________________________________________

(1)

Nutrient tons represent the tons of nitrogen within the product tons.

(2)

Adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. The company has presented adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. A reconciliation of adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton to gross margin, the most directly comparable GAAP measure, is provided in the table above. See “Note Regarding Non-GAAP Financial Measures” in this release.

Comparison of 2019 to 2018 first nine months and third quarter periods:

  • Ammonia sales volume increased for the first nine months and third quarter of 2019 compared to 2018 due to greater supply availability as a result of increased production.

  • Ammonia average selling prices increased for the first nine months of 2019 compared to 2018 due to a tighter nitrogen supply and demand balance. Ammonia average selling prices decreased for the third quarter of 2019 compared to 2018 due to increased global ammonia supply availability.

  • Ammonia adjusted gross margin per ton increased for the first nine months of 2019 compared to 2018 due primarily to higher average selling prices and lower realized natural gas costs. Ammonia adjusted gross margin per ton decreased for the third quarter of 2019 compared to 2018 due primarily to lower average selling prices partially offset by lower realized natural gas costs.

Granular Urea Segment

CF Industries’ granular urea segment produces granular urea, which contains 46 percent nitrogen. Produced from ammonia and carbon dioxide, it has the highest nitrogen content of any of the company’s solid nitrogen products.

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

(dollars in millions,

except per ton amounts)

Net sales

$

327

$

353

$

1,103

$

977

Cost of sales

207

238

686

682

Gross margin

$

120

$

115

$

417

$

295

Gross margin percentage

36.7

%

32.6

%

37.8

%

30.2

%

Sales volume by product tons (000s)

1,200

1,363

3,880

3,779

Sales volume by nutrient tons (000s)(1)

552

627

1,785

1,738

Average selling price per product ton

$

273

$

259

$

284

$

259

Average selling price per nutrient ton(1)

592

563

618

562

Adjusted gross margin(2):

Gross margin

$

120

$

115

$

417

$

295

Depreciation and amortization

66

74

211

214

Unrealized net mark-to-market (gain) loss on natural gas derivatives

(1

)

1

(3

)

Adjusted gross margin

$

186

$

188

$

629

$

506

Adjusted gross margin as a percent of net sales

56.9

%

53.3

%

57.0

%

51.8

%

Gross margin per product ton

$

100

$

84

$

107

$

78

Gross margin per nutrient ton(1)

217

183

234

170

Adjusted gross margin per product ton

155

138

162

134

Adjusted gross margin per nutrient ton(1)

337

300

352

291

_______________________________________________________________________________

(1)

Nutrient tons represent the tons of nitrogen within the product tons.

(2)

Adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. The company has presented adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. A reconciliation of adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton to gross margin, the most directly comparable GAAP measure, is provided in the table above. See “Note Regarding Non-GAAP Financial Measures” in this release.

Comparison of 2019 to 2018 first nine months and third quarter periods:

  • Granular urea sales volume increased for the first nine months of 2019 compared to 2018 due to higher volumes of product available for sale as the company chose to favor granular urea production over UAN. Granular urea sales volume decreased for the third quarter of 2019 compared to 2018 due to lower volumes of product available for sale as a result of planned maintenance activities.

  • Urea average selling prices increased in the first nine months and third quarter of 2019 compared to 2018 due primarily to a tighter nitrogen supply and demand balance than the prior year periods, logistical issues in North America during the second quarter that limited supply at some inland locations, and a fertilizer application season that extended into the third quarter.

  • Granular urea adjusted gross margin per ton increased for the first nine months and third quarter of 2019 compared to 2018 due primarily to higher average selling prices and lower realized natural gas costs.

UAN Segment

CF Industries’ UAN segment produces urea ammonium nitrate solution (UAN). UAN is a liquid product with nitrogen content that typically ranges from 28 percent to 32 percent and is produced by combining urea and ammonium nitrate in solution.

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

(dollars in millions,

except per ton amounts)

Net sales

$

309

$

270

$

934

$

892

Cost of sales

250

243

722

731

Gross margin

$

59

$

27

$

212

$

161

Gross margin percentage

19.1

%

10.0

%

22.7

%

18.0

%

Sales volume by product tons (000s)

1,741

1,620

4,880

5,109

Sales volume by nutrient tons (000s)(1)

550

513

1,537

1,615

Average selling price per product ton

$

177

$

167

$

191

$

175

Average selling price per nutrient ton(1)

562

526

608

552

Adjusted gross margin(2):

Gross margin

$

59

$

27

$

212

$

161

Depreciation and amortization

66

65

183

200

Unrealized net mark-to-market loss (gain) on natural gas derivatives

1

(1

)

1

(4

)

Adjusted gross margin

$

126

$

91

$

396

$

357

Adjusted gross margin as a percent of net sales

40.8

%

33.7

%

42.4

%

40.0

%

Gross margin per product ton

$

34

$

17

$

43

$

32

Gross margin per nutrient ton(1)

107

53

138

100

Adjusted gross margin per product ton

72

56

81

70

Adjusted gross margin per nutrient ton(1)

229

177

258

221

_______________________________________________________________________________

(1)

Nutrient tons represent the tons of nitrogen within the product tons.

