Nitrogen fertilizer producer CF Industries Holdings, Inc. reports first half 2022 net earnings of $2.05 billion, adjusted EBITDA of $3.60 billion

CF Industries Holdings, Inc. (NYSE: CF), a leading global manufacturer of hydrogen and nitrogen products, announced results for the first half and second quarter ended June 30, 2022.

Highlights

• First half net earnings of $2.05 billion⁽¹⁾, or $9.78 per diluted share and EBITDA⁽²⁾ of $3.47 billion, which include the impact of pre-tax restructuring charges of $162 million related to the Company’s UK operations; adjusted EBITDA⁽²⁾ of $3.60 billion

• Second quarter net earnings of $1.17 billion⁽¹⁾, or $5.58 per diluted share, and EBITDA⁽²⁾ of $1.80 billion, which include the impact of pre-tax restructuring charges of $162 million related to the Company’s UK operations; adjusted EBITDA⁽²⁾ of $1.95 billion

• Trailing twelve months net cash from operating activities of $4.45 billion, free cash flow⁽³⁾ of $3.61 billion

• Repurchased approximately 6.6 million shares for $590 million during the first half of 2022

• CF Industries and Mitsui & Co., Ltd. have signed a joint development agreement for the companies’ proposed export-oriented greenfield ammonia production facility in the United States to produce blue ammonia

″The CF Industries team delivered a strong operational performance and leveraged our manufacturing and logistics flexibility to drive outstanding results in the first half of 2022, despite weather-related challenges during the North American planting and fertilizer application season,″ said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. ″We continue to believe it will take several years to replenish global grains stocks, underscoring the critical role CF Industries plays supplying nutrients to farmers around the world during a period when marginal producers in Europe and Asia face production curtailments due to historically high natural gas prices.″

Nitrogen Market Outlook

Management expects the global nitrogen supply-demand balance to remain tight for the foreseeable future, underpinned by resilient agricultural-led demand and uncertainty about global production and export supply availability. Additionally, energy spreads between low-cost producers and marginal production in Europe and Asia are projected to remain historically wide.

The need to replenish global grains stocks is expected to support continued positive demand for nitrogen products. Based on U.S. Department of Agriculture data, global grains stocks-to-use ratios for 2022/2023 are forecast to be similar to those of 2021/2022, which should sustain continued strength for global grains prices, incentivizing nitrogen fertilizer application.

The outlook for global nitrogen supply availability remains challenged due to high natural gas costs in Europe and Asia, which have been exacerbated by uncertainty about the future of natural gas flows from Russia and the knock-on effect of greater competition for liquefied natural gas cargoes. The resulting high production costs are likely to result in lower ammonia production in these regions, though management believes that production facilities in Europe and Asia that can import ammonia may be able to continue to manufacture upgraded products profitably.

Energy differentials for Europe and Asia compared to low-cost regions remain significant. This has steepened the global nitrogen cost curve and increased margin opportunities for low-cost North American producers. Forward curves suggest that these favorable energy spreads will persist through 2023.

North America: Management projects corn plantings in the United States will be lower than its expectations of 91-93 million acres at the start of 2022 due to poor weather in parts of the country during the spring that affected planting decisions. Demand for nitrogen for industrial use in the region continues to be led by mining activity.

India: India is expected to tender on a regular basis into 2023 as increased domestic production is unlikely to fully meet increased demand as farmers maximize grain production. Annual imports for 2022 are projected to be in the range of 8 million metric tons, with approximately 3.7 million metric tons of urea secured via the tender process from January 2022 through July 2022. Total imports are expected to be below recent record years but keep the country as the world’s largest importer of urea, supporting global prices.

Brazil: Urea consumption in Brazil is forecast to remain strong in 2022, supported by high crop prices, expected high planted corn acres in 2022 and 2023 and improved farm incomes. Through May, urea imports to Brazil are in line with the prior year, with strong grains prices and agricultural fundamentals suggesting increased purchasing in coming months. Management believes Brazil has become a key outlet for nitrogen products from Russia at a discount to international values.

China: Urea exports from China have been sharply reduced by, and remain subject to, measures the Chinese government has implemented to promote the availability and affordability of fertilizers domestically. Management expects that full year exports will likely be in the range of 1.5-2 million metric tons, well below the three-year average.

Operations Overview

The Company continues to operate safely and efficiently across its network. As of June 30, 2022, the 12-month rolling average recordable incident rate was 0.21 incidents per 200,000 work hours, significantly better than industry benchmarks.

Gross ammonia production for the first half and second quarter of 2022 was approximately 5.1 million tons and 2.5 million tons, respectively. Management expects production in the third quarter of 2022 will be lower than each of the first two quarters of the year as the third quarter will have the highest level of planned maintenance activities for the year. The Company continues to project that gross ammonia production for 2022 will be in the range of 9.5 to 10.0 million tons.

First Half 2022 Financial Results Overview

First Half 2022 Financial Results

For the first half of 2022, net earnings attributable to common stockholders were $2.05 billion, or $9.78 per diluted share; EBITDA was $3.47 billion; and adjusted EBITDA was $3.60 billion. These results compare to the first half of 2021 net earnings attributable to common stockholders of $397 million, or $1.83 per diluted share; EBITDA of $994 million; and adjusted EBITDA of $997 million.

