CF Industries Holdings, Inc. reports first nine months 2023 net earnings of $1.25 billion, adjusted EBITDA of $2.17 billion

CF Industries Holdings, Inc. (NYSE: CF), a leading global manufacturer of hydrogen and nitrogen products, announced results for the first nine months and third quarter ended September 30, 2023.

Highlights

• First nine months 2023 net earnings of $1.25 billion⁽¹⁾, or $6.42 per diluted share, EBITDA⁽²⁾ of $2.15 billion, and adjusted EBITDA⁽²⁾ of $2.17 billion

• Third quarter 2023 net earnings of $164 million, or $0.85 per diluted share, EBITDA of $372 million, and adjusted EBITDA of $445 million

• Trailing twelve months net cash from operating activities of $2.86 billion and free cash flow⁽³⁾ of $1.96 billion

• Agreement with POSCO Holdings, Inc., to evaluate a joint venture to construct a low-carbon clean ammonia plant at CF Industries’ Blue Point Complex in Ascension Parish, Louisiana, United States, along with long-term low-carbon clean ammonia offtake into South Korea

• Repurchased 1.9 million shares for $150 million during the third quarter of 2023

″The CF Industries team continues to execute well,″ said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. ″Global nitrogen industry fundamentals remain favorable and forward energy curves suggest attractive margin opportunities for the foreseeable future. As a result, we expect to continue to drive strong cash generation, underpinning our ability to create long-term shareholder value through disciplined investments in growth opportunities and returning substantial capital to shareholders.″

Nitrogen Market Outlook

During the third quarter of 2023, robust global demand along with lower production due to global turnaround activity and continued challenging natural gas fundamentals in key regions, such as Europe and Trinidad, tightened the global nitrogen-supply demand balance, supporting an increase in global nitrogen prices late in the quarter. Management expects demand through the end of 2023 and into 2024 to remain strong, led by India and Brazil.

In the near-term, global supply and demand dynamics will be driven largely by these key regions:

• North America: Low channel inventories and favorable farm economics supported strong nitrogen demand in North America during the third quarter of 2023. Management believes that the North American inventory position at the end of the third quarter for all nitrogen products remained below average due to lower import levels and higher export volumes year-to-date.

• India: Urea demand in India is expected to remain stable, underpinned by robust agricultural production. Management expects that India will tender for urea frequently through the end of 2023 to replenish urea stocks following increased sales in recent months, lower imports year-to-date, and reported production outages at new facilities during the third quarter.

• Brazil: Demand for urea in Brazil is expected to be strong through its growing season supported by high planted corn acres and healthy farm incomes. Urea imports through year-end and into the first quarter of 2024 are expected to be strong in order to meet forecast demand as imports through September were 7% lower than the prior year.

• Europe: Approximately 25% of ammonia and 20% of urea capacity were reported in shutdown/curtailment in Europe as of late third quarter 2023. Management believes that production economics in Europe will remain challenging in the fourth quarter of 2023 and first quarter of 2024 due to higher forecast natural gas prices in the region. The Company continues to expect ammonia capacity production rates to be below normal in the region for the foreseeable future, with a corresponding higher-than-normal level of nitrogen imports to the region, with some facilities continuing to favor importing ammonia in order to manufacture upgraded products.

• China: Urea exports from China during the third quarter of 2023 were approximately 1.8 million metric tons due to a high level of participation in India’s August 2023 urea tender. Participation in future India urea tenders by Chinese producers is expected to be significantly lower as the Chinese government reinstated measures to limit urea exports following an increase in domestic urea prices.

• Russia: 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. Exports of other nitrogen products from Russia are at pre-war levels, with product pushed to countries willing to purchase Russian fertilizer, including Brazil and the United States.

Longer-term, management expects the global nitrogen supply-demand balance will remain positive, underpinned by resilient agriculture-led demand and forward energy curves that indicate a steep cost curve. Energy differentials between North American producers 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 September 30, 2023, the 12-month rolling average recordable incident rate was 0.51 incidents per 200,000 work hours.

Gross ammonia production for the first nine months and third quarter of 2023 was approximately 7.0 million and 2.2 million tons, respectively. The Company expects that gross ammonia production for 2023 will be in a range of 9.0-9.5 million tons following the permanent closure of the ammonia plant at the Company’s Billingham Complex in the U.K.

Financial Results Overview

First Nine Months 2023 Financial Results

For the first nine months of 2023, net earnings attributable to common stockholders were $1.25 billion, or $6.42 per diluted share, EBITDA was $2.15 billion, and adjusted EBITDA was $2.17 billion. These results compare to first nine months of 2022 net earnings attributable to common stockholders of $2.49 billion, or $12.04 per diluted share, EBITDA of $4.30 billion, and adjusted EBITDA of $4.58 billion.

Net sales in the first nine months of 2023 were $5.06 billion compared to $8.58 billion in the first nine months of 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 nine months of 2023 were higher compared to the first nine months of 2022 as higher urea ammonium nitrate (UAN) and ammonia sales volumes were partially offset by lower ammonium nitrate (AN) sales volumes.

