CF Industries Holdings, Inc. Reports First Quarter 2023 Net Earnings of $560 Million, Adjusted EBITDA of $866 Million
Strong Operational Performance, Energy Spreads Underpin Solid Results
Waggaman Ammonia Facility Purchase to Support Growth, Clean Energy Strategy
MOU with LOTTE CHEMICAL for Clean Ammonia Supply to South Korea
DEERFIELD, Ill.–(BUSINESS WIRE)–CF Industries Holdings, Inc. (NYSE: CF), a leading global manufacturer of hydrogen and nitrogen products, today announced results for the first quarter ended March 31, 2023.
Highlights
- First quarter 2023 net earnings of $560 million(1), or $2.85 per diluted share, EBITDA(2) of $924 million, and adjusted EBITDA(2) of $866 million
- Trailing twelve months net cash from operating activities of $3.41 billion and free cash flow(3) of $2.33 billion
- Signed a definitive asset purchase agreement with Incitec Pivot Limited (IPL) for IPL’s ammonia production complex located in Waggaman, Louisiana
- Executed memorandum of understanding (MOU) with LOTTE CHEMICAL Corporation (LOTTE), South Korea’s leading chemical company, regarding clean ammonia supply into South Korea
- Repurchased more than 1 million shares for $75 million during the first quarter of 2023
“The CF Industries team executed our business well in the first quarter of 2023 as we worked safely, delivered strong operational performance and advanced our clean energy and growth initiatives, including our agreement to buy the Waggaman ammonia production complex,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “Despite downward pressure in the global nitrogen market compared to the unprecedented pricing environment in 2022, industry fundamentals remain positive and forward global energy curves suggest attractive margin opportunities for our cost-advantaged network for the foreseeable future. As a result, we expect to continue to drive strong cash generation, enabling us to create long-term shareholder value through disciplined investments in clean energy, inorganic growth opportunities and returning substantial capital to shareholders.”
Nitrogen Market Outlook
Global nitrogen prices weakened during the first quarter of 2023 as higher global operating rates increased supply availability during a period of low global demand from delayed purchasing in the agriculture sector, high inventory levels in Europe from 2022 imports and lower industrial activity. Global urea prices have risen as demand emerged in April for the spring application season in North America. Longer-term, management expects the global nitrogen supply-demand balance will remain positive, underpinned by agriculture-led demand and forward energy curves that point to wider-than-average energy spreads for LNG-dependent producers in Europe and Asia.
The need to replenish global grains stocks, which has supported high prices for corn, wheat and canola, continues to drive global nitrogen demand. Stocks-to-use ratios remain low for feed grains and oilseeds following lower-than-expected production in 2022. Management believes that it will take at least two years of harvests at trend yield to fully replenish global grains stocks, supporting strong grains plantings and incentivizing nitrogen fertilizer application over this time period.
- North America: The outlook for farm profitability in North America remains strong for all major crops, with futures prices supporting high corn and wheat plantings. The U.S. Department of Agriculture projects 92 million acres of corn and nearly 50 million acres of wheat will be planted in the United States in 2023.
- India: Higher domestic urea operating rates and higher stocks of urea compared to the year before limited tender activity in the first quarter of 2023. Management expects that India will continue to be one of the world’s largest importers of urea in 2023, with frequent urea tenders in the second half of the year despite higher domestic production as the country focuses on achieving its urea inventory goals.
- Brazil: Management expects urea consumption in Brazil in 2023 to remain strong, supported by higher crop prices, expected higher corn planted acres and robust farm incomes. Despite a small increase in domestic production, imports are forecast to continue growing in the medium term in line with increased crop planting.
- Europe: Management expects a higher-than-normal level of nitrogen imports into Europe in 2023 due to continued lower-than-normal ammonia operating rates in the region.
Management expects global trade flows to continue to adjust to market dynamics that have affected global supply availability over the previous 18 months.
- Europe: Management believes that production economics in Europe will remain challenging. While natural gas prices in the region have fallen significantly from the highs of 2022, ammonia plants in Europe remain the global marginal producer with production costs above recent global ammonia spot prices. An estimated 20-30% of European ammonia capacity remains shut down or curtailed. The Company does not expect full ammonia capacity production rates to return in the region during the year, with some facilities continuing to favor importing ammonia in order to manufacture upgraded products.
