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CF Industries Earnings Beat, Sales Miss

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Leading fertilizer company CF Industries Holdings Inc.’s (CF - Free Report) first-quarter 2013 adjusted earnings (excluding one-time items) of $6.03 per share were below the year-ago earnings of $6.06 but exceeded the Zacks Consensus Estimate of $6.00.

After including one-time items, the company earned $6.47 a share in the quarter, up 16.8% from $5.54 in the year-ago quarter.

Sales were down 12.5% to $1.34 billion in the quarter from $1.53 billion in the prior-year quarter. It also missed the Zacks Consensus Estimate of $1.45 billion. The decrease reflected lower sales volumes in both the Nitrogen and Phosphate divisions and lower average prices for urea and phosphates. Sales also declined due to the impact of a change in the selling price calculation method used for products sold by Canadian Fertilizers Limited (CFL).

Costs and Margins

Cost of sales stood at $661.4 million in the reported quarter compared with $815.8 million in the year-earlier quarter. Gross profit decreased 5.2% year over year to $675.1 million in the quarter. Selling, general and administrative expenses jumped 31.1% to $44.3 million from $33.8 million in the year-ago quarter. The company reported an operating income of $627.8 million, down 6.5% from $671.2 million in the prior-year quarter.

Segmental Performance

Nitrogen Segment

Sales declined 14% year over year to $1.1 billion in the first quarter. Gross margin declined 2.2% to $647.6 million. Total sales volumes of ammonia, granular urea, UAN and ammonium nitrate were down 6% year over year to 3 million tons. Cost of sales declined in the quarter due to lower sales volumes. Realized natural gas price in the quarter increased to $3.57 per MMBtu from $3.48 a year ago.

Phosphate Segment

Sales fell 7% year over year to $238.9 million. Gross margin declined 45% to $27.5 million due to lower revenues and higher phosphate production costs. Volumes sold in the quarter were 495,000 tons, down from 516,000 tons a year ago, attributable to lower export sales associated with a seasonally slow international phosphate market. Average selling prices of diammonium phosphate (DAP) and monoammonium phosphate (MAP) were $477 and $511, respectively, down 3.4% and up 1% year over year, respectively.

Financial Position

Cash and cash equivalents totaled to $2.21 billion as of Mar 31, 2013, compared with $1.71 billion as of Mar 31, 2012. Long-term debt stood at $1.6 billion as of Mar 31, 2013, compared with $1.61 billion as of Mar 31, 2012.


CF Industries remains positive regarding the second-quarter 2013 based on higher prices for grains which will provide farmers with incentives to plant corn and apply both nitrogen and phosphate. Low domestic and global grain stocks are anticipated to boost plantings for the next several years.

The company expects capital expenditures for its announced capacity expansion projects at Donaldsonville, La., and Port Neal, Iowa, to be in the range of $600-$800 million 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. released its first-quarter 2013 results last month. The company’s earnings of 63 cents per share for the quarter exceeded the Zacks Consensus Estimate of 61 cents, reflecting a positive surprise of around 3.3%. The company posted a profit of $556 million in the reported quarter, up roughly 13% from $491 million (56 cents a share) recorded a year ago.

Sales came in at $2,100 million in the quarter, up 20.3% from $1,746 million registered a year ago, and ahead of the Zacks Consensus Estimate of $1,923 million. The year-over-year increase was due to improved global potash demand and record first-quarter nitrogen contributions.

Another leading fertilizer company Agrium Inc. is slated to release its first- quarter 2013 results on May 9.

CF Industries currently retains a short-term Zacks Rank #3 (Hold).

Another fertilizer company with a favorable Zacks Rank is Monsanto , which carries a Zacks Rank #2 (Buy).

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