CF Industries Holdings, Inc. Reports First Half 2018 Net Earnings of $211 Million, EBITDA of $772 Million
DEERFIELD, Ill.--(BUSINESS WIRE)--Aug 1, 2018--CF Industries Holdings, Inc. (NYSE: CF), a leading global fertilizer and chemical company, today announced results for its first half and second quarter ended June 30, 2018.
HighlightsFirst half net earnings of $211 million, or $0.90 per diluted share; EBITDA (1) of $772 million; adjusted EBITDA (1) of $764 million Second quarter net earnings of $148 million, or $0.63 per diluted share; EBITDA of $470 million; adjusted EBITDA of $468 million First half 2018 sales volumes slightly exceed first half 2017; record 5.5 million tons in second quarter Subsequent to quarter end, the Board of Directors authorized a $500 million share repurchase program through June 30, 2020, and the company reaffirmed its commitment to repay the remaining $500 million of Public Senior Notes on or before the May 2020 maturity
Overview of Results
CF Industries Holdings, Inc., today announced second quarter 2018 net earnings attributable to common stockholders of $148 million, or $0.63 per diluted share; EBITDA of $470 million; and adjusted EBITDA of $468 million. These results compare to second quarter 2017 net earnings attributable to common stockholders of $3 million, or $0.01 per diluted share; EBITDA of $275 million; and adjusted EBITDA of $303 million.
For the first six months of 2018, net earnings attributable to common stockholders were $211 million, or $0.90 per diluted share; EBITDA was $772 million; and adjusted EBITDA was $764 million. These results compare to the first six months of 2017 net loss attributable to common stockholders of $20 million, or a $0.09 loss per diluted share; EBITDA of $493 million; and adjusted EBITDA of $575 million.
“Our unmatched logistics capability allowed us to fully capitalize on the weather-delayed application season once it finally appeared in the second quarter, enabling us to ship a record 5.5 million product tons,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc.
“The story of the first half of 2018 was that of lower North American gas costs and higher nitrogen prices, driving a 33 percent increase in adjusted EBITDA over last year,” commented Will. “As we look forward, we expect our cash generation to grow due to a tightening nitrogen supply and demand balance, supported by higher energy costs in other regions of the world. As a result, we will begin returning excess cash to shareholders through our new share repurchase authorization while keeping our commitment to strengthen our balance sheet through debt repayment.”
CF Industries’ manufacturing network continued operating safely and efficiently. As of June 30, 2018, the 12-month rolling average recordable incident rate was 0.64 incidents per 200,000 work hours, well below industry averages. Gross ammonia production during the second quarter of 2018 was approximately 2.5 million tons, and for the first half of 2018 was approximately 5.0 million tons.
Net sales in the second quarter of 2018 were $1,300 million compared to $1,124 million in the same period last year due to higher average selling prices across all segments and higher sales volumes across most segments. Net sales in the first half of 2018 were $2,257 million compared to $2,161 million in the same period last year primarily due to higher average selling prices across all segments.
Total sales volume for the second quarter was higher compared to the second quarter of 2017 due to carry-over demand from the first quarter into the second quarter as a result of unfavorable weather earlier in the year delaying the spring application season. Total sales volumes for the first six months of 2018 were similar to the first six months of 2017. This reflects the fact that the company’s extensive system of production, storage and transportation assets is set up to accommodate changes in the timing of fertilizer applications due to weather and other developments.
Average selling prices for the second quarter and first half of 2018 were higher year-over-year across all segments as higher energy prices in other producing regions and enforcement of environmental regulations in China reduced global nitrogen production, tightening the global nitrogen supply and demand balance.
For the first six months of 2018, the company’s average selling price for ammonia was $333 per ton compared to $324 per ton in the first six months of 2017. The average selling price for urea was $258 per ton in the first half of 2018 compared to $228 per ton in the first half of 2017, and the average selling price for UAN was $178 per ton in the first half of 2018 compared to $173 per ton in the first half of 2017.
Cost of sales in the first half of 2018 decreased compared to the first six months of 2017 driven by lower realized gas costs. The company also recorded an unrealized net mark-to-market gain on natural gas derivatives of $8 million in the first half of 2018 compared to an unrealized net mark-to-market loss on natural gas derivatives of $71 million in the first half of 2017. These were partially offset by higher costs related to plant turnarounds and disruptions.
