Grain Prices, Industrial Recovery Support Global Nitrogen Demand Strength into 2023
Widening Energy Spreads Steepen Global Cost Curve, Driving Improved Margins
Company Achieved Investment Grade Credit Ratings
Board Authorizes $1.5 Billion Share Repurchase Program
DEERFIELD, Ill.--(BUSINESS WIRE)--CF Industries Holdings, Inc. (NYSE: CF), a leading global manufacturer of hydrogen and nitrogen products, today announced results for its first nine months and third quarter ended September 30, 2021. As discussed below, results are preliminary pending completion of an impairment analysis and finalization of non-cash impairment charges related to the Company’s UK operations.
Highlights
- First nine months net earnings of $212 million(1), or $0.98 per diluted share, and EBITDA(2) of $984 million, which include the impact of preliminary pre-tax non-cash impairment charges of $495 million related to the Company’s UK operations; adjusted EBITDA(2) of $1,485 million
- Third quarter net loss of $185 million(1), or $0.86 per diluted share, and EBITDA loss of $10 million, which include the impact of preliminary pre-tax non-cash impairment charges of $495 million related to the Company’s UK operations; adjusted EBITDA of $488 million
- Trailing twelve month net cash from operating activities of $1.68 billion, free cash flow(3) of $1.00 billion
- Achieved Investment Grade Credit Ratings from S&P Global Ratings and Fitch Ratings
- Redeemed $250 million in debt in the third quarter, lowering long-term debt to $3.5 billion, committed to lowering gross debt to $3.0 billion
- Repurchased approximately 1.1 million shares for $50 million during the third quarter; new $1.5 billion share repurchase program authorized for 2022-2024
- Board approved construction of carbon dioxide dehydration and compression units at Donaldsonville and Yazoo City complexes, enabling the production of up to 1.25 million tons of blue ammonia annually
- U.S. International Trade Commission issued an affirmative decision in the preliminary phase of its antidumping and countervailing duty investigation of UAN imports from Russia and Trinidad
“Strong global nitrogen demand, favorable energy spreads and continued excellent performance by the CF team helped us deliver a nearly 50 percent increase in adjusted EBITDA through the first nine months of 2021 compared to 2020,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “We expect positive nitrogen industry fundamentals will persist at least into 2023, underpinned by the need to replenish global grains stocks and by rising economic activity. We are well-positioned to capitalize on these positive industry dynamics, enabling us to invest in our clean energy initiatives, return substantial capital to shareholders and achieve our goal of $3 billion of gross debt by 2023.”
Nitrogen Market Outlook
High crop prices and the need to replenish global grains stocks are expected to underpin global fertilizer demand in the near-term. Forward curves indicate elevated crop prices through 2023, incentivizing strong plantings and fertilizer use globally. The rebound in global GDP growth and industrial activity also has supported increased nitrogen demand. Additionally, management believes that global nitrogen supply will remain constrained with production in key regions affected by high energy prices.
- North America: Management projects that farmers will continue to plant nitrogen-consuming crops (corn, wheat, cotton and canola) at high levels given their relatively high front month and futures prices. The Company projects that corn plantings in the United States will be approximately 93 million acres in 2022, similar to 2021. Industrial activity in the region continues to increase in line with economic activity, supporting further demand for nitrogen products.
- India: Management expects India to continue to tender for urea into the first quarter of 2022 due to lower domestic urea production and lower-than-expected urea volumes secured from tenders earlier in 2021.
- Brazil: Reduced corn production in 2021 has supported higher corn prices and suggests higher planted corn acres in the current and upcoming planting season. Through September, urea imports to Brazil were 10% higher than in 2020.
- Europe: Forward curves for natural gas in Europe and Asia project that prices will remain high through at least the first quarter, challenging producer profitability and suggesting lower operating rates in the near-term. As a result, management expects significantly higher nitrogen imports into Europe to meet demand for winter crops and the spring application season, reflecting the impact of 8-10 million metric tons of annual ammonia capacity that is shut down or curtailed in the region currently.