- China: Urea exports from China from July 2022-March 2023 were well below their 3-year average due to government measures to limit exports and domestic prices that have exceeded international values. Management continues to project urea exports from China will be in a range of 2-3 million metric tons in 2023 under current measures with exports returning to a range of 3-5 million metric tons on an annual basis if government measures limiting exports are loosened.
- Russia: Exports of ammonia from Russia remain lower compared to prior years due to geopolitical disruptions arising from Russia’s invasion of Ukraine and the resulting closure of the ammonia pipeline from Russia to the port of Odessa in Ukraine. Exports of other nitrogen products from Russia are at pre-war levels, with product forced to countries that have not applied sanctions on Russian fertilizer, including Brazil and the United States.
Energy differentials between North America and marginal producers in Europe and Asia remain well above historical levels. Forward energy curves continue to suggest that these wider differentials will persist for an extended period. As a result, the Company believes the global nitrogen cost curve will remain supportive of significant margin opportunities for low-cost North American producers.
Operations Overview
The Company continues to operate safely and efficiently across its network. As of March 31, 2023, the 12-month rolling average recordable incident rate was 0.33 incidents per 200,000 work hours, significantly better than industry benchmarks.
Gross ammonia production for the first quarter of 2023 was approximately 2.4 million tons. The Company expects that gross ammonia production for 2023 will be approximately 9.5 million tons(4).
Financial Results Overview
For the first quarter of 2023, net earnings attributable to common stockholders were $560 million, or $2.85 per diluted share, EBITDA was $924 million, and adjusted EBITDA was $866 million. These results compare to first quarter 2022 net earnings attributable to common stockholders of $883 million, or $4.21 per diluted share, EBITDA of $1.68 billion, and adjusted EBITDA of $1.65 billion.
Net sales in the first quarter of 2023 were $2.01 billion compared to $2.87 billion in 2022. Average selling prices for 2023 were lower than 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates. Sales volumes in the first quarter of 2023 were lower than 2022 as lower UAN, ammonia and AN sales volumes were partially offset by higher granular urea sales volumes.
Cost of sales for the first quarter of 2023 was similar to 2022 as higher natural gas costs due primarily to the impact of realized derivatives were offset by the impact of lower sales volumes.
The average cost of natural gas reflected in the Company’s cost of sales was $6.62 per MMBtu in the first quarter of 2023 compared to the average cost of natural gas in cost of sales of $6.48 per MMBtu in the first quarter of 2022.
Capital Management
Capital Expenditures
Capital expenditures in the first quarter 2023 were $69 million. Management projects capital expenditures for full year 2023 will be in the range of $500-$550 million.
Share Repurchase Programs
The Company repurchased more than 1 million shares for $75 million during the first quarter of 2023. At the end of the quarter, approximately $80 million remained under the $1.5 billion share repurchase authorization that went into effect January 1, 2022, and is effective through the end of 2024. A $3 billion share repurchase program, which was authorized in November 2022 by the Board of Directors of CF Industries Holdings, Inc., will commence upon the completion of the current share repurchase program and is effective through the end of 2025.
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 2023 is approximately $110 million.
Strategic Initiatives
Agreement to Purchase Waggaman, Louisiana, Ammonia Production Complex
On March 20, 2023, CF Industries Holdings, Inc. announced that it had signed a definitive asset purchase agreement with IPL for its ammonia production complex located in Waggaman, Louisiana. Under the terms of the agreement, CF Industries will purchase the Waggaman ammonia plant and related assets for $1.675 billion, subject to adjustment. The companies will allocate $425 million of the purchase price to a long-term ammonia offtake agreement to IPL’s Dyno Nobel subsidiary. CF Industries expects to fund the remaining $1.25 billion of the purchase price, subject to adjustment, with cash on hand.
The transaction remains subject to the receipt of certain regulatory approvals and other customary closing conditions.
Clean Energy Initiatives
CF Industries continues to advance its plans to support the global hydrogen and clean fuel economy, which is expected to grow significantly over the next decade, through the production of blue ammonia (ammonia produced with the corresponding carbon dioxide (CO2) byproduct removed through carbon capture and sequestration) and green ammonia (ammonia produced from carbon-free sources).