Net sales in the first half of 2022 were $6.26 billion compared to $2.64 billion in the first half of 2021. Average selling prices for the first half of 2022 were higher than the first half of 2021 across all segments due to strong global demand as well as decreased global supply availability as higher global energy costs reduced global operating rates and geopolitical factors disrupted the global fertilizer supply chain. Sales volumes in the first half of 2022 were lower than the first half of 2021 due to unfavorable weather delaying the North American spring application season and reducing the number of acres planted as well as the impact of operations at the Company’s Ince Complex remaining halted.

Cost of sales for the first half of 2022 was higher compared to the first half of 2021 due to higher natural gas costs and the gain the Company recognized from the net settlement of certain natural gas contracts with suppliers during February 2021 not repeating.

In the first half of 2022, the average cost of natural gas reflected in the Company’s cost of sales was $6.79 per MMBtu compared to the average cost of natural gas in cost of sales of $3.24 per MMBtu in the first half of 2021.

Second Quarter 2022 Financial Results Overview

For the second quarter of 2022, net earnings attributable to common stockholders were $1.17 billion, or $5.58 per diluted share; EBITDA was $1.80 billion; and adjusted EBITDA was $1.95 billion. These results compare to 2021 net earnings attributable to common stockholders of $246 million, or $1.14 per diluted share; EBITDA of $596 million; and adjusted EBITDA of $599 million.

Net sales in the second quarter of 2022 were $3.39 billion compared to $1.59 billion in 2021. Average selling prices for 2022 were higher than 2021 across all segments due to strong global demand as well as decreased global supply availability as higher global energy costs reduced global operating rates and geopolitical factors disrupted the global fertilizer supply chain. Sales volumes in the second quarter of 2022 were lower than 2021 due to unfavorable weather delaying the North American spring application season and reducing the number of acres planted as well as the impact of operations at the Company’s Ince Complex remaining halted.

Cost of sales for the second quarter of 2022 was higher compared to 2021 primarily due to higher natural gas costs.

In the second quarter of 2022, the average cost of natural gas reflected in the Company’s cost of sales was $7.05 per MMBtu compared to the average cost of natural gas in cost of sales of $3.25 per MMBtu in 2021.

UK Operations Restructuring Charges

On June 8, 2022, CF Fertilisers UK, a subsidiary of CF Industries Holdings, Inc., announced proposals to restructure its operations, which include a proposal to permanently close the Company’s Ince manufacturing facility. As a result, the Company recognized restructuring charges of $162 million related to the Company’s UK operations in the second quarter of 2022, which includes asset impairment charges and a charge for post-employment benefits.

Capital Management

Capital Expenditures

Capital expenditures in the second quarter and first half of 2022 were $66 million and $129 million, respectively. Management projects capital expenditures for full year 2022 will be in a range of $500-$550 million, which includes capital expenditures related to the Company’s clean energy initiatives.

Share Repurchase Program

The Company repurchased approximately 6.6 million shares for $590 million during the first half of 2022. This included approximately 5.4 million shares repurchased for $490 million in the second quarter of 2022.

CHS Inc. Distribution

On July 31, 2022, the Board of Managers of CF Industries Nitrogen, LLC (CFN) approved a semi-annual distribution payment to CHS Inc. (CHS) of $371 million for the distribution period ended June 30, 2022. The distribution was paid on August 1, 2022.

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 CO2 byproduct removed through carbon capture and sequestration) and green ammonia (ammonia produced from carbon free sources).

Joint Venture with Mitsui & Co., Ltd.

CF Industries and Mitsui & Co., Ltd. have signed a joint development agreement for the companies’ proposed plans for an export-oriented greenfield ammonia production facility in the United States to produce blue ammonia. The companies expect to commence a FEED study during the second half of 2022, which typically takes 9-12 months from the start date to complete. A final investment decision is expected to occur in 2023. Construction and commissioning of a new world-scale capacity ammonia plant typically takes approximately 4 years from that point.

Enabling Blue Ammonia Production at Donaldsonville Complex

CF Industries is investing $200 million to construct a CO2 dehydration and compression facility at its Donaldsonville Complex in Louisiana to enable the transport and sequestration of the ammonia process byproduct. Engineering activities and procurement of major equipment for the facility are in progress, and modification of the site’s existing equipment to allow integration with existing operations has begun. Once the units are in service and sequestration is initiated, the Donaldsonville Complex will have the capacity to dehydrate and compress up to 2 million tons per year of CO2. At that point, the Donaldsonville Complex will be able to produce up to 1.7 million tons of blue ammonia per year.

Donaldsonville Green Ammonia Project

The Donaldsonville green ammonia project, which involves installing an electrolysis system at Donaldsonville to generate carbon-free hydrogen from water that will then be supplied to an existing ammonia plant to produce green ammonia, continues to progress. Major equipment is being fabricated and site work has begun for installation of the new electrolyzer unit and integration into Donaldsonville’s existing operations. Once complete in 2023, the project will enable the Company to produce approximately 20,000 tons per year of green ammonia.

Partnerships

In May 2022, CF Industries became a Strategic Partner of the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping, committing to a long-term strategic collaboration and contribution to the development of zero carbon technologies and solutions for the maritime industry.
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(1) Certain items recognized during the first and second quarters of 2022 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.

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