CF Industries Holdings Inc.’s ( CF - Analyst Report ) third-quarter 2012 adjusted earnings (excluding one-time gains) of $5.85 per share exceeded the Zacks Consensus Estimate of $5.82. After including one-time items, the company earned $6.35 a share in the quarter, up 34.2% from $4.73 in the year-ago quarter.

Sales were down 3.2% to $1.36 billion in the quarter from $1.40 billion in the prior-year quarter. However, it edged past the Zacks Consensus Estimate of $1.35 billion. Lower nitrogen volume and phosphate product pricing led to the decline in sales. Total sales volumes decreased 2% year over year to 3.5 million tons due to lower urea sales.

Costs and Margins

Cost of sales stood at $657.4 million compared with $765.8 million in the year-earlier quarter. Gross profit increased 10% to $702 million in the quarter. Selling, general and administrative expenses jumped 19.7% to $36.5 million from $30.5 million in the year-ago quarter. The company reported an operating income of $667.1 million, up 14.6% from $582.3 million in the prior-year quarter.

Segmental Performance

Nitrogen Segment

Sales were flat year over year at $1.1 billion. Gross margin spiked 16% to $638.6 million. Total sales volumes were down 3% year over year to 3 million tons in the quarter. Cost of sales declined in the quarter due to lower realized natural gas costs. Natural gas production was high during the quarter and amount of natural gas in storage was also high. The realized natural gas price in the quarter declined to $3.34 per MMBtu from $4.45 a year ago.

Phosphate Segment

Sales declined 8% year over year to $264.2 million. Gross margin declined 26% to $63.4 million due to lower prices. Volumes sold in the quarter were 517,000 tons, up from 505,000 tons a year ago, attributed to higher domestic sales as customers sought to rebuild inventory in anticipation of strong demand from high expected corn plantings next year. The average selling prices of diammonium phosphate (DAP) and monoammonium phosphate (MAP) were $507 and $521, respectively, down 10.4% and 8.1% year over year.

Financial Position

Cash and cash equivalents totaled $2.22 billion as of September 30, 2012, compared with $1.21 billion as of December 31, 2011. Long-term debt stood at $1.60 billion as of September 30, 2012, compared with $1.61 billion as of December 31, 2011.

Outlook

CF Industries remains positive for the remainder of 2012 as well as 2013 based on high corn planting expectations for 2013, strong domestic fertilizer demand, tight domestic nitrogen supply and favorable natural gas costs. The company expects capital expenditures to be in the range of $350-$400 million in 2012 (excluding spending on the new capacity expansion projects).

CF Industries competes with Agrium Inc. ( AGU - Analyst Report ) and Potash Corp. of Saskatchewan Inc. ( POT - Analyst Report ) . Currently, the company maintains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) “Hold” rating. We have a long-term (more than 6 months) “Neutral” recommendation on its shares.