CF Industries Best-Ever Net Income of $135.4 Million, or $2.38 per Diluted Common Share, for Fourth Quarter 2007
(No other sector has better growth and visibility going into 2008, FERTILIZER ROCKS! Kipp)
Thursday February 7, 4:40 pm ET
Strong Operating Performance Capitalized on Robust Demand and Delivered Substantial Increases in Volumes, Sales, and Earnings
Company Announces Increase in Regular Quarterly Dividend to $0.10
DEERFIELD, Ill.--(BUSINESS WIRE)--CF Industries Holdings, Inc. (NYSE: CF - News):
Fourth Quarter Highlights:
Sales and net income highest for any quarter since company’s August 2005 IPO
Net sales rose to $852.5 million, up 62 percent from fourth quarter 2006, driven by substantially higher prices and increased nitrogen volumes
Operating earnings totaled $214.2 million, compared to $10.9 million in fourth quarter 2006
Net income totaled $135.4 million, or $2.38 per diluted share, compared to $8.0 million, or $0.14 per share, in fourth quarter 2006
Fourth quarter results included $12.9 million in non-cash, pre-tax unrealized gains, or $0.15 per diluted share on an after-tax basis, from mark-to-market adjustments on natural gas derivatives. The gains compare to $9.4 million in non-cash, pre-tax unrealized losses, or $0.10 per diluted share on an after-tax basis, for mark-to-market adjustments included in fourth quarter 2006 results
Full-Year Highlights:
Improved pricing and volumes pushed net sales to nearly $2.76 billion, up 36 percent from $2.03 billion in 2006
Net earnings totaled $372.7 million, or $6.57 per diluted share, up substantially from $33.3 million, or $0.60 per diluted share, in 2006
Full-year results included $17.0 million in non-cash, pre-tax unrealized gains, or $0.19 per diluted share on an after-tax basis, from mark-to-market adjustments on natural gas derivatives. The gains compare to $30.7 million in non-cash, pre-tax unrealized losses, or $0.34 per diluted share on an after-tax basis, for mark-to-market adjustments included in 2006 results
Dividend Increase
Board approves increase in regular quarterly dividend to $0.10, up from $0.02 per share
Outlook:
Record grain prices and robust worldwide demand for fertilizer point to strong spring season
Company’s forward bookings substantially higher than levels a year ago
CF Industries Holdings, Inc. (NYSE: CF - News) today reported net earnings of $135.4 million, or $2.38 per diluted share, for the fourth quarter of 2007. The earnings, highest for any quarter since the company’s August 2005 Initial Public Offering (IPO), compare to net earnings of $8.0 million, or $0.14 per diluted share, in 2006’s fourth quarter.
Net sales totaled nearly $852.5 million for the quarter, a 62 percent increase compared to the year-earlier quarter and also the highest ever for any quarter since the IPO. Gross margin increased more than five-fold from the fourth quarter 2006 level to $236.0 million.
“I’m extremely pleased by the results we delivered for both the fourth quarter and the year. Strong domestic and international grain markets have produced exceptionally high global demand for fertilizer. Tightness in this demand-driven market pushed fertilizer prices sharply higher for all of our products. In this environment, effective execution of our operating and sales plans delivered our best-ever public company sales and earnings performance,” commented Stephen R. Wilson, chairman and chief executive officer, CF Industries Holdings, Inc.
“The weather cooperated perfectly during the fall season, and the combination of good levels of fall fertilizer application and normal customer inventory stocking for the spring season helped us ship nearly 2.5 million tons of nitrogen and phosphate fertilizer during the fourth quarter, almost 170,000 tons more than in the year-earlier quarter,” Wilson added.
Pricing for nitrogen and phosphate products reflected these favorable market conditions, as average selling prices improved substantially both from year-earlier levels and from those in 2007’s excellent third quarter.
Nitrogen Fertilizer Business
Fourth quarter 2007 saw strong volumes and sales for all of the company’s nitrogen products, as a combination of a robust fall ammonia application season and customer inventory building for expected spring planting pushed demand and pricing to high levels.
Net sales for nitrogen totaled $630.7 million, up 58 percent from $399.3 million in fourth quarter 2006. During the quarter, the company sold nearly 1.93 million tons of nitrogen fertilizer, up 10 percent from the nearly 1.75 million tons in 2006’s fourth quarter.