- Memorandum of Understanding with JERA Co., Inc.: On January 17, 2023, CF Industries announced that it had signed an MOU with JERA Co., Inc., regarding the supply of up to 500,000 metric tons per year of clean ammonia beginning in 2027. The companies expect to evaluate a range of potential supply options, including an equity investment alongside CF Industries to develop a clean ammonia facility in Louisiana and a supplementary long-term offtake agreement.
- Memorandum of Understanding with LOTTE: On February 27, 2023, CF Industries announced that it had entered into an MOU with LOTTE to assess the joint development of and investment in a greenfield clean ammonia production facility in the U.S. and quantify expected clean ammonia demand in South Korea.
- Proposed Joint Venture with Mitsui & Co., Ltd. at CF Industries’ Blue Point Complex: CF Industries and Mitsui & Co., Ltd. (Mitsui) continue to progress a front-end engineering and design (FEED) study, which is being conducted by thyssenkrupp UHDE, for their proposed joint venture to construct an export-oriented blue ammonia facility in Louisiana. CF Industries and Mitsui expect to make a final investment decision on the proposed facility in the second half of 2023. Construction and commissioning of a new world-scale ammonia plant typically takes approximately 4 years from that point.
- Donaldsonville Complex Blue Ammonia Project: Engineering activities for the construction of a dehydration and compression unit at the Donaldsonville Complex continue to advance, procurement of major equipment for the facility is in progress, and fabrication of the CO2 compressors has begun. Once in service, the dehydration and compression unit will enable up to 2 million tons of process CO2 to be transported and stored by ExxonMobil. Start-up for the project is scheduled for 2025.
- Donaldsonville Green Ammonia Project: The Donaldsonville green ammonia project, which involves installing an electrolysis system at the Donaldsonville Complex to generate carbon-free hydrogen from water that will then be supplied to existing ammonia plants to produce green ammonia, continues to progress. Major equipment is being fabricated and site work is ongoing for installation of the new electrolyzer unit and integration into Donaldsonville’s existing operations. Once complete, the project will enable the Company to produce approximately 20,000 tons of green ammonia per year.
- Evaluation of Green Hydrogen/Ammonia Debottleneck Project at Verdigris Complex: CF Industries and NextEra Energy Resources, LLC, have signed an MOU under which the companies are evaluating a joint venture to develop a zero-carbon intensity (green) hydrogen project at CF Industries’ Verdigris Complex in Oklahoma, which would include debottlenecking the site’s ammonia plants. The proposed project was included in the funding application submitted to the U.S. Department of Energy (DOE) in April by the HALO Hydrogen Hub, a three-state partnership established by Arkansas, Louisiana and Oklahoma to compete for funding from the DOE’s regional clean hydrogen hub program. CF Industries and NextEra Energy Resources anticipate that support for the project from the DOE program will be a key aspect of their evaluation process. A final investment decision has not been made for this project.
______________________________________________________ | |
(1) |
Certain items recognized during the first quarter of 2023 impacted our financial results and their comparability to the prior year period. 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 interest. See reconciliation of free cash flow to the most directly comparable GAAP measure in the table accompanying this release. |
(4) |
Gross ammonia production volumes for 2023 could be higher or lower than 9.5 million tons depending on ammonia operating rates at the Company’s Billingham Complex. |
Consolidated Results
|
Three months ended |
||||||
|
2023 |
|
2022 |
||||
|
(dollars in millions, except per |
||||||
Net sales |
$ |
2,012 |
|
|
$ |
2,868 |
|
Cost of sales |
