Severe Cold, High Maintenance Activity Leads to Challenging Production Environment
Continued Strong Cash Generation
Outlook for Positive North American Spring 2024 Nitrogen Demand, Favorable Energy Spreads
NORTHBROOK, 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, 2024.
Highlights
- First quarter net earnings(1)(2) of $194 million, or $1.03 per diluted share, EBITDA(3) of $488 million, and adjusted EBITDA(3) of $459 million
- Trailing twelve months net cash from operating activities of $2.26 billion and free cash flow(4) of $1.38 billion
- Production outages in the first quarter 2024 due to severe cold and other maintenance events resulted in approximately $75 million higher maintenance expenses than the first quarter of 2023
- Lower ammonia production in the first quarter of 2024 compared to the first quarter of 2023 reduced ammonia available to produce higher-margin upgraded fertilizer products
- Executed a joint development agreement with JERA Co., Inc., Japan’s largest energy company, to explore development of greenfield low-carbon ammonia production capacity in Louisiana
- Commissioning of electrolyzer at Company’s Donaldsonville, Louisiana, facility nearing completion, with start-up of green ammonia production to follow
- Repurchased 4.3 million shares for $347 million during the first quarter of 2024
“The CF Industries team faced a challenging quarter as severe cold in January and some unplanned maintenance disrupted our network significantly,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “However, our team did an outstanding job restoring our operations to normal utilization rates.
“Longer-term, we remain confident in our ability to drive strong cash generation due to a global energy cost structure favorable to our North American-based production network and continued progress on our low-carbon clean energy initiatives. As a result, we believe we will be able to continue to create significant shareholder value from disciplined investments in growth opportunities and returning substantial capital to shareholders.”
Operations Overview
The Company continues to operate safely across its network. As of March 31, 2024, the 12-month rolling average recordable incident rate was 0.36 incidents per 200,000 work hours, significantly better than industry averages.
Gross ammonia production for the first quarter of 2024 was approximately 2.1 million tons compared to 2.4 million tons in the first quarter of 2023 due to the impact of a significant planned turnaround event in the quarter, severe weather in January that caused or contributed to ammonia plant outages, and other unplanned maintenance. This was partially offset by production in the first quarter of 2024 from the Waggaman ammonia production facility, which was not a part of the Company’s network in the first quarter of 2023. The Company incurred approximately $75 million in higher maintenance expenses in the first quarter of 2024 related to plant outages compared to the first quarter of 2023.
Following the disruptions to gross ammonia production in the first quarter of 2024, the Company expects gross ammonia production for the full year 2024 to be approximately 9.8 million tons.
Financial Results Overview
First Quarter 2024 Financial Results
For the first quarter of 2024, net earnings attributable to common stockholders were $194 million, or $1.03 per diluted share, EBITDA was $488 million, and adjusted EBITDA was $459 million. These results compare to first quarter of 2023 net earnings attributable to common stockholders of $560 million, or $2.85 per diluted share, EBITDA of $924 million, and adjusted EBITDA of $866 million.
Net sales in the first quarter of 2024 were $1.47 billion compared to $2.01 billion in the first quarter of 2023. Average selling prices for the first quarter of 2024 were lower than in the first quarter of 2023 as lower global energy costs reduced the global market clearing price required to meet global demand. Sales volumes in the first quarter of 2024 were similar to the first quarter of 2023 as higher ammonia sales volumes due primarily to the addition of contractual commitments served from the recently acquired Waggaman ammonia production facility were offset primarily by lower urea sales volumes due to the reduced availability of ammonia for upgrade and the impact of severe weather that caused urea plant outages.
Cost of sales for the first quarter of 2024 was lower compared to the first quarter of 2023 due to lower realized natural gas costs partially offset by higher maintenance costs.
The average cost of natural gas reflected in the Company’s cost of sales was $3.19 per MMBtu in the first quarter of 2024 compared to the average cost of natural gas in cost of sales of $6.62 per MMBtu in the first quarter of 2023.
Capital Management
Capital Expenditures
Capital expenditures in the first quarter of 2024 were $98 million. Management projects capital expenditures for full year 2024 will be approximately $550 million.
