CF Industries Posts Mixed Quarter - Analyst Blog

CF Industries Holdings Inc. (CF) reported net earnings of $48.2 million or $0.67 per share during the third quarter of 2010 compared with $38.5 million or $0.78 per share during the same quarter last year.

Reported figures included a non-cash mark-to-market loss of $25.7 million on natural gas derivatives, business combination and integration costs of $22.8 million and $0.8 million of Peru project development costs.

Excluding the special items, the company's adjusted net earnings for the 2010 quarter were $97.5 million or $1.10 per share. This was lower than the Zacks Consensus Estimate of $1.41.

Net sales shot up 113% to $917.1 million from $430.1 million in the year-ago quarter. The marked increase in sales was attributed to $400 million of sales obtained from Terra Industries and higher product prices, particularly for phosphates. However, CF Industries missed the Zacks Consensus Estimate of $982 million for the quarter.

Total sales volume in the quarter nearly doubled to 3.4 million tons from 1.7 million tons in the prior year as it largely benefited from the 1.6 million tons of Terra sales. Gross margin was $169.8 million versus $124 million during the 2009 third quarter.

Segment Details

Nitrogen Segment: Net sales amounted to $735.1 million, up 166% from $276.1 million during the third quarter of 2009. About 2.98 million tons of ammonia, urea, urea ammonium nitrate solutions (UAN), ammonium nitrate (AN) and other nitrogen products were sold by the company during the quarter.

More specifically, 513,000 tons of ammonia at an average price of $394 per ton, 713,000 tons of urea at an average price of $263 per ton, 1.4 million tons of UAN at an average price of $188 per ton and 262,000 tons of AN at an average price of $203 per ton were sold during the quarter.

Gross margin increased 39% to $141.3 million, despite a rise in cost of sales to $593.8 million from $174.2 million during the corresponding quarter of last year. The improvement was driven by the benefits obtained from the acquisition of Terra, partly offset by higher realized natural gas costs and an unrealized mark-to-market loss on natural gas derivatives.

Phosphate Segment: Net sales were$182 million, up 18.2% from $154 million reported a year-ago, driven by higher average selling prices. The average selling price of diammonium phosphate (DAP) was $403 per ton versus $281 per ton in the last year quarter, and the average selling price for monoammonium phosphate (MAP) was $404 million versus $283 million in the same quarter a year ago.

Domestic sales of phosphate products declined to 260,000 tons from last year's 342,000 tons to cover up the increased export commitments (191,000 tons versus last year's 155,000 tons).

Gross margin was $28.5 million, up 29% from $22.1 million in 2009. Cost of sales increased 16.4% to $153.5 million from $131.9 million during the third quarter of 2009.

Financial Position

CF Industries had cash and cash equivalents worth $648.4 million and total debt of $2.25 billion (senior notes of $1.6 billion and the remaining term loan balance of $646 million) as of September 30, 2010 compared with $497.5 million of cash and $4.6 million of total debt as of September 30, 2009.

The company used its available cash flow to repay $350 million of its long-term debt during the quarter, thus repaying a total of $554 million of the original $1.2 billion loan by September 30, 2010.

Outlook

According to the company, the overall business prospects are very favorable in 2011 for both of its operational segment. North American market is expected to show positive trend in terms of demand as well as product pricing led by early harvest and strong projected 2011 plantings. Moreover, global demand-supply position is forecasted to remain encouraging for all its products.

CF Industries is also intended to maintain its strong balance sheet and cash position with more loan repayments in the near future. The company targets net debt in the range of 1.0 to 1.5 times of EBITDA.

For 2010, the company expects capital expenditures in the range of $240 million to $260 million and a bit higher in 2011.