Gross margin on nitrogen sales was $153.1 million for the quarter, up significantly from the $31.8 million in the year-earlier period and $80.2 million in third quarter 2007. In 2007, fourth quarter nitrogen gross margin represented 24.3 percent of sales, up from both the 8.0 percent reported in the year-earlier period and 20.6 percent in 2007’s third quarter.
Product prices increased substantially for all of the company’s nitrogen products compared to both the fourth quarter of 2006 and the third quarter of 2007. The average selling price for ammonia was $410 per ton in the fourth quarter, up from $314 in the year-earlier period and $370 in 2007’s third quarter. For urea, the average selling price was $357 per ton, up from $239 in 2006’s fourth quarter and $334 in 2007’s third quarter. For urea ammonium nitrate solution (UAN), the average selling price was $239 per ton, up from $162 in the year-earlier period and $230 in 2007’s third quarter.
The impact of stronger nitrogen selling prices was partially offset by higher purchased product and realized natural gas costs. Purchased product costs were driven by an increased level of sales volume supported by purchases as well as by higher nitrogen fertilizer prices.
During the fourth quarter, CF Industries completed a turnaround on an ammonia plant at its Donaldsonville nitrogen complex, which included installation of a distributed control system and improvements to reduce natural gas consumption. The company’s two nitrogen complexes operated at 96 percent of capacity during the quarter.
“Maintaining high operating rates, coupled with the ability of our extensive distribution system to move high volumes of fertilizer quickly and efficiently, were important factors in delivering the nitrogen segment’s excellent fourth quarter performance,” CF Industries’ Wilson explained.
“The very strong fall ammonia season was largely concentrated in the month of November, and our ammonia logistics and distribution system met the challenge, effectively meeting customer needs in a compressed season,” he added.
Nitrogen sales under CF Industries’ Forward Pricing Program (FPP) totaled 1.53 million tons during the fourth quarter and accounted for 80 percent of segment sales. These totals were up substantially from 770,000 tons and 44 percent sold under the FPP during the 2006 fourth quarter.
For calendar year 2007, total nitrogen sales were $2.04 billion, up substantially from $1.52 billion in 2006. Volume totaled 6.94 million tons, up 10 percent from 6.31 million in 2006. Gross margin was $446.8 million, up substantially from $98.5 million in 2006. Additional full-year statistics are found on the attached Nitrogen Fertilizer Business segment data table.
Phosphate Fertilizer Business
In the fourth quarter, the company’s phosphate fertilizer business recorded substantial increases in average selling prices, sales, and gross margin compared to the year-earlier period, reflecting the tight worldwide supply/demand balance for phosphate.
Net sales totaled $221.8 million, up 75 percent from $127.1 million in the year-earlier quarter. Sales volume of 526,000 tons was comparable to the 537,000 tons sold in the 2006 fourth quarter.
Gross margin on phosphate sales was $82.9 million, up substantially from $11.1 million in fourth quarter 2006 and from third quarter 2007, when gross margin was $71.1 million. Gross margin represented 37.4 percent of sales, improved from 8.7 percent in the year-earlier quarter and 36.6 percent in this year’s third quarter.
Prices for phosphate products increased substantially, with diammonium phosphate (DAP) at $420 per ton, compared to $235 in the fourth quarter of 2006 and $388 in 2007’s third quarter, and monoammonium phosphate (MAP) at $431 per ton, compared to $243 in the year-earlier quarter and $403 in 2007’s third quarter. The impact of higher phosphate fertilizer prices was somewhat offset by increased sulfur and phosphate rock costs.
The company’s Plant City Phosphate Complex operated at 102 percent of rated capacity during the fourth quarter. “As in nitrogen, our excellent operating performance took good advantage of the strongest global demand for phosphate in recent memory,” Wilson noted.
Phosphate fertilizer sales under the company’s FPP totaled 206,000 tons, representing 39 percent of total phosphate volume. In 2006’s fourth quarter, FPP sales were 64,000 tons, or 12 percent of the quarter’s total segment sales.
For calendar year 2007, total phosphate sales were $714.8 million, up substantially from $511.0 million in 2006. Volume totaled 2.0 million tons, down modestly from 2.1 million tons in 2006. Gross margin was $223.2 million, also up substantially from $48.7 million in 2006. Additional full-year statistics are found on the attached Phosphate Fertilizer Business segment data table.