Share Repurchase Program
The Company repurchased 4.3 million shares for $347 million during the first quarter of 2024. Approximately $2.2 billion remains of the current $3 billion share repurchase program.
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 2024 is approximately $79 million.
Nitrogen Market Outlook
Early in the second quarter of 2024, the global nitrogen market moved to a long supply position due to lower-than-expected demand from India and Europe as well as a purchasing pause in North America as unfavorable weather stalled spring field work. In the near-term, management expects global demand to remain resilient, supported by farmer economics and recovering industrial demand, while global nitrogen trade flows adjust for the additional nitrogen supply available for global trade.
- North America: Management expects nitrogen demand for the first half of 2024 to be positive due to approximately 91 million acres of corn expected to be planted in the United States, good soil moisture throughout the U.S. Midwest supporting higher application rates, and constructive farmer economics. The Company forecasts that nitrogen channel inventories for all products will be below average following the spring application season.
- Brazil: Urea consumption in Brazil in 2024 is forecast to increase 3% year-over-year to more than 8.0 million metric tons, supported by improved supply availability and lower global urea prices. Urea imports to Brazil in 2024 are expected to be in the range of 7.0-8.0 million metric tons as domestic production remains limited.
- India: Demand for urea in India is expected to remain strong due to a recovery in rice production and improved weather conditions. Management expects imports of urea to India in 2024 to be in a range of 5.5-6.5 million metric tons as recently revitalized plants and new facilities in the country operate at higher rates.
- Europe: Over 35% of ammonia and 25% of urea capacity were reported in shutdown/curtailment in Europe in March 2024. Management believes that ammonia operating rates and overall domestic nitrogen product output in Europe will remain below historical averages over the long-term given the region’s status as the global marginal producer. As a result, the Company expects nitrogen imports of ammonia and upgraded products to the region to be higher than historical averages.
- China: Management expects urea exports from China to resume in the middle of 2024 following spring applications. Urea exports from China are projected to be approximately 4.0 million metric tons for 2024.
- Trinidad: Ammonia production in Trinidad in recent years has been approximately 1.0 million metric tons lower annually compared to the 2018-2020 average. Management expects ammonia production to remain below average due to anticipated higher natural gas prices and lower natural gas availability in the country for nitrogen producers.
- Russia: Exports of urea from Russia are expected to increase in 2024 due to the start-up of new capacity and the willingness of certain countries to purchase Russian fertilizer, including Brazil and the United States. Exports of ammonia from Russia continue to 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.
Over the near- and medium-terms, significant energy cost differentials between North American producers and high-cost producers in Europe and Asia are expected to persist. As a result, the Company believes the global nitrogen cost curve will remain supportive of strong margin opportunities for low-cost North American producers.
Longer-term, management expects the global nitrogen supply-demand balance to tighten as global nitrogen capacity growth over the next four years is not projected to keep pace with expected global nitrogen demand growth of approximately 1.5% per year for traditional applications and new demand growth for clean energy applications. Global production is expected to be further constrained by continued challenges related to cost and availability of natural gas.
Strategic Initiatives Update
Joint Development Agreement with JERA Co., Inc. to explore development of greenfield low-carbon ammonia capacity
On April 17, 2024, CF Industries Holdings, Inc., and JERA Co., Inc. (JERA), Japan’s largest energy company, announced that they executed a joint development agreement (JDA) to explore the development of greenfield low-carbon ammonia production capacity at CF Industries’ Blue Point Complex in Louisiana.
The JDA will guide JERA and CF Industries’ evaluation of a joint venture agreement to build an approximately 1.4 million metric ton capacity low-carbon ammonia plant. JERA is contemplating a 48% ownership stake in the project as well as an agreement to procure more than 500,000 metric tons of low-carbon ammonia annually to meet demand for low-carbon fuels in Japan. JERA and CF Industries previously had signed a memorandum of understanding to explore a potential joint project development and sales and purchase of low-carbon ammonia. JERA and CF Industries aim to reach a final investment decision on the proposed project within a year for commencing production in 2028.
