CF Industries Beats on Earnings, Sales Miss - Analyst Blog
November 05 2013 - 12:00PM
Zacks
CF Industries’
(CF) third-quarter 2013 adjusted earnings (excluding one-time
items) of $3.89 per share was down roughly 34% from the year-ago
earnings of $5.85 a share. However, it exceeded the Zacks Consensus
Estimate of $3.84.
Adjusted earnings exclude natural
gas derivative losses and foreign exchange related gains. Including
one-time items, the company earned $4.07 a share in the quarter,
down roughly 36% from $6.35 in the year-ago quarter.
Sales were down 19% to $1,097
million in the quarter from $1,359.4 million in the prior year, and
also missed the Zacks Consensus Estimate of $1,146 million.
The decrease reflects lower
fertilizer prices along with buyer expectations that price will
continue to slide.. Sales also declined due competitive pressure
arising from Chinese nitrogen exports and a change in the selling
price calculation method used for products sold by Canadian
Fertilizers Limited (CFL).
Costs and
Margins
Cost of sales stood at $710.9
million in the reported quarter versus $657.4 million in the
year-ago quarter. Gross profit decreased 45% year over year to
$386.1 million in the quarter. Selling, general and administrative
expenses declined 13.4% to $32.2 million from $36.5 million in the
year-ago quarter. The company reported an operating income of
$385.4 million, down 42.2% from $667.1 million in the prior-year
quarter.
Earnings before interest, taxes,
depreciation and amortization (EBITDA) of $477.7 million in the
quarter represents a 34% fall from $729.1 million in third-quarter
2012. Despite a challenging global fertilizer market and
ground-level global nitrogen prices, EBITDA reflects CF Industries’
competitively strong position on the global nitrogen cost
curve.
Segmental
Performance
Nitrogen
Segment
Sales fell 20% year over year to
$876.3 million in the third quarter, due to lower volume and prices
for major nitrogen products as a result of weak global nitrogen
market. Gross margin declined 44% to $358.4 million due to lower
revenues, higher natural gas costs and a $6 million
market-to-market loss on natural gas derivatives. CF Industries
sold 2.8 million tons of nitrogen products during the third quarter
of 2013 compared with 3 million tons in 2012.
Phosphate
Segment
Sales fell 16% year over year to
$220.7 million. Gross margin declined 56% to $27.7 million due to
lower revenues. Volumes sold in the quarter were 526,000 tons, up
from 517,000 tons a year ago.
Average selling price of diammonium
phosphate (DAP) was $422 and that of monoammonium phosphate (MAP)
was $416, a year-over-year decline of 16.8% and 20.2%,
respectively. The decrease in average selling prices was
attributable to greater supply from Saudi Arabia and China, and
lower global demand, chiefly from India.
Financial
Position
Cash and cash equivalents totaled $2.29 billion as of Sep 30, 2013,
compared with $2.22 billion as of Sep 30, 2012. Long-term debt
stood at $3.1 billion as of Sep 30, 2013, compared with $1.60
billion as of Sep 30, 2012.
Dividend
On Oct 17, 2013, CF Industries’ Board declared a dividend of $1.00
per common share, payable to shareholders of record as of Nov 15,
2013. This dividend will be paid on Nov 29 and represents a 150%
hike over the previous quarterly dividend of 40 cents.
Strategic Agreements
Last month, CF Industries entered into various strategic agreements
with The Mosaic Company (MOS). These agreements
are expected to strengthen CF Industries’ nitrogen centric
programs. CF Industries entered into a deal to sell the entirety of
its phosphate business to Mosaic for a cash consideration of $1.4
billion. The company also entered into a long-term agreement to
supply Mosaic between 600,000 and 800,000 tons of ammonia per year
from its Donaldsonville, La., nitrogen complex beginning in
2017.
CF Industries also entered into an
agreement to provide ammonia to Mosaic from the company’s Point
Lisas Nitrogen Ltd. (PLNL) joint venture following the close of the
phosphate business sale.
Outlook
CF Industries expects to benefit from a number of factors
supporting its growth and cash generation potential. Global
population rise, a shift toward higher protein diets and continued
use of crops as a source of renewable fuels are increasing the need
for grain and plant nutrients.
Though nitrogen demand outlook is positive, the amount of nitrogen
supply available, especially from Chinese producers, is expected to
restrict price opportunities over the remainder of 2013. CF
Industries expects that 92 million acres of corn will be planted in
2014, down from 2013.
For phosphates, the company expects
to be active in the export market as South America is predicted to
be an area of solid demand. Margins in the phosphate business
should be helped by lower input costs for ammonia and sulfur.
The company estimates capital
expenditures for its recently announced capacity expansion projects
at Donaldsonville, La., and Port Neal, Iowa, to be around $600
million in 2013. All other capital expenditures are expected at
roughly $500 million for the year. For 2014, CF Industries
anticipates total capital expenditures to be in a range of $2.5
billion.
CF Industries currently carries a Zacks Rank #3 (Hold).
Other fertilizer companies worth considering are China
Bluechip ADR (CBLUY), and The Scotts Miracle-Gro
Company (SMG). Both hold a Zacks Rank #1 (Strong Buy).
CHINA BLUECHEM (CBLUY): Get Free Report
CF INDUS HLDGS (CF): Free Stock Analysis Report
MOSAIC CO/THE (MOS): Free Stock Analysis Report
SCOTTS MIRCL-GR (SMG): Free Stock Analysis Report
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