Liquidity and Financial Position
At December 31, 2007, the company’s cash, cash equivalents, and short-term investments totaled $861.0 million, and its negative net debt (i.e., net cash) defined as total debt minus cash, cash equivalents and short-term investments, plus customer advances totaled $550.3 million. At December 31, 2006, the company reported cash, cash equivalents, and short-term investments of $325.6 million and negative net debt (net cash) of $218.7 million.
Dividend Increase
Earlier this week the company’s Board of Directors approved an increase in the regular quarterly dividend from $0.02 to $0.10 per common share. The dividend will be paid on February 29, 2008 to stockholders of record on February 22, 2008.
Mark-to-Market and ARO Impacts
The company’s reported results for the fourth quarters of 2007 and 2006 and for both full years include certain items that affected comparability.
Fourth quarter 2007 results included $12.9 million in non-cash, pre-tax unrealized gains, or $0.15 per diluted share on an after-tax basis, from mark-to-market adjustments. This compares to $9.4 million in non-cash, pre-tax unrealized losses, representing $0.10 per diluted share on an after-tax basis, in 2006’s fourth quarter. Mark-to-market adjustments on natural gas derivatives are included in the company’s nitrogen segment gross margin.
The company conducts periodic reviews of its asset retirement obligations (AROs) to ascertain whether changes have occurred in cost estimates that impact the magnitude of the liability. Operating earnings in the fourth quarter of 2007 included a non-cash charge of $0.7 million for adjustments to AROs equivalent to $0.01 per diluted share on an after-tax basis. This compares to a $20.3 million non-cash charge in the fourth quarter of 2006 for adjustments to AROs. The $20.3 million charge in 2006, equivalent to $0.22 per diluted share on an after-tax basis, was primarily related to revised cost estimates for water treatment, storm water management, phosphogypsum stack closure costs, and demolition costs at the company’s closed Bartow, Florida phosphate complex.
For full year 2007, results include $17.0 million in non-cash, pre-tax unrealized gains, or $0.19 per diluted share on an after-tax basis, from mark-to-market adjustments on natural gas derivatives. This compares to $30.7 million in non-cash, pre-tax unrealized losses on natural gas derivatives, representing $0.34 per diluted share on an after-tax basis, in 2006.
Other Fourth Quarter Developments
As previously announced, in October of 2007 CF Industries completed its acquisition of a 50 percent interest in KEYTRADE AG, a global fertilizer trading company headquartered near Zurich, Switzerland for $25.9 million. The company also acquired certain non-voting preferred shares of KEYTRADE for $0.9 million and contributed an additional $12.8 million in subordinated financing. In December, KEYTRADE became the exclusive marketer of CF Industries’ phosphate fertilizer exports. Results for KEYTRADE are included in “Equity in earnings of unconsolidated affiliates-net of taxes.”
In November, the company announced that it had received notification that its bid for a natural gas supply from Perú’s Camisea gas fields had been accepted.
Safety Performance
CF Industries completed the fourth quarter without a lost-time accident (LTA) at any of its facilities.
“This achievement, during a quarter when our facilities were operating at high levels to meet customer demand, reflects our commitment to the safety and well-being of our employees,” Wilson commented, noting that the no-LTA streak has continued into the first quarter of 2008.
Strategic Update
The company also provided updates on a number of strategic initiatives.
Uranium Enrichment: NUKEM, Inc., the company’s marketing partner in a proposed venture to supply uranium oxide (U3O8) to electrical utilities, has made progress in identifying supply contracts with utilities at prices that should support project economics. CF Industries and NUKEM are currently negotiating a partnership agreement to construct an extraction facility at the company’s Plant City Phosphate Complex in Florida to produce approximately 900,000 pounds of U3O8 annually from the complex’s phosphoric acid stream. Permitting and construction of the facility, which would use proven technology, could require several years.
Perú Nitrogen Complex: CF Industries is moving ahead on a number of fronts on its proposed venture to build a world-scale ammonia and urea complex in Perú to serve markets in that nation and in Central and South American countries. The company currently is negotiating a gas contract term sheet, evaluating potential sites, and analyzing technology options, as well as working with the Peruvian government on a variety of project development matters.
