CF Industries Holdings, Inc. reports first half 2023 net earnings of $1.09 billion, adjusted EBITDA of $1.72 billion

Date:08-04-2023

Strong Operational Performance, Robust Demand Underpin Solid Results

Second Half Demand Driven by India, Brazil, Northern Hemisphere

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, 2023.

Highlights

• First half 2023 net earnings of $1.09 billion⁽¹⁾, or $5.55 per diluted share, EBITDA⁽²⁾ of $1.78 billion, and adjusted EBITDA⁽²⁾ of $1.72 billion

• Second quarter 2023 net earnings of $527 million, or $2.70 per diluted share, EBITDA of $855 million, and adjusted EBITDA of $857 million

• Trailing twelve months net cash from operating activities of $3.23 billion and free cash flow⁽³⁾ of $2.12 billion

• Repurchased 2 million shares for $130 million during the second quarter of 2023

″The CF Industries team delivered strong results in the first half of 2023, as we ran our plants well and navigated this year’s just-in-time buying pattern,″ said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. ″We believe North American nitrogen channel inventories were drawn down significantly during the spring application season, setting up a positive demand dynamic in the second half of 2023.

″Longer term, forward global energy curves continue to suggest attractive margin opportunities for our cost-advantaged network well into the foreseeable future. As a result, we expect to continue to drive strong cash generation and create long-term shareholder value through disciplined investments in growth opportunities and returning substantial capital to shareholders.″

Nitrogen Market Outlook

Global nitrogen prices stabilized during the latter part of the second quarter of 2023 as robust demand for the spring application season emerged in North America and smaller importing regions such as Asia (excluding India) and Latin America (excluding Brazil) returned to average purchasing patterns compared to 2022. Management believes that the Northern Hemisphere ended the first half of 2023 with low inventories of nitrogen fertilizer, which, along with expected strong demand from Brazil and India, should support a positive demand environment in the second half of the year.

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

• North America: The outlook for farm profitability in North America is strong for all major crops planted in the 2023 spring application season, helping drive significant increases in corn and wheat plantings in the U.S. Management believes that the North American inventory position at the end of the second quarter for all nitrogen products was below average due to lower import levels, higher export volumes and increased planted corn and wheat acreage compared to the prior year.

  
  

• India: Higher domestic urea production and higher stocks of urea compared to the year before limited tender activity throughout the first half of 2023. Due to the lower import volumes to date and the government’s stated intention to maintain high urea volumes in stock, management expects that India will tender for urea frequently in the second half of the year.

  
  

• Brazil: Imports of urea to Brazil in the first half of 2023 were approximately 9% lower than the same period the year before. However, the Company expects urea consumption in Brazil in 2023 to remain strong, supported by higher corn planted acres and robust farm incomes, with potential for higher import volumes in the second half of 2023 as favorable weather conditions could encourage demand against a backdrop of low inventories.

  
  

• Europe: Approximately 25% of ammonia, 20% of urea and 35% of UAN capacity were reported in shutdown/curtailment in Europe as of June 2023. Management believes that production economics in Europe will remain challenging as declining global nitrogen prices continue to make it difficult for European producers to compete with imports despite the decline in natural gas prices in the region. The Company does not expect full ammonia capacity production rates to return in the region during the year, 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 in the first half of 2023 were approximately 1 million metric tons due to government measures to limit urea 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 continue to remain lower compared to prior years due to geopolitical disruptions arising from Russia-Ukraine war 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.

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 June 30, 2023, the 12-month rolling average recordable incident rate was 0.54 incidents per 200,000 work hours.

Gross ammonia production for the first half and second quarter of 2023 was approximately 4.7 million and 2.4 million tons, respectively. The Company expects that gross ammonia production for 2023 will be in a range of 9.0-9.5 million tons as CF Fertilisers UK has proposed to permanently close the ammonia plant at its Billingham Complex.

Financial Results Overview

First Half 2023 Financial Results

For the first half of 2023, net earnings attributable to common stockholders were $1.09 billion, or $5.55 per diluted share, EBITDA was $1.78 billion, and adjusted EBITDA was $1.72 billion. These results compare to first half of 2022 net earnings attributable to common stockholders of $2.05 billion, or $9.78 per diluted share, EBITDA of $3.47 billion, and adjusted EBITDA of $3.60 billion.

Net sales in the first half of 2023 were $3.79 billion compared to $6.26 billion in the first half 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 half of 2023 were similar to the first half of 2022 as higher granular urea sales volume offset lower ammonium nitrate (AN) and ammonia sales volumes.

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

The average cost of natural gas reflected in the Company’s cost of sales was $4.56 per MMBtu in the first half of 2023 compared to the average cost of natural gas in cost of sales of $6.79 per MMBtu in the first half of 2022.

Second Quarter 2023 Financial Results

For the second quarter of 2023, net earnings attributable to common stockholders were $527 million, or $2.70 per diluted share, EBITDA was $855 million, and adjusted EBITDA was $857 million. These results compare to second quarter 2022 net earnings attributable to common stockholders of $1.17 billion, or $5.58 per diluted share, EBITDA of $1.80 billion, and adjusted EBITDA of $1.95 billion.

Net sales in the second quarter of 2023 were $1.78 billion compared to $3.39 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 second quarter of 2023 were higher than 2022 as higher UAN sales volumes were partially offset by lower AN sales volumes.

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

The average cost of natural gas reflected in the Company’s cost of sales was $2.75 per MMBtu in the second quarter of 2023 compared to the average cost of natural gas in cost of sales of $7.05 per MMBtu in the second quarter of 2022.

Capital Management

Capital Expenditures

Capital expenditures in the second quarter and first half of 2023 were $95 million and $164 million, respectively. Management projects capital expenditures for full year 2023 will be in the range of $500-$550 million.

Share Repurchase Programs

The Company repurchased 3.1 million shares for $205 million during the first half of 2023, which included the repurchase of 2 million shares for $130 million during the second quarter of 2023. During the second quarter, the Company completed the $1.5 billion share repurchase authorization that went into effect January 1, 2022, and commenced a $3 billion share repurchase program, which was authorized in November 2022 by the Board of Directors of CF Industries Holdings, Inc.

CHS Inc. Distribution

On July 31, 2023, the Board of Managers of CF Industries Nitrogen, LLC (CFN) approved a semi-annual distribution payment to CHS Inc. (CHS) of $204 million for the distribution period ended June 30, 2023. The distribution was paid on July 31, 2023.

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.

Clean Energy Initiatives Updates

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 hydrogen generated through an electrolysis process).

• 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.

• 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.

• 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 (FID) on the proposed facility later in 2023. Construction and commissioning of a new world-scale ammonia plant typically takes approximately 4 years from FID.

• 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, at which point CF Industries will be able to produce significant volumes of blue 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. Major equipment is being fabricated and installation of the new electrolyzer unit has begun. Once complete, the project will enable the Company to produce approximately 20,000 tons of green ammonia per year.

• Verdigris Complex Green Hydrogen/Ammonia Debottleneck Project Evaluation: CF Industries and NextEra Energy Resources, LLC, are exploring a joint venture to develop a green hydrogen and ammonia production project at CF Industries’ Verdigris Complex in Oklahoma, for which funding from the U.S. Department of Energy’s regional clean hydrogen hub program is a key element of the evaluation.

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(1) Certain items recognized during the first half and second 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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