Cost of sales for the first nine months of 2023 was lower compared to the first nine months of 2022 due primarily to lower realized natural gas costs.

The average cost of natural gas reflected in the Company’s cost of sales was $3.90 per MMBtu in the first nine months of 2023 compared to the average cost of natural gas in cost of sales of $7.28 per MMBtu in the first nine months of 2022.

Third Quarter 2023 Financial Results

For the third quarter of 2023, net earnings attributable to common stockholders were $164 million, or $0.85 per diluted share, EBITDA was $372 million, and adjusted EBITDA was $445 million. These results compare to third quarter of 2022 net earnings attributable to common stockholders of $438 million, or $2.18 per diluted share, EBITDA of $826 million, and adjusted EBITDA of $983 million.

Net sales in the third quarter of 2023 were $1.27 billion compared to $2.32 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 third quarter of 2023 were higher than 2022 as higher UAN and ammonia sales volumes were partially offset by lower granular urea sales volumes.

Cost of sales for the third quarter of 2023 was lower compared to 2022 due primarily to lower realized natural gas costs.

The average cost of natural gas reflected in the Company’s cost of sales was $2.54 per MMBtu in the third quarter of 2023 compared to the average cost of natural gas in cost of sales of $8.35 per MMBtu in the third quarter of 2022.

Capital Management

Capital Expenditures

Capital expenditures in the third quarter and first nine months of 2023 were $147 million and $311 million, respectively. Management projects capital expenditures for full year 2023 will be in the range of $450-$500 million.

Share Repurchase Programs

The Company repurchased 5.0 million shares for $355 million during the first nine months of 2023, which included the repurchase of 1.9 million shares for $150 million during the third quarter of 2023.

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 third quarter of 2023 is approximately $66 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 Incitec Pivot, Ltd. (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. Management expects the transaction to close on December 1, 2023.

Clean Energy Initiatives Updates

CF Industries continues to execute strategic initiatives focused on advancing its clean energy growth platform and achieving its decarbonization commitments. This includes producing ammonia with the corresponding carbon dioxide (CO2) byproduct removed through carbon capture and sequestration, producing ammonia using hydrogen generated through an electrolysis process, and other decarbonization initiatives.

• CF Industries-POSCO Evaluation of U.S.-based Low-Carbon Clean Ammonia Production and Long-Term Low-Carbon Clean Ammonia Offtake into South Korea: On September 14, 2023, CF Industries and POSCO Holdings Inc. (POSCO), South Korea’s largest steelmaker as well as a leader in energy trading and power generation, announced that the companies are evaluating a joint venture to construct a low-carbon clean ammonia plant at CF Industries’ Blue Point Complex in Ascension Parish, Louisiana, United States, along with long-term low-carbon clean ammonia offtake into South Korea. As part of their evaluation, CF Industries and POSCO will initiate a front-end engineering and design (FEED) study on autothermal reforming (ATR) ammonia production technology. Should the project move forward, POSCO expects to import low-carbon clean ammonia from the facility to South Korea to support decarbonization of POSCO's own and third-party coal-based power generation facilities. Additionally, POSCO intends to convert low-carbon clean ammonia into hydrogen in order to use low-carbon hydrogen in gas-based power plants and in the steel-making process itself.

• Memorandum of Understanding (MOU) 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 are evaluating 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.

• Proposed Joint Venture with Mitsui & Co., Ltd. at CF Industries’ Blue Point Complex: CF Industries and Mitsui & Co., Ltd. (Mitsui) continue to progress the FEED study, which is being conducted with thyssenkrupp UHDE, for their proposed joint venture to construct an export-oriented blue ammonia facility in Louisiana. CF Industries and Mitsui expect to complete the FEED study in the fourth quarter of 2023, with a final investment decision (FID) on the proposed facility to follow. Construction and commissioning of a new world-scale ammonia plant typically takes approximately 4 years from FID.

• MOU with LOTTE CHEMICAL Corporation: On February 27, 2023, CF Industries announced that it had entered into an MOU with LOTTE CHEMICAL Corporation 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.

• Donaldsonville Complex Carbon Capture and Sequestration Project: Engineering activities for the construction of a dehydration and compression unit at the Donaldsonville Complex continue to advance, all major equipment for the facility has been procured, and fabrication of the CO2 compressors is proceeding. Once in service, the dehydration and compression unit will enable up to 2 million tons of captured process CO2 to be transported and 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.

• Donaldsonville Complex Green Ammonia Project: The Donaldsonville green ammonia project, which involves installing an electrolysis system at the Donaldsonville Complex to generate hydrogen from water that will then be supplied to existing ammonia plants to produce ammonia, continues to progress. Fabrication and delivery of most major equipment is complete and installation of the new electrolyzer unit is in progress. Once complete, the project will enable the Company to produce approximately 20,000 tons of green ammonia per year that will have no CO2 emissions from the production of hydrogen.

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(1) Certain items recognized during the first nine months and third 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.

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