Evaluation of low-carbon ammonia technologies and global low-carbon demand development
CF Industries, along with its partners, continue to advance front-end engineering and design studies evaluating autothermal reforming (ATR) ammonia production technology and assessing the cost and viability of adding flue gas carbon dioxide capture to a steam methane reforming (SMR) ammonia facility. Both FEED studies are expected to be completed in the second half of 2024.
CF Industries and its partners also expect greater clarity later in 2024 regarding demand for low-carbon ammonia, including the ammonia carbon intensity requirements of offtake partners as well as government incentives and regulatory developments in partners’ local jurisdictions.
Donaldsonville Complex green ammonia project
CF Industries’ green ammonia project at its Donaldsonville Complex in Louisiana, which involves installing an electrolysis system to generate hydrogen from water that will then be supplied to existing ammonia plants to produce ammonia, continues to progress. Green ammonia refers to ammonia produced with hydrogen sourced from an electrolysis process that produces no carbon emissions.
Commissioning activities for the electrolysis system are nearing completion with start-up of green ammonia production to follow. At full capacity, the project will enable the Company to produce approximately 20,000 tons of green ammonia per year. This represents North America’s first commercial-scale green ammonia capacity.
Donaldsonville Complex carbon capture and sequestration project
Engineering activities for the construction of a dehydration and compression unit at CF Industries’ Donaldsonville Complex continue to advance: all major equipment for the facility has been procured, fabrication of the CO2 compressors is proceeding and construction of the cooling tower required for the unit has begun. Once in service, the dehydration and compression unit will enable up to 2 million tons of captured process CO2 to be transported and permanently stored by ExxonMobil. Start-up for the project is scheduled for 2025, at which point CF Industries will be able to produce significant volumes of low-carbon ammonia.
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___________________________________________________ |
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|
(1) |
Certain items recognized during the first quarter of 2024 impacted the Company’s financial results and their comparability to the prior year period. See the table accompanying this release for a summary of these items. |
|
(2) |
Financial results for the first quarter of 2024 include the impact of CF Industries’ acquisition of the Waggaman, Louisiana, ammonia production facility on December 1, 2023. |
|
(3) |
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. |
|
(4) |
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. |
Consolidated Results
|
|
Three months ended March 31, |
||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
|
(dollars in millions, except per share and per MMBtu amounts) |
||||||
|
Net sales |
$ |
1,470 |
|
|
$ |
2,012 |
|
|
Cost of sales |
|
1,061 |
|
|
|
1,149 |
|
|
Gross margin |
$ |
409 |
|
|
$ |
863 |
|
|
Gross margin percentage |
|
27.8 |
% |
|
|
42.9 |
% |
|
|
|
|
|
||||
|
Net earnings attributable to common stockholders |
$ |
194 |
|
|
$ |
560 |
|
|