Gasification: The company has completed the pre-FEED (Front End Engineering and Development) study on a proposed gasification project at its Donaldsonville, Louisiana nitrogen complex. The preliminary cost of the design upon which the pre-FEED study was done was substantially higher than expected. Consequently, the company is currently investigating alternative design configurations and technologies to improve the economics of the project.
Trinidad Joint Venture: The term sheet for the natural gas contract to support a proposed joint venture nitrogen complex in Trinidad expired on December 31, 2007. CF Industries and its partners in the project have previously reported that the inability to obtain a suitable site in Trinidad made proceeding on the project unlikely. The partners have requested that the government of the Republic of Trinidad and Tobago extend the term sheet but, to date, the government has not agreed to an extension.
Outlook
“Looking to the spring planting season, the fundamentals that drove our strong 2007 performance look even better for the farm economy and the company in 2008,” CF Industries’ Wilson noted.
“Prices for most major crops remain at record or near-record levels, providing an incentive for farmers to maximize planted acreage and to optimize fertilizer application this spring. And despite today’s high fertilizer prices, these crop prices clearly should support excellent farm economics in 2008, coming on the heels of 2007’s record farm income,” he commented.
Predictions from some agricultural economists point toward lower corn acreage in 2008, with expectations generally for 88 million to 89 million acres, down from the near-record 93.6 million acres planted in 2007. Putting that into perspective, the planned acreage would still be well above the 79.1 million acre average planted during the 1997-2006 period.
Wilson also noted that the United States Department of Agriculture is predicting increased acreage for other nitrogen-consuming crops such as wheat and sorghum in 2008. Both crops are enjoying strong prices, and increased acreage for them could reduce any negative effect on nitrogen demand caused by the expected reduction in corn acreage. Strong crop prices are also expected to push up nitrogen application rates for corn and other crops as farmers attempt to maximize yields.
Wilson added that corn demand for ethanol production is expected to increase by 30 percent from 2007 levels this year, with much of the increase required to meet federal mandates under the Renewable Fuels Standard. Margins on ethanol production are currently below the record levels achieved last year, but they remain positive.
In phosphate, the worldwide supply/demand balance is expected to remain extremely tight over the next several years, suggesting strong demand and pricing for phosphate fertilizers.
CF Industries, along with other phosphate producers, is facing significantly increased input costs, especially for sulfur. Increased sulfur demand from the phosphate and metals industries, coupled with outages at several major Gulf Coast refineries that produce sulfur, have tightened the market. The company believes the supply/demand balance for sulfur could become more favorable to users later in 2008 when refineries are expected to be producing sulfur at higher rates.
“Looking ahead to the first half of 2008, questions remain regarding corn acreage, sulfur cost, and the strength of the general economy. However, taken against the backdrop of low grain stocks worldwide, high grain prices, record farm economics, and robust global markets for nitrogen and phosphate fertilizers, we’re looking at the first half of 2008 with excitement and optimism. We’re well positioned to serve our customers in this strong agricultural market,” Wilson added.
As in any year, weather, natural gas costs, and other factors could affect the company’s performance.
FPP Update
As of February 5, 2008, FPP bookings for the remainder of 2008 stood at 2.6 million tons, compared to 1.9 million tons at the comparable point last year.
Conference Call
CF Industries will hold a conference call to discuss fourth quarter and 2007 results at 10:00 a.m. EST on Friday, February 8, 2008. Investors can access the call through the Investor Relations section of the company’s Web site (www.cfindustries.com), as well as find call-in information there.
Company Information
CF Industries Holdings, Inc., headquartered in Deerfield, Illinois, is the holding company for the operations of CF Industries, Inc. CF Industries, Inc. is a major producer and distributor of nitrogen and phosphate fertilizer products. CF Industries operates world-scale nitrogen fertilizer plants in Donaldsonville, Louisiana and Medicine Hat, Alberta, Canada; conducts phosphate mining and manufacturing operations in Central Florida; and distributes fertilizer products through a system of terminals, warehouses, and associated transportation equipment located primarily in the midwestern United States. The company also owns a 50 percent interest in KEYTRADE AG, a global fertilizer trading organization headquartered near Zurich, Switzerland.
