CF Industries Holdings, Inc. Reports First Quarter 2019 Net Earnings of $90 Million, EBITDA of $301 Million

Higher Year-Over-Year Urea, UAN and AN Prices Support Increased
Margins

Lower Volumes Driven by Wet, Cold Weather Delaying Spring Application
Season

Expect Strong Nitrogen Demand Through End of First Half 2019

DEERFIELD, Ill.–(BUSINESS WIRE)–CF Industries Holdings, Inc. (NYSE: CF), a leading global fertilizer and
chemical company, today announced results for its first quarter ended
March 31, 2019.

Highlights

  • Net earnings of $90 million, or $0.40 per diluted share; EBITDA(1)
    of $301 million; adjusted EBITDA(1) of $305 million
  • Repurchased approximately 1.5 million shares during the quarter under
    the previously announced $1 billion share repurchase program
    authorized through 2021

Overview of Results

CF Industries Holdings, Inc. today announced first quarter 2019 net
earnings attributable to common stockholders of $90 million, or $0.40
per diluted share; EBITDA of $301 million; and adjusted EBITDA of $305
million. As a result of a net incentive tax credit of $30 million
recognized during the quarter, the company’s first quarter 2019 net
earnings of $0.40 per diluted share included a $0.13 per share net
income tax benefit. These results compare to first quarter 2018 net
earnings attributable to common stockholders of $63 million, or $0.27
per diluted share; EBITDA of $302 million; and adjusted EBITDA of $296
million.

“The CF team’s strong execution, along with generally higher nitrogen
prices compared to the year before, helped CF deliver solid results in
the first quarter despite lower sales volumes driven by wet and cold
weather,” said Tony Will, president and chief executive officer, CF
Industries Holdings, Inc. “Looking ahead, we expect a compressed
planting season and transportation issues to create logistical
challenges in the Corn Belt over the next two months. We believe that
our in-region production and extensive transportation and distribution
network are tremendous advantages in this environment, enabling us to
reliably deliver products to our customers when and where they need it.”

________________________________________________________________
 
(1)  

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.

Operations Overview

CF Industries continued operating safely and efficiently. As of
March 31, 2019, the company’s 12-month rolling average recordable
incident rate was 0.60 incidents per 200,000 work hours.

Sales Overview

Net sales in the first quarter of 2019 were $1,001 million compared to
$957 million in the same period last year. The increase was primarily
due to higher average selling prices for granular urea, urea ammonium
nitrate (UAN) and ammonium nitrate (AN).

Total sales volumes for the first quarter were lower compared to the
same period in 2018 as an extended period of wet and cold weather in
North America delayed the spring application season, resulting in lower
UAN and ammonia sales volumes partially offset by higher granular urea
volumes, including higher exports, and higher AN sales volumes in the
United Kingdom.

Average selling prices for the first quarter of 2019 were higher
year-over-year across most segments due to a tighter global nitrogen
supply and demand balance than the prior period.

Cost of sales for the first quarter of 2019 increased slightly compared
to the first quarter of 2018 driven primarily by higher realized natural
gas costs and higher costs related to plant maintenance partially offset
by the impact of lower sales volume.

In the first quarter of 2019, the average cost of natural gas reflected
in the company’s cost of sales was $3.68 per MMBtu compared to the
average cost of natural gas in cost of sales of $3.33 per MMBtu for the
first quarter of 2018. The increase reflects the impact of inventory
sold during the quarter that was produced in the fourth quarter of 2018
when natural gas costs were higher.

Looking ahead, the company expects the cost of natural gas for 2019 to
be well below 2018 levels. During the first quarter of 2019, the average
cost of natural gas at Henry Hub in North America was $2.89 per MMBtu,
and the average cost of natural gas at the National Balancing Point in
the United Kingdom was $6.56 per MMBtu. This compares to the average
cost of natural gas at Henry Hub in North America of $3.02 per MMBtu,
and the average cost of natural gas at the National Balancing Point in
the United Kingdom of $8.20 per MMBtu in the first quarter of 2018.
Through the end of 2019, Henry Hub natural gas futures remain well below
$3.00, and below 2018 costs.

