CF’s Profits Plunge in 3Q

CF Industries Holdings Inc. (CF - Analyst Report) posted earnings of 78 cents in the third quarter of 2009, down from the Zacks Consensus Estimate of $1.01. Reported earnings were down 18% from 82 cents reported in the same quarter of the previous year on lower fertilizer sales. Sales of $430.1 million in the quarter reflected a decline of 58% year over year, primarily driven by lower price realizations for all products.

Nitrogen Fertilizer Segment

Nitrogen segment sales totaled $276.1 million, down 54% from $599.1 million in the 2008 third quarter on a 3% decline in volumes to 1.2 million tons. The quarter’s volume included about 132,000 tons of UAN and urea exports.

Overall, average nitrogen selling prices remained depressing. Selling price for ammonia declined to $355 per ton from $571 in the second quarter of 2008. For UAN, the selling price was down to $155 per ton from $339 a year ago. For urea, the selling price declined to $260 per ton from $596 in the year-earlier quarter. However, the segment benefited from significantly lower natural gas prices in North America.

CF Industries benefited from lower sales under its Forward Pricing Program (FPP), which increased its exposure to spot prices for natural gas. Nitrogen sales under the company’s FPP totaled 400,000 tons during the quarter, representing 36% of nitrogen sales volume compared with 75% in the previous year.

Phosphate Fertilizer Segment

Phosphate segment net sales crashed 63% year over year to $154.0 million. Volume was 497,000 tons, up 9% from 457,000 tons in the year-earlier quarter, reflecting sales of 58,000 tons of previously purchased potash during the quarter. With these sales, the company claims to have eliminated its inventory of potash. Average price of $281 per ton for DAP was down 8% sequentially and down 70% from the prior year’s quarter.

CF Industries’ Florida Phosphate Complex operated at 85% of capacity during the quarter, reflecting a significantly reduced operating rate during the month of July. Phosphate sales under the company’s FPP totaled about 61,000 tons, representing 12% of segment volume, down from 237,000 tons sold or 52% of segment volume in the third quarter 2008.

At Sept. 30, 2009, CF Industries’ cash, cash equivalents and short-term investments totaled about $702.6 million, compared to $625.0 million at Dec. 31, 2008. The company stands debt free as of Sept. 30.

Outlook

CF Industries is prepared for a reasonably good fall application season (weather permitting) and solid spring demand due to attractive corn farming economics and restocking needed in the downstream fertilizer channels.

The industry has been under strong consolidation pressure with prices declining sharply. CF Industries is involved in a three-way merger battle with Agrium Inc. (AGU - Analyst Report) and Terra Industries Inc. (TRA - Snapshot Report). Since the beginning of 2009, Terra has repeatedly rebuffed CF’s takeover offer, while itself being the takeover target of Agrium. Last month, CF acquired a 7% stake in Terra. We maintain our Neutral recommendation on the stock.