CF Industries Holdings Inc. (CF) reported net earnings of $200.3 million or $2.78 per share during the fourth quarter of 2010 compared with $51.4 million or $1.04 per share during the same quarter last year. This was above the Zacks Consensus Estimate of $2.62.
Reported figures included a non-cash mark-to-market loss of $31.4 million on natural gas derivatives and business combination and integration costs of $15.8 million.
In fiscal 2010, net earnings were $349.2 million or $5.34 per diluted share, down from $365.6 million or $7.42 per share in the previous year.
Reported figures included a non-cash mark-to-market loss of $9.6 million on natural gas derivatives, business combination and integration costs of $288.5 million, a $28.3 million gain on the sale of Terra shares and $5.8 million of Peru project development costs.
Net sales shot up 144% to $1.2 billion from $506.7 million in the year-ago quarter. The marked increase in sales was attributed to $451.2 million of sales obtained from Terra Industries and higher product prices, particularly for ammonia.
However, the results were in line with the Zacks Consensus Estimate of $1.2 billion for the quarter. In fiscal 2010, net sales climbed 52% year over year to $4.0 billion, driven by the inclusion of Terra net sales of $1.4 billion and higher sales volumes.
Total sales volume in the quarter was 3.8 million tons, up from 2.0 million tons in the prior-year quarter as it largely benefited from the 1.7 million tons of Terra sales. Total sales volume in fiscal 2010 was 13.3 million tons.
Segment Details
Nitrogen Segment: Net sales amounted to $1.0 billion, up 185% from $352.0 million during the fourth quarter of 2009. About 3.4 million tons of ammonia, urea, urea ammonium nitrate solutions (UAN), ammonium nitrate (AN) and other nitrogen products were sold by the company during the quarter.
More specifically, 917,000 tons of ammonia at an average price of $452 per ton, 662,000 tons of urea at an average price of $323 per ton, 1.4 million tons of UAN at an average price of $206 per ton and 263,000 tons of AN at an average price of $211 per ton were sold during the quarter.
Gross margin was $420.6 million, or 42% of sales. Excluding the unrealized mark-to-market gain of $31.4 million, gross margin came in at 39% of sales compared with 30% in the year-ago period. The increase in the percentage was primarily attributable to higher product prices.
Natural gas cost average was $4.29 per MMBtu in the fourth quarter of 2010 compared with $4.34 during the fourth quarter of 2009. Average cash prices at Henry Hub were below $4.00 per MMBtu in both October and November. Even when weather was unusually cold during December, cash prices at Henry Hub traded no higher than $4.54/MMBtu.
Phosphate Segment: CF Industries sold 477,000 tons of diammonium phosphate (DAP) and monoammonium phosphate (MAP) during the fourth quarter of 2010 at an average price of $493 per ton compared with the fourth quarter of 2009 shipments of 551,000 tons at an average price of $281. Sales were limited by production and by low beginning inventories.
CF Industries emphasized domestic sales of phosphates during the fourth quarter. The company fulfilled its remaining contractual commitment to export phosphate to India with the shipment of one vessel during the quarter.
Gross profit was $63.3 million, up from $16.4 million in the prior-year quarter. Gross margin was 27% of sales compared with 11% in the year-earlier period.
Financial Position
CF Industries had cash and cash equivalents worth $800.8 million and total debt of $2.0 billion (senior notes of $1.6 billion and the remaining term loan balance of $346 million) as of December 31, 2010 compared with $882.1 million of cash as of December 31, 2009.
The company repaid $300 million of debt in the quarter and exited the quarter with a term loan balance of $346 million.
Cash flow from operations was nearly $1.2 billion in the quarter. In fiscal 2010, capital expenditure was $258.1 million in capital expenditures.
Dividend
On February 2, 2011, CF Industries’ board of directors declared the regular quarterly dividend of $0.10 per common share, to be paid on March 1, 2011 to stockholders of record as of February 14, 2011.
Acquisition Integration
The integration of the former operations of Terra Industries continues to exceed expectations. The company estimates that as of the end of 2010, implemented synergy actions totaled approximately $110 million on a run-rate basis and identified synergies exceed the top end of the targeted range.
To complete the integration of operating and financial systems, the company has initiated a project to implement an enterprise resource planning system. The company expects to complete the project in 2012.
Sale of Warehouses
In January 2011, CF Industries entered into a definitive agreement to sell four dry product warehouses and related assets to GROWMARK Inc. and one of its subsidiaries. Over a number of years, the company’s throughput utilization of these facilities had declined as an increasing portion of the company’s dry product volume has been shipped directly to customers from manufacturing locations. The transaction closed on February 15, 2011.
Outlook
High crop prices, higher projected crop plantings and application rates, and tight inventories of most fertilizers are expected to support strong fertilizer prices and volumes for spring, weather permitting.
According to the company, the overall business prospects are very favorable in 2011 for both of its operational segment. North American market is expected to show positive trend in terms of demand as well as product pricing led by early harvest and strong projected 2011 plantings. Moreover, global demand-supply position is forecasted to remain encouraging for all its products.
CF Industries is also intended to maintain its strong balance sheet and cash position with more loan repayments in the near future. The company targets net debt in the range of 1.0 to 1.5 times of EBITDA.
For 2011, the company expects capital expenditures of $300 million higher than 2010 as current market conditions make the expected returns for many projects favorable, cash and liquidity are ample and Terra’s first quarter 2010 spending was not included in the reported results.
Currently, CF Industries holds a Zacks #2 Rank (Buy) on the stock.
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