|
1,149 |
|
|
|
1,170 |
|
Gross margin |
$ |
863 |
|
|
$ |
1,698 |
|
Gross margin percentage |
|
42.9 |
% |
|
|
59.2 |
% |
|
|
|
|
||||
Net earnings attributable to common stockholders |
$ |
560 |
|
|
$ |
883 |
|
Net earnings per diluted share |
$ |
2.85 |
|
|
$ |
4.21 |
|
|
|
|
|
||||
EBITDA(1) |
$ |
924 |
|
|
$ |
1,675 |
|
Adjusted EBITDA(1) |
$ |
866 |
|
|
$ |
1,648 |
|
|
|
|
|
||||
Tons of product sold (000s) |
|
4,535 |
|
|
|
4,624 |
|
|
|
|
|
||||
Natural gas supplemental data (per MMBtu): |
|
|
|
||||
Natural gas costs in cost of sales(2) |
$ |
5.14 |
|
|
$ |
6.70 |
|
Realized derivatives loss (gain) in cost of sales(3) |
|
1.48 |
|
|
|
(0.22 |
) |
Cost of natural gas used for production in cost of sales |
$ |
6.62 |
|
|
$ |
6.48 |
|
Average daily market price of natural gas Henry Hub (Louisiana) |
$ |
2.68 |
|
|
$ |
4.60 |
|
Average daily market price of natural gas National Balancing Point (United Kingdom) |
$ |
16.20 |
|
|
$ |
30.20 |
|
|
|
|
|
||||
Unrealized net mark-to-market gain on natural gas derivatives |
$ |
(72 |
) |
|
$ |
(33 |
) |
Depreciation and amortization |
$ |
206 |
|
|
$ |
208 |
|
Capital expenditures |
$ |
69 |
|
|
$ |
63 |
|
|
|
|
|
||||
Production volume by product tons (000s): |
|
|
|
||||
Ammonia(4) |
|
2,359 |
|
|
|
2,613 |
|
Granular urea |
|
1,211 |
|
|
|
1,074 |
|
UAN (32%) |
|
1,598 |
|
|
|
1,865 |
|
AN |
|
388 |
|
|
|
405 |
|
____________________________________________________________________________ | |
(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 used for production and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method. Excludes unrealized mark-to-market gains and losses on natural gas derivatives. |
(3) |
Includes realized gains and losses on natural gas derivatives settled during the period. |
(4) |
Gross ammonia production, including amounts subsequently upgraded on-site into granular urea, UAN, or AN |
Ammonia Segment
CF Industries’ ammonia segment produces anhydrous ammonia (ammonia), which is the base product that the Company manufactures, containing 82 percent nitrogen and 18 percent hydrogen. The results of the ammonia segment consist of sales of ammonia to external customers for its nitrogen content as a fertilizer, in emissions control and in other industrial applications. In addition, the Company upgrades ammonia into other nitrogen products such as urea, UAN and AN.
|
Three months ended |
||||||
|
2023 |
|
2022 |
||||
|
(dollars in millions, |
||||||
Net sales |
$ |
424 |
|
|
$ |
640 |
|
Cost of sales |
|
280 |
|
|
|
280 |
|
Gross margin |
$ |
144 |
|
|
$ |
360 |
|
Gross margin percentage |
|
34.0 |
% |
|
|
56.3 |
% |
|
|
|
|
||||
Sales volume by product tons (000s) |
|
652 |
|
|
|
727 |
|
Sales volume by nutrient tons (000s)(1) |
|
535 |
|
|
|
596 |
|
|
|
|
|
||||
Average selling price per product ton |
$ |
650 |
|
|
$ |
880 |
|
Average selling price per nutrient ton(1) |
|
793 |
|
|
|
1,074 |
|
|
|
|
|
||||
Adjusted gross margin(2): |
|
|
|
||||
Gross margin |
$ |
144 |
|
|
$ |
360 |
|
Depreciation and amortization |
|
31 |
|
|
|
34 |
|
Unrealized net mark-to-market gain on natural gas derivatives |
|
(21 |
) |
|
|
(8 |
) |
Adjusted gross margin |
$ |
154 |
|
|
$ |
386 |
|
Adjusted gross margin as a percent of net sales |
|
36.3 |
% |
|
|
60.3 |
% |
|
|
|
|
||||
Gross margin per product ton |
$ |
221 |
|
|
$ |
495 |
|
Gross margin per nutrient ton(1) |
|
269 |
|
|
|
604 |
|
Adjusted gross margin per product ton |
|
236 |
|
|
|
531 |
|
Adjusted gross margin per nutrient ton(1) |
|
288 |
|
|
|
648 |
|
________________________________________________________________________________ | |
(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. 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 first quarter 2023 to first quarter 2022:
- Ammonia sales volume for 2023 decreased compared to 2022 due primarily to lower demand compared to a robust ammonia sales environment in the first quarter of 2022.
- Ammonia average selling prices decreased for 2023 compared to 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates.