In the first half of 2018, the average cost of natural gas reflected in the company’s cost of sales was $3.11 per MMBtu, which includes a realized loss of $0.03 per MMBtu on natural gas hedges. This compares to the average cost of natural gas in cost of sales of $3.51 per MMBtu for the first half of 2017, which includes a realized loss of $0.01 per MMBtu on natural gas hedges. During the first half of 2018, the average price of natural gas at Henry Hub in North America was $2.92 per MMBtu, and the average price of natural gas at the National Balancing Point in the United Kingdom was $7.77 per MMBtu.
The company did not enter into any additional natural gas NYMEX hedges in the second quarter of 2018.
Increased production costs, particularly for producers in Europe and China, have raised and flattened the upper half of the global cost curve, supporting higher prices. In Europe, the price of natural gas per MMBtu at the Dutch TTF natural gas hub was 53 percent higher in June 2018 compared to June 2017. The TTF forward curve suggests continued increases in the price of natural gas in Europe into 2019. Several ammonia and urea plants in Ukraine and Central Europe were idled during the second quarter as a result of the high energy costs, with additional facilities in Europe remaining in operation by using imported ammonia.
Similarly, Chinese urea producers face higher coal prices, with the price per metric ton of anthracite coal 32 percent higher in May 2018 compared to May 2017. Additionally, enforcement of environmental regulations in China continues to result in temporary and permanent capacity closures. As a result, Chinese urea production available for export has declined dramatically. China exported approximately 710,000 metric tons of urea from January through June 2018, a 74 percent decrease from the same period in the prior year.
The company expects demand in Brazil and India will also support global nitrogen prices through the end of the year. Brazilian urea imports in the second half of 2018 are forecasted to rise year-over-year to make up for 25 percent lower imports in the first half of 2018 compared to the prior year period and for the anticipated loss of production from the announced closure of two Petrobras urea plants in August 2018. Additionally, India’s most recent urea tender closed August 1.
Longer-term, CF expects the global supply and demand balance will tighten further, with net global urea supply growth expected to be well below the historical nitrogen demand annual growth rate of approximately two percent. The company projects 4.3 million metric tons of nameplate urea capacity to start-up in 2018. This new capacity will be more than offset by a projected 7.1 million metric tons of nameplate urea capacity closures during the year in Brazil, China and Kuwait.
Over the next few years, global nitrogen supply could be further constrained. The company believes that the factors driving higher production costs in Europe and China will persist. If the upper half of the global cost curve stays higher and flatter for longer, many producers will continue to struggle with profitability even in the current nitrogen price environment. Over time, this should lead to lower production and more permanent closures than the company projects today. Additionally, United States sanctions on Iran, which exports 3-4 million metric tons of urea annually, may further reduce global nitrogen supply as Iranian producers could lose access to technical expertise, replacement parts for current plants and resources to support new construction.
Capital expenditures in 2018 for new activity are estimated to be in the range of approximately $400 to $450 million, which takes into account a higher number of scheduled plant turnarounds in the second half of 2018 compared to 2017.
As of June 30, 2018, the company had cash and cash equivalents of $728 million on the balance sheet, had no borrowings outstanding under its $750 million revolving credit facility and was in compliance with all applicable covenant requirements under its debt instruments.
The company’s cash and cash equivalents reflect the impact of its purchase on April 2, 2018, of all of the publicly traded common units of Terra Nitrogen Company, L.P. (TNCLP) for $388 million.
Subsequent to the end of the second quarter, the Board of Directors authorized a $500 million share repurchase program through June 30, 2020. The company also reaffirmed its previously stated commitment to repay the remaining $500 million of Public Senior Notes on or before the May 2020 maturity.
PLNL Settlement Income
In May 2018, The National Gas Company of Trinidad and Tobago Limited (NGC) and Point Lisas Nitrogen Limited (PLNL), in which CF has a 50 percent ownership interest, reached a settlement of an arbitration proceeding regarding PLNL’s claims for damages due to natural gas supply curtailments over several years in the past. The net impact of the settlement reached between NGC and PLNL that is recognized in the consolidated statements of operations for the three and six months ended June 30, 2018 was an increase in equity in earnings of operating affiliates of approximately $19 million after tax.
CHS Inc. Distribution
On July 31, 2018, the Board of Managers of CF Industries Nitrogen, LLC (CFN) approved a semi-annual distribution payment to CHS Inc. (CHS) of $79 million for the distribution period ended June 30, 2018. The distribution was paid on July 31, 2018.
CF Industries’ ammonia segment produces anhydrous ammonia (ammonia), which is the company’s most concentrated form of nitrogen, containing 82 percent nitrogen. The results of the ammonia segment consist of sales of ammonia to external customers. In addition, ammonia is the “basic” nitrogen form that the company upgrades into other nitrogen products such as urea, UAN and AN.
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