- China: Urea exports from China are expected to be limited through at least the first half of 2022 as the Chinese government has implemented measures to promote the availability and affordability of fertilizers domestically, including steps to discourage urea exports.
During this period, energy differentials between Europe and Asia to the Henry Hub natural gas price benchmark in the United States have increased substantially. This has steepened the global nitrogen cost curve and increased margin opportunities for low-cost North American producers. Forward curves suggest that favorable energy spreads will persist throughout 2022 and into 2023, albeit at levels lower than the highs of recent months.
As a result, management expects the global nitrogen pricing outlook to remain favorable as high global nitrogen demand and lower operating rates in Europe and Asia from high energy prices should sustain a tight global nitrogen supply and demand balance at least into 2023.
Operations Overview
The Company continues to operate safely and efficiently across its network. As of September 30, 2021, the 12-month rolling average recordable incident rate was 0.24 incidents per 200,000 work hours, which is significantly better than industry benchmarks.
Gross ammonia production for the third quarter of 2021 was approximately 2.2 million tons, and was approximately 6.9 million tons for the first nine months of 2021. Management expects gross ammonia production for the full year 2021 will be approximately 9 million tons. This reflects the impact of the highest level of maintenance activity in the Company’s history, including turnarounds at seven of the Company’s 17 ammonia plants. Production volumes were also affected by plant outages and subsequent maintenance due to natural gas availability issues caused by Winter Storm Uri in February 2021 and maintenance related to Hurricane Ida in August 2021.
In September 2021, the Company announced a halt to UK operations at its Billingham and Ince facilities due to high natural gas prices. Subsequently, the Company’s UK subsidiary restarted the Billingham Complex under an interim agreement with the UK government to ensure the supply of carbon dioxide (CO2), a byproduct of the ammonia production process, in the country. The Billingham facility is expected to continue to operate through at least January 2022, reflecting the impact of new CO2 pricing and offtake agreements reached with its industrial gas customers. Operations remain halted at the Company’s Ince facility and the Company is continuing to monitor market conditions.
Financial Results Overview
Material Impairment Charges
Following the Company’s decision in September 2021 to halt UK operations at its Billingham and Ince facilities, management conducted an evaluation of the goodwill and long-lived assets, including definite-lived intangible assets, of its UK operations to determine if their fair value had declined to below their carrying value. As a result of this review, management concluded that a decline in the fair value had occurred as of September 30, 2021. The financial information included in this release reflects the recognition of preliminary pre-tax non-cash impairment charges of $495 million. The preliminary non-cash impairment charges are subject to completion of the Company’s quarter-end close procedures. As a result, the financial information included in this report is subject to change and constitutes forward-looking information. The Company expects to complete the impairment analysis and finalize the amount of the impairment charges in connection with the filing of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2021.
First Nine Months 2021 Financial Results
For the first nine months of 2021, net earnings attributable to common stockholders were $212 million, or $0.98 per diluted share; EBITDA was $984 million; and adjusted EBITDA was $1,485 million. These results compare to the first nine months of 2020 net earnings attributable to common stockholders of $230 million, or $1.07 per diluted share; EBITDA of $982 million; and adjusted EBITDA of $1,012 million.
Net sales in the first nine months of 2021 were $4.0 billion compared to $3.0 billion in the first nine months of 2020. Average selling prices for the first nine months of 2021 were higher than the first nine months of 2020 across all segments due to strong global demand as well as decreased global supply availability as higher global energy costs drove lower global operating rates. Sales volumes in the first nine months of 2021 were lower than the first nine months of 2020 due to lower supply availability from lower production.
Cost of sales for the first nine months of 2021 was higher compared to the first nine months of 2020 due to higher natural gas costs and higher maintenance costs, partially offset by the impact of lower sales volumes and the gain the Company recognized from the net settlement of certain natural gas contracts with suppliers during February 2021.