(2)

Adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. The company has presented adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. A reconciliation of adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton to gross margin, the most directly comparable GAAP measure, is provided in the table above. See “Note Regarding Non-GAAP Financial Measures” in this release.

Comparison of 2019 to 2018 first nine months and third quarter periods:

  • UAN sales volume for the first nine months of 2019 decreased compared to 2018 due to lower supply availability from lower production as the company chose to favor granular urea production over UAN. Sales volume for the third quarter of 2019 increased compared to 2018 due primarily to the impact of late planting in North America that delayed some fertilizer shipments and applications into the third quarter of 2019.

  • UAN average selling prices improved in the first nine months and third quarter of 2019 compared to 2018 due primarily to a tighter nitrogen supply and demand balance than the prior year periods, logistical issues in North America during the second quarter that limited supply at some inland locations, and a fertilizer application season that extended into the third quarter.

  • UAN adjusted gross margin per ton increased for the first nine months and third quarter of 2019 compared to 2018 due primarily to higher average selling prices.

AN Segment

CF Industries’ AN segment produces ammonium nitrate (AN). AN is used as a nitrogen fertilizer with nitrogen content between 29 percent to 35 percent, and also is used by industrial customers for commercial explosives and blasting systems. AN is produced at the company’s Yazoo City, Mississippi; Billingham, United Kingdom; and Ince, United Kingdom, complexes.

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

(dollars in millions,

except per ton amounts)

Net sales

$

136

$

139

$

389

$

363

Cost of sales

100

129

308

320

Gross margin

$

36

$

10

$

81

$

43

Gross margin percentage

26.5

%

7.2

%

20.8

%

11.8

%

Sales volume by product tons (000s)

561

601

1,590

1,586

Sales volume by nutrient tons (000s)(1)

188

202

533

535

Average selling price per product ton

$

242

$

231

$

245

$

229

Average selling price per nutrient ton(1)

723

688

730

679

Adjusted gross margin(2):

Gross margin

$

36

$

10

$

81

$

43

Depreciation and amortization

24

35

67

67

Unrealized net mark-to-market (gain) loss on natural gas derivatives

Adjusted gross margin

$

60

$

45

$

148

$

110

Adjusted gross margin as a percent of net sales

44.1

%

32.4

%

38.0

%

30.3

%

Gross margin per product ton

$

64

$

17

$

51

$

27

Gross margin per nutrient ton(1)

191

50

152

80

Adjusted gross margin per product ton

107

75

93

69

Adjusted gross margin per nutrient ton(1)

319

223

278

206

_______________________________________________________________________________

(1)

Nutrient tons represent the tons of nitrogen within the product tons.

(2)

Adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. The company has presented adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. A reconciliation of adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton to gross margin, the most directly comparable GAAP measure, is provided in the table above. See “Note Regarding Non-GAAP Financial Measures” in this release.

Comparison of 2019 to 2018 first nine months and third quarter periods:

  • AN sales volume for the first nine months of 2019 compared to 2018 was similar. Sales volume for the third quarter of 2019 was lower compared to 2018 due primarily to a delayed harvest in the United Kingdom affecting the timing of fertilizer purchases.

  • AN average selling prices improved for the first nine months and third quarter of 2019 compared to 2018 due to a tighter global nitrogen supply and demand balance than the prior year periods.

  • AN adjusted gross margin per ton was higher for the first nine months and third quarter of 2019 compared to 2018 due primarily to lower realized natural gas costs and higher average selling prices.

Other Segment

CF Industries’ Other segment includes diesel exhaust fluid (DEF), urea liquor, nitric acid and compound fertilizer products (NPKs).

Three months ended
September 30,

Nine months ended
September 30,

2019

2018

2019

2018

(dollars in millions,

except per ton amounts)

Net sales

$

79

$

86

$

268

$

287

Cost of sales

65

76

224

248

Gross margin

$

14

$

10

$

44

$

39

Gross margin percentage

17.7

%

11.6

%

16.4

%

13.6

%

Sales volume by product tons (000s)

530

524

1,657

1,717

Sales volume by nutrient tons (000s)(1)

103

102

327

335

Average selling price per product ton

$

149

$

164

$

162

$

167

Average selling price per nutrient ton(1)

767

843

820

857