Net earnings per diluted share |
$ |
1.03 |
|
|
$ |
2.85 |
|
|
|
|
|
|
||||
|
EBITDA(1) |
$ |
488 |
|
|
$ |
924 |
|
|
Adjusted EBITDA(1) |
$ |
459 |
|
|
$ |
866 |
|
|
|
|
|
|
||||
|
Sales volume by product tons (000s) |
|
4,524 |
|
|
|
4,535 |
|
|
|
|
|
|
||||
|
Natural gas supplemental data (per MMBtu): |
|
|
|
||||
|
Natural gas costs in cost of sales(2) |
$ |
2.73 |
|
|
$ |
5.14 |
|
|
Realized derivatives loss in cost of sales(3) |
|
0.46 |
|
|
|
1.48 |
|
|
Cost of natural gas used for production in cost of sales |
$ |
3.19 |
|
|
$ |
6.62 |
|
|
Average daily market price of natural gas Henry Hub (Louisiana) |
$ |
2.43 |
|
|
$ |
2.68 |
|
|
|
|
|
|
||||
|
Unrealized net mark-to-market gain on natural gas derivatives |
$ |
(33 |
) |
|
$ |
(72 |
) |
|
Depreciation and amortization |
$ |
253 |
|
|
$ |
206 |
|
|
Capital expenditures |
$ |
98 |
|
|
$ |
69 |
|
|
|
|
|
|
||||
|
Production volume by product tons (000s): |
|
|
|
||||
|
Ammonia(4) |
|
2,148 |
|
|
|
2,359 |
|
|
Granular urea |
|
959 |
|
|
|
1,211 |
|
|
UAN (32%) |
|
1,631 |
|
|
|
1,598 |
|
|
Ammonium nitrate (AN) |
|
341 |
|
|
|
388 |
|
|
___________________________________________________ |
|
|
(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 March 31, |
||||||
|
|
2024(1) |
|
2023 |
||||
|
|
(dollars in millions, except per ton amounts) |
||||||
|
Net sales |
$ |
402 |
|
|
$ |
424 |
|
|
Cost of sales |
|
337 |
|
|
|
280 |
|
|
Gross margin |
$ |
65 |
|
|
$ |
144 |
|
|
Gross margin percentage |
|
16.2 |
% |
|
|
34.0 |
% |
|
|
|
|
|
||||
|
Sales volume by product tons (000s) |
|
918 |
|
|
|
652 |
|
|
Sales volume by nutrient tons (000s)(2) |
|
753 |
|
|
|
535 |
|
|
|
|
|
|
||||
|
Average selling price per product ton |
$ |
438 |
|
|
$ |
650 |
|
|
Average selling price per nutrient ton(2) |
|
534 |
|
|
|
793 |
|
|
|
|
|
|
||||
|
Adjusted gross margin(3): |
|
|
|
||||
|
Gross margin |
$ |
65 |
|
|
$ |
144 |
|
|
Depreciation and amortization |
|
72 |
|
|
|
31 |
|
|
Unrealized net mark-to-market gain on natural gas derivatives |
|
(12 |
) |
|
|
(21 |
) |
|
Adjusted gross margin |
$ |
125 |
|
|
$ |
154 |
|
|
Adjusted gross margin as a percent of net sales |
|
31.1 |
% |
|
|
36.3 |
% |
|
|
|
|
|
||||
|
Gross margin per product ton |
$ |
71 |
|
|
$ |
221 |
|
|
Gross margin per nutrient ton(2) |
|
86 |
|
|
|
269 |
|
|
Adjusted gross margin per product ton |
|
136 |
|
|
|
236 |
|
|
Adjusted gross margin per nutrient ton(2) |
|
166 |
|
|
|
288 |
|
|
___________________________________________________ |
|
|
(1) |
Financial results for the first quarter of 2024 include the impact of CF Industries’ acquisition of the Waggaman, Louisiana, ammonia production facility on December 1, 2023. |
|
(2) |
Nutrient tons represent the tons of nitrogen within the product tons. |
|
(3) |
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 2024 to first quarter 2023:
- Ammonia sales volume for 2024 increased compared to 2023 due to the addition of contractual commitments served from the recently acquired Waggaman ammonia production facility and spring ammonia applications in North America being pulled into the first quarter of 2024 due to favorable weather.
- Ammonia average selling prices decreased for 2024 compared to 2023 as lower global energy costs reduced the global market clearing price required to meet global demand as well as due to a higher proportion of non-agricultural ammonia sales.