In the first nine months of 2021, the average cost of natural gas reflected in the Company’s cost of sales was $3.51 per MMBtu(4) compared to the average cost of natural gas in cost of sales of $2.11 per MMBtu in the first nine months of 2020.
Third Quarter 2021 Financial Results
For the third quarter of 2021, net loss attributable to common stockholders was $185 million, or $0.86 per diluted share; EBITDA loss was $10 million; and adjusted EBITDA was $488 million. These results compare to third quarter 2020 net loss attributable to common stockholders of $28 million, or $0.13 per diluted share; EBITDA of $196 million; and adjusted EBITDA of $204 million.
Net sales in the third quarter of 2021 were $1.36 billion compared to $0.85 billion in the third quarter of 2020. Average selling prices for the third quarter of 2021 were higher than the third quarter of 2020 across all segments due to strong global demand as well as decreased global supply availability as higher global energy costs drove lower global operating rates. Sales volumes in the third quarter of 2021 were lower than the third quarter of 2020 due to lower supply availability from lower production.
Cost of sales for the third quarter of 2021 was higher compared to the third quarter of 2020 primarily due to higher natural gas costs and higher maintenance costs, partially offset by the impact of lower sales volumes.
In the third quarter of 2021, the average cost of natural gas reflected in the Company’s cost of sales was $4.21 per MMBtu compared to the average cost of natural gas in cost of sales of $1.91 per MMBtu in the third quarter of 2020.
Capital Management
Capital Expenditures
Capital expenditures in the third quarter and first nine months of 2021 were $201 million and $382 million, respectively. Management projects capital expenditures for full year 2021 will be in the range of $500 million, reflecting higher maintenance activity in 2021, which included maintenance deferred from 2020 as well as activity that was previously planned to occur in 2022.
Long-Term Debt Actions
On September 10, 2021, the Company’s wholly owned subsidiary CF Industries, Inc., redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of its 3.450% senior notes due 2023 in accordance with the optional redemption provisions in the indenture governing them. The total amount for the partial redemption was approximately $265 million, including accrued interest. As of September 30, 2021, the aggregate principal amount of CF Industries Holdings, Inc.'s outstanding long-term indebtedness was $3.5 billion.
During the quarter, Fitch Ratings and S&P Global Ratings issued investment-grade credit ratings with respect to CF Industries Holdings, Inc. The issuance of these ratings resulted in an Investment Grade Rating Event under the Company's 4.500% senior secured notes due 2026 and the satisfaction of the Collateral and Guarantee Release Conditions under our revolving credit agreement. As a result, under the terms of those debt instruments, the collateral, liens and subsidiary guarantees under those debt instruments were automatically released on August 23, 2021.
Share Repurchase Program
During the third quarter of 2021, the company repurchased approximately 1.1 million shares for $50 million. From February 2019, when the current $1 billion share repurchase authorization was announced, through September 30, 2021, the Company has repurchased approximately 11.3 million shares for $487 million. The current share repurchase program will expire at the end of 2021.
On November 3, 2021, the Board of Directors of CF Industries Holdings, Inc., authorized a new $1.5 billion share repurchase program. The program goes into effect January 1, 2022, and runs through the end of 2024.
CHS, Inc. Distribution
CHS Inc. (CHS) is entitled to semi-annual distributions resulting from its minority equity investment in CF Industries Nitrogen, LLC (CFN). The estimate of the partnership distribution earned by CHS, but not yet declared, for the third quarter of 2021 is approximately $94 million.
Clean Energy Initiatives
CF Industries continues to advance its plans to support the global hydrogen and clean fuel economy, which is expected to grow significantly over the next decade, through the production of blue and green ammonia. In line with this strategic focus, the Board of Directors has authorized projects that will enable the annual production of up to 1.25 million tons of blue ammonia