CF Industries Holdings Inc. ( CF - Analyst Report ) posted first-quarter EPS of $5.54, up 41.7% from $3.91 in the year-ago quarter, exceeding the Zacks Consensus Estimate of $4.95.

Total sales in the quarter amounted to $1.53 billion, up from $1.17 billion in the prior-year quarter. Sales exceeded the Zacks Consensus Estimate of $1.28 billion. The sales increase was driven by strong nitrogen demand during the North American spring planting season. Total sales volumes increased 12.1% year over year to 3.7 million tonnes.

Costs and Margins

Cost of sales amounted to $815.8 million, compared with $649.0 million in the year-earlier quarter. Gross profit increased sharply by 35.6% to $711.8 million in the quarter. Selling, general and administrative expenses increased 9% to $33.8 million from $31.0 million in the year-ago quarter. The company reported an operating income of $671.2 million, up 25.6% from $534.4 million in the prior-year quarter.

Segmental Performance

Nitrogen Segment: Sales were $1.3 billion, a jump of 37% from $925.9 million in the year-ago quarter. Gross margins spiked 50% to $662.1 million due to higher sales volumes coupled with higher prices and lower realized natural gas costs. Total sales volumes were 3.2 million tonnes in the quarter, up from 2.8 million tonnes in the year-ago quarter. The segment enjoyed the benefit of a huge supply of natural gas, driven by an increase in production of North American shale gas and favorable weather. The realized natural gas price in the quarter declined to $3.48 per MMBtu from $4.32 a year ago, due to lower average selling prices and higher raw material costs, partially offset by higher sales volumes.

Phosphate Segment: Sales were $255.9 million, an increase of 3% from last year. Gross margin declined 40% to $49.7 million due to lower average selling prices and higher raw material costs, partially offset by higher sales volumes. Volumes sold in the quarter were 520 thousand tonnes compared with 440 thousand tonnes a year ago driven by increased exports. The average selling prices of diammonium phosphate (DAP) and monoammonium phosphate (MAP) were $494 and $506, down 12% and 11.1%, respectively, from the prior-year quarter.

Financial Position

Cash and cash equivalents totaled $1.7 billion as of March 31, 2012 compared with 1.2 billion as of December 31, 2011. Long-term debt stood at $1.6 billion as of March 31, 2012, which was the same as of December 31, 2011.

Outlook

Falling natural gas prices due to shale-derived natural gas has been an advantage for CF Industries. The company has high expectations for the planting season in 2012 due to the rising global population. The U.S. Department of Agriculture reported that farmers intend to plant 95.9 million acres of corn, 55.9 million acres of wheat and 13.2 million acres of cotton in 2012. At current crop prices, the company forecasts farmers to have the opportunity to continue to realize strong profits, and the economics will remain attractive for corn planting.

For phosphates, the company expects export markets to be more attractive than the domestic market due to strong demand in Latin America and India. For the long-term, the company anticipates tight global grain stocks to sustain high farm profits, plantings and fertilizer demand.

The company expects capital expenditures to be around $400 million in 2012. With this, the company remains focused to work on front-end engineering and design studies to invest up to $1.0 to $1.5 billion in production capacity and product mix enhancements within its existing North American nitrogen facilities over the next four years.

CF Industries competes with Agrium Inc. ( AGU - Analyst Report ) and Potash Corp. of Saskatchewan Inc. ( POT - Analyst Report ) . Currently, the company maintains a Zacks #2 Rank, which translates into a short-term (1 to 3 months) “Buy” rating. We have a long-term recommendation of “Neutral” on shares of CF Industries.