- Ammonia adjusted gross margin per ton decreased for 2024 compared to 2023 due primarily to lower average selling prices and higher maintenance costs partially offset by lower realized 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 March 31, |
||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
|
(dollars in millions, except per ton amounts) |
||||||
|
Net sales |
$ |
407 |
|
|
$ |
611 |
|
|
Cost of sales |
|
253 |
|
|
|
327 |
|
|
Gross margin |
$ |
154 |
|
|
$ |
284 |
|
|
Gross margin percentage |
|
37.8 |
% |
|
|
46.5 |
% |
|
|
|
|
|
||||
|
Sales volume by product tons (000s) |
|
1,092 |
|
|
|
1,323 |
|
|
Sales volume by nutrient tons (000s)(1) |
|
502 |
|
|
|
608 |
|
|
|
|
|
|
||||
|
Average selling price per product ton |
$ |
373 |
|
|
$ |
462 |
|
|
Average selling price per nutrient ton(1) |
|
811 |
|
|
|
1,005 |
|
|
|
|
|
|
||||
|
Adjusted gross margin(2): |
|
|
|
||||
|
Gross margin |
$ |
154 |
|
|
$ |
284 |
|
|
Depreciation and amortization |
|
69 |
|
|
|
79 |
|
|
Unrealized net mark-to-market gain on natural gas derivatives |
|
(9 |
) |
|
|
(20 |
) |
|
Adjusted gross margin |
$ |
214 |
|
|
$ |
343 |
|
|
Adjusted gross margin as a percent of net sales |
|
52.6 |
% |
|
|
56.1 |
% |
|
|
|
|
|
||||
|
Gross margin per product ton |
$ |
141 |
|
|
$ |
215 |
|
|
Gross margin per nutrient ton(1) |
|
307 |
|
|
|
467 |
|
|
Adjusted gross margin per product ton |
|
196 |
|
|
|
259 |
|
|
Adjusted gross margin per nutrient ton(1) |
|
426 |
|
|
|
564 |
|
|
___________________________________________________ |
|
|
(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 2024 to first quarter 2023:
- Granular urea sales volumes for 2024 were lower than 2023 primarily due to reduced availability of ammonia for upgrade and lower supply availability from the impact of severe weather that caused urea plant outages.
- Urea average selling prices decreased for 2024 compared to 2023 as lower global energy costs reduced the global market clearing price required to meet global demand.
- Granular urea adjusted gross margin per ton decreased for 2024 compared to 2023 due primarily to lower average selling prices and the impact of purchased volumes of granular urea to meet customer commitments partially offset by lower 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, |
||||||
|
|
|
2024 |
|
|
|
2023 |
|
|
|
(dollars in millions, except per ton amounts) |
||||||
|
Net sales |
$ |
425 |
|
|
$ |
667 |
|
|
Cost of sales |
|
282 |
|
|
|
346 |
|
|
Gross margin |
$ |
143 |
|
|
$ |
321 |
|
|
Gross margin percentage |
|
33.6 |
% |
|
|
48.1 |
% |
|
|
|
|
|
||||
|
Sales volume by product tons (000s) |
|
1,611 |
|
|
|
1,662 |
|
|
Sales volume by nutrient tons (000s)(1) |
|
509 |
|
|
|
524 |
|
|
|
|
|
|
||||
|
Average selling price per product ton |
$ |
264 |
|
|
$ |
401 |
|
|
Average selling price per nutrient ton(1) |
|
835 |
|
|
|
1,273 |
|
|
|
|
|
|
||||
|
Adjusted gross margin(2): |
|
|
|
||||
|
Gross margin |
$ |
143 |
|
|
$ |
321 |
|
|
Depreciation and amortization |
|
69 |
|
|
|
66 |
|
|
Unrealized net mark-to-market gain on natural gas derivatives |
|
(10 |
) |
|
|
(21 |
) |
|
Adjusted gross margin |
$ |
202 |
|
|
$ |
366 |
|
|
Adjusted gross margin as a percent of net sales |
|
47.5 |
% |
|
|
54.9 |
% |
|
|
|
|
|
||||
|
Gross margin per product ton |
$ |
89 |
|
|
$ |
193 |
|
|
Gross margin per nutrient ton(1) |
|
281 |
|
|
|
613 |
|
|
Adjusted gross margin per product ton |
|
125 |
|
|
|
220 |
|
|
Adjusted gross margin per nutrient ton(1) |
|
397 |
|
|
|
698 |
|
|
___________________________________________________ |
|
|
(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 2024 to first quarter 2023:
- UAN sales volumes for 2024 approximated 2023 sales volumes.
- UAN average selling prices decreased for 2024 compared to 2023 as lower global energy costs reduced the global market clearing price required to meet global demand.
Contacts
Media
Chris Close
Senior Director, Corporate Communications
847-405-2542 – [email protected]
Investors
Darla Rivera
Director, Investor Relations
847-405-2045 – [email protected]
