The world’s second-largest producer of nitrogen fertilizer, CF Industries Holdings Inc.’s ( CF - Analyst Report ) fourth-quarter 2012 adjusted earnings (excluding one-time items) of $7.27 per share, exceeded the year ago earnings of $7.13 and the Zacks Consensus Estimate of $7.03.

After including one-time items, the company earned a record $7.40 a share in the quarter, up 11.1% from $6.66 in the year-ago quarter. Strong ammonia market, favorable natural gas costs and excellent execution helped the company to achieve record earnings for the quarter.

For full-year 2012, earnings excluding one-time gains and charges were $27.92 compared with $21.98 a year ago and exceeded the Zacks Consensus Estimate of $27.87 per share. After including one-time items, earnings came in at a record $28.59 per share in the year.

Sales were down 13.8% to $1.48 billion in the quarter from $1.72 billion in the prior-year quarter. It also missed the Zacks Consensus Estimate of $1.58 billion. The decrease reflected the impact of a retroactive modification to the selling price calculation methodology used for products sold by Canadian Fertilizers Limited (CFL), which was made in connection with CF Industries’ pending acquisition of the outstanding interests in CFL.
For the full year, sales inched up 0.1% year over year to $6.1 billion but missed the Zacks Consensus Estimate of $6.2 billion.

Costs and Margins

Cost of sales stood at $825.2 million in the reported quarter compared with $853.2 million in the year-earlier quarter. Gross profit decreased 24.2% year over year to $656.2 million in the quarter. Selling, general and administrative expenses jumped 9.2% to $40.2 million from $36.8 million in the year-ago quarter. The company reported an operating income of $616.1 million, up 25.7% from $829.1 million in the prior-year quarter.

Segmental Performance

Nitrogen Segment

Sales declined 16% year over year at $1.2 billion in the fourth quarter. Gross margin plunged 21.1% to $620 million. Total sales volumes were up 3% year over year to 905,000 tons of ammonia in the quarter due to strong fall applications across the U.S. Corn Belt. Cost of sales declined in the quarter due to lower realized natural gas costs. Realized natural gas price in the quarter declined to $3.61 per MMBtu from $4.06 a year ago.

Phosphate Segment

Sales almost remained flat year over year at $255.8 million. Gross margin declined 54% to $36.2 million due to lower prices and higher phosphate production costs. Volumes sold in the quarter were 509,000 tons compared with 439,000 tons a year ago, attributed to higher domestic sales to support strong fall application. The average selling prices of diammonium phosphate (DAP) and monoammonium phosphate (MAP) were $499 and $527, respectively, down 13.4% and 12.7% year over year.

Financial Position

Cash and cash equivalents totaled $2.27 billion as of Dec 31, 2012, compared with $1.21 billion as of December 31, 2011. Long-term debt stood at $1.60 billion as of Dec 31, 2012, compared with $1.61 billion as of Dec 31, 2011.

Outlook

CF Industries remains positive regarding the first half of 2013 based on high corn planting expectations, strong domestic fertilizer demand and favorable natural gas costs. The company expects capital expenditures for its announced capacity expansion projects at Donaldsonville, La., and Port Neal, Iowa, to be in the range of $1-$1.3 billion in 2013. Capital expenditures for the company’s existing facilities are anticipated to be about $450 million.

Another fertilizer company Potash Corp of Sakatchewan Inc. ( POT - Analyst Report ) recently released its fourth-quarter 2012 results. The company’s adjusted earnings (excluding a provision for settlement of antitrust claims) of 52 cents per share missed the Zacks Consensus Estimate of 59 cents. Earnings, as reported, fell to 48 cents per share from 78 cents per share a recorded a year ago.

Sales came in at $1,642 million in the quarter, down 12% from $1,865 million registered a year ago, missing Zacks Consensus Estimate of $1,853 million. The year-over-year decline was due to reduced contributions from all three nutrients arising from slack global fertilizer markets and lower demand.

Another leading fertilizer company Agrium Inc. ( AGU - Analyst Report ) is slated to release its fourth- quarter 2012 results on Feb 21.

Currently, CF Industries retains a Zacks Rank #2 (Buy).

Another company in the fertilizer industry having favorable Zacks Rank is Rentech Nitrogen Partners, L.P. ( RNF - Snapshot Report ) . It holds a Zacks Rank #2 (Buy).