- Ammonia adjusted gross margin per ton decreased for 2023 compared to 2022 due to lower average selling prices and the impact of realized derivatives on 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 |
||||||
|
2023 |
|
2022 |
||||
|
(dollars in millions, |
||||||
Net sales |
$ |
611 |
|
|
$ |
765 |
|
Cost of sales |
|
327 |
|
|
|
270 |
|
Gross margin |
$ |
284 |
|
|
$ |
495 |
|
Gross margin percentage |
|
46.5 |
% |
|
|
64.7 |
% |
|
|
|
|
||||
Sales volume by product tons (000s) |
|
1,323 |
|
|
|
1,096 |
|
Sales volume by nutrient tons (000s)(1) |
|
608 |
|
|
|
504 |
|
|
|
|
|
||||
Average selling price per product ton |
$ |
462 |
|
|
$ |
698 |
|
Average selling price per nutrient ton(1) |
|
1,005 |
|
|
|
1,518 |
|
|
|
|
|
||||
Adjusted gross margin(2): |
|
|
|
||||
Gross margin |
$ |
284 |
|
|
$ |
495 |
|
Depreciation and amortization |
|
79 |
|
|
|
64 |
|
Unrealized net mark-to-market gain on natural gas derivatives |
|
(20 |
) |
|
|
(7 |
) |
Adjusted gross margin |
$ |
343 |
|
|
$ |
552 |
|
Adjusted gross margin as a percent of net sales |
|
56.1 |
% |
|
|
72.2 |
% |
|
|
|
|
||||
Gross margin per product ton |
$ |
215 |
|
|
$ |
452 |
|
Gross margin per nutrient ton(1) |
|
467 |
|
|
|
982 |
|
Adjusted gross margin per product ton |
|
259 |
|
|
|
504 |
|
Adjusted gross margin per nutrient ton(1) |
|
564 |
|
|
|
1,095 |
|
________________________________________________________________________________ | |
(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. 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 first quarter 2023 to first quarter 2022:
- Granular urea sales volume increased for 2023 compared to 2022 due to greater supply availability from higher production.
- Urea average selling prices decreased for 2023 compared to 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates.
- Granular urea adjusted gross margin per ton decreased for 2023 compared to 2022 primarily due to lower average selling prices.
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 |
||||||
|
2023 |
|
2022 |
||||
|
(dollars in millions, |
||||||
Net sales |
$ |
667 |
|
|
$ |
1,015 |
|
Cost of sales |
|
346 |
|
|
|
345 |
|
Gross margin |
$ |
321 |
|
|
$ |
670 |
|
Gross margin percentage |
|
48.1 |
% |
|
|
66.0 |
% |
|
|
|
|
||||
Sales volume by product tons (000s) |
|
1,662 |
|
|
|
1,828 |
|
Sales volume by nutrient tons (000s)(1) |
|
524 |
|
|
|
576 |
|
|
|
|
|
||||
Average selling price per product ton |
$ |
401 |
|
|
$ |
555 |
|
Average selling price per nutrient ton(1) |
|
1,273 |
|
|
|
1,762 |
|
|
|
|
|
||||
Adjusted gross margin(2): |
|
|
|
||||
Gross margin |
$ |
321 |
|
|
$ |
670 |
|
Depreciation and amortization |
|
66 |
|
|
|
70 |
|
Unrealized net mark-to-market gain on natural gas derivatives |
|
(21 |
) |
|
|
(8 |
) |
Adjusted gross margin |
$ |
366 |
|
|
$ |
732 |
|
Adjusted gross margin as a percent of net sales |
|
54.9 |
% |
|
|
72.1 |
% |
|
|
|
|
||||
Gross margin per product ton |
$ |
193 |
|
|
$ |
367 |
|
Gross margin per nutrient ton(1) |
|
613 |
|
|
|
1,163 |
|
Adjusted gross margin per product ton |
|
220 |
|
|
|
400 |
|
Adjusted gross margin per nutrient ton(1) |
|
698 |
|
|
|
1,271 |
|
________________________________________________________________________________ | |
(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. 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. |
Contacts
Media
Chris Close
Director, Corporate Communications
847-405-2542 – cclose@cfindustries.com
Investors
Darla Rivera
Director, Investor Relations
847-405-2045 – darla.rivera@cfindustries.com