Market Overview

CF continues to expect strong nitrogen fertilizer demand in North
America during the first half of 2019. A favorable corn-to-soybean ratio
suggests an increase in corn plantings in the United States compared to
2018. Additionally, cold and wet weather in the fourth quarter of 2018
limited ammonia applications in the region, suggesting a nitrogen
deficit in many areas that will need to be made up by spring
applications of ammonia or upgraded products.

Cold and wet weather impacted the first quarter of 2019 and continued
into the second quarter, delaying spring fertilizer applications
throughout North America. More favorable weather since the middle of
April has allowed fieldwork and fertilizer applications to begin, with
corn plantings as of April 29, 2019, in the United States on pace with
2018.

Throughout the first quarter and into May, weather conditions also
caused significant disruptions to rail and barge transportation. CF
believes these logistical challenges will support strong in-region
nitrogen pricing through the spring application season.

Outside of North America, CF expects net urea exports from China in 2019
to be in a similar range to 2018, despite higher exports during the
first quarter of 2019. Demand for urea from India and Brazil should also
support the global market, with India issuing its third urea tender of
the year in late April and imports of urea to Brazil for the full year
2019 expected to increase due to the announced closure of two Petrobras
urea plants.

Geopolitical issues that may affect the global nitrogen market include
United States sanctions on Iran and UAN trade actions by the European
Union. Urea from Iranian producers remains available at a significant
discount to global prices due to the United States sanctions with few
regions of the world open to purchasing from that country. Iranian
producers will face additional challenges should the sanctions continue
due to the loss of access to technical expertise, replacement parts for
current plants and resources to support new construction. Provisional
duties on UAN imports to the European Union from Russia, Trinidad, and
the United States were announced by the European Union Commission in
April 2019 and are expected to be finalized in October 2019.

Capital Expenditures

Capital expenditures in 2019 are projected to be $400-$450 million.

Liquidity

As of March 31, 2019, the company had cash and cash equivalents of $671
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.

During the first quarter, the company repurchased approximately 1.5
million shares for $60 million.

During the first quarter of 2019, the company entered into an agreement
to sell its Pine Bend dry bulk storage and logistics facility in
Minnesota. In April of 2019, the sale closed and the company received
proceeds of $55 million.

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 first quarter of 2019 is approximately $47 million.

 

Consolidated Results

 
Three months ended
March 31,
2019   2018
(dollars in millions, except per share

and per MMBtu amounts)

 
Net sales $ 1,001 $ 957
Cost of sales 781   767  
Gross margin $ 220   $ 190  
Gross margin percentage 22.0 % 19.9 %
 
Net earnings attributable to common stockholders $ 90 $ 63
Net earnings per diluted share $ 0.40 $ 0.27
 
EBITDA(1) $ 301 $ 302
Adjusted EBITDA(1) $ 305 $ 296
 
Tons of product sold (000s) 4,087 4,303
 
Supplemental data (per MMBtu):
Natural gas costs in cost of sales(2) $ 3.70 $ 3.32
Realized derivatives (gain) loss in cost of sales(3) (0.02 ) 0.01  
Cost of natural gas in cost of sales $ 3.68 $ 3.33
 
Average daily market price of natural gas (per MMBtu):
Henry Hub $ 2.89 $ 3.02
National Balancing Point UK $ 6.56 $ 8.20
 
Unrealized net mark-to-market loss (gain) on natural gas derivatives $ 2 $ (3 )
Depreciation and amortization $ 188 $ 193
Capital expenditures $ 80 $ 68
 
Production volume by product tons (000s):
Ammonia(4) 2,567 2,508
Granular urea 1,306 1,151
UAN (32%) 1,637 1,805
AN 482 458
_______________________________________________________________________________
(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.

Segment Results

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
March 31,
2019   2018
(dollars in millions,

except per ton amounts)

Net sales $ 187 $ 212
Cost of sales 166   188  
Gross margin $ 21   $ 24  
Gross margin percentage 11.2 % 11.3 %
 
Sales volume by product tons (000s) 606 664
Sales volume by nutrient tons (000s)(1) 497 544
 
Average selling price per product ton $ 309 $ 319
Average selling price per nutrient ton(1) 376 390
 
Adjusted gross margin(2):
Gross margin $ 21 $ 24
Depreciation and amortization 29 25
Unrealized net mark-to-market gain on natural gas derivatives   (1 )
Adjusted gross margin $ 50   $ 48  
Adjusted gross margin as a percent of net sales 26.7 % 22.6 %
 
Gross margin per product ton $ 35 $ 36
Gross margin per nutrient ton(1) 42 44
Adjusted gross margin per product ton 83 72
Adjusted gross margin per nutrient ton(1) 101 88
_______________________________________________________________________________
(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 quarter periods:

  • Ammonia sales volume decreased for the first quarter of 2019 compared
    to 2018 as applications were delayed in North America due to cold and
    wet weather.
  • Ammonia average selling prices decreased for the first quarter of 2019
    compared to 2018 due to lower volumes of ammonia for agricultural use
    compared to the prior year.
  • Ammonia adjusted gross margin per ton increased for the first quarter
    of 2019 compared to 2018 due in part to a lower cost for purchased
    product from the company’s joint venture in Trinidad compared to the
    prior year.

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
March 31,
2019   2018
(dollars in millions,

except per ton amounts)

Net sales $ 343 $ 264
Cost of sales 228   189  
Gross margin $ 115   $ 75  
Gross margin percentage 33.5 % 28.4 %
 
Sales volume by product tons (000s) 1,184 982
Sales volume by nutrient tons (000s)(1) 545 452
 
Average selling price per product ton $ 290 $ 269
Average selling price per nutrient ton(1) 629 584
 
Adjusted gross margin(2):
Gross margin $ 115 $ 75
Depreciation and amortization 66 59
Unrealized net mark-to-market loss (gain) on natural gas derivatives 1   (1 )
Adjusted gross margin $ 182   $ 133  
Adjusted gross margin as a percent of net sales 53.1 % 50.4 %
 
Gross margin per product ton $ 97 $ 76
Gross margin per nutrient ton(1) 211 166
Adjusted gross margin per product ton 154 135
Adjusted gross margin per nutrient ton(1) 334 294
_______________________________________________________________________________
(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 quarter periods:

  • Granular urea sales volume increased for the first quarter of 2019
    compared to 2018 from increased production at the company’s
    Donaldsonville and Port Neal facilities due to production mix favoring
    urea.
  • Urea average selling prices improved in the first quarter of 2019
    compared to 2018 due to a tighter global nitrogen supply and demand
    balance than the prior period.
  • Granular urea adjusted gross margin per ton increased for the first
    quarter of 2019 compared to 2018 due primarily to higher average
    selling prices partially offset by higher 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
March 31,
2019   2018
(dollars in millions,

except per ton amounts)

Net sales $ 256 $ 283
Cost of sales 195   230  
Gross margin $ 61   $ 53  
Gross margin percentage 23.8 % 18.7 %
 
Sales volume by product tons (000s) 1,268 1,669
Sales volume by nutrient tons (000s)(1) 396 527
 
Average selling price per product ton $ 202 $ 170
Average selling price per nutrient ton(1) 646 537
 
Adjusted gross margin(2):
Gross margin $ 61 $ 53
Depreciation and amortization 46 63
Unrealized net mark-to-market loss (gain) on natural gas derivatives 1   (1 )
Adjusted gross margin $ 108   $ 115  
Adjusted gross margin as a percent of net sales 42.2 % 40.6 %
 
Gross margin per product ton $ 48 $ 32
Gross margin per nutrient ton(1) 154 101
Adjusted gross margin per product ton 85 69
Adjusted gross margin per nutrient ton(1) 273 218
_______________________________________________________________________________
(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 quarter periods:

  • UAN sales volume for the first quarter of 2019 decreased compared to
    2018 as the application season was delayed due to cold and wet weather.
  • UAN average selling prices improved in the first quarter of 2019
    compared to 2018 due to a tighter global nitrogen supply and demand
    balance than the prior period.
  • UAN adjusted gross margin per ton increased for the first quarter of
    2019 compared to 2018 due primarily to higher average selling prices
    partially offset by higher realized natural gas costs.

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
March 31,
2019   2018
(dollars in millions,

except per ton amounts)

Net sales $ 127 $ 100
Cost of sales 114   74  
Gross margin $ 13   $ 26  
Gross margin percentage 10.2 % 26.0 %
 
Sales volume by product tons (000s) 501 417
Sales volume by nutrient tons (000s)(1) 166 140
 
Average selling price per product ton $ 253 $ 240
Average selling price per nutrient ton(1) 765 714
 
Adjusted gross margin(2):
Gross margin $ 13 $ 26
Depreciation and amortization 22 18
Unrealized net mark-to-market (gain) loss on natural gas derivatives    
Adjusted gross margin $ 35   $ 44  
Adjusted gross margin as a percent of net sales 27.6 % 44.0 %
 
Gross margin per product ton $ 26 $ 62
Gross margin per nutrient ton(1) 78 186
Adjusted gross margin per product ton 70 106
Adjusted gross margin per nutrient ton(1) 211 314
_______________________________________________________________________________
(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 quarter periods:

  • AN sales volume increased for the first quarter of 2019 compared to
    2018 due to an earlier start to spring AN applications in the United
    Kingdom compared to the prior year.
  • AN average selling prices improved for the first quarter of 2019
    compared to 2018 due to a tighter global nitrogen supply and demand
    balance than the prior period.
  • AN adjusted gross margin per ton was lower for the first quarter of
    2019 compared to 2018 as higher average selling prices were more than
    offset by higher costs related to plant maintenance activities.

Other Segment

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

  Three months ended
March 31,
2019   2018
(dollars in millions,

except per ton amounts)

Net sales $ 88 $ 98
Cost of sales 78   86  
Gross margin $ 10   $ 12  
Gross margin percentage 11.4 % 12.2 %
 
Sales volume by product tons (000s) 528 571
Sales volume by nutrient tons (000s)(1) 103 111
 
Average selling price per product ton $ 167 $ 172
Average selling price per nutrient ton(1) 854 883
 
Adjusted gross margin(2):
Gross margin $ 10 $ 12
Depreciation and amortization 17 17
Unrealized net mark-to-market (gain) loss on natural gas derivatives    
Adjusted gross margin $ 27   $ 29  
Adjusted gross margin as a percent of net sales 30.7 % 29.6 %
 
Gross margin per product ton $ 19 $ 21
Gross margin per nutrient ton(1) 97 108
Adjusted gross margin per product ton 51 51
Adjusted gross margin per nutrient ton(1) 262 261
_______________________________________________________________________________
(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 quarter periods:

  • Other segment volume decreased for the first quarter of 2019 primarily
    from lower supply availability of compound fertilizer products for
    sale in the United Kingdom due to plant maintenance issues.
  • Other average selling prices decreased in the first quarter of 2019
    compared to 2018 due to the mix of products sold.
  • Other segment adjusted gross margin per ton was unchanged for the
    first quarter of 2019 compared to 2018.

Dividend Payment

On April 26, 2019, CF Industries’ Board of Directors declared a
quarterly dividend of $0.

Contacts

Media
Chris Close
Director, Corporate Communications
847-405-2542
cclose@cfindustries.com

Investors
Martin
Jarosick
Vice President, Investor Relations
847-405-2045 – mjarosick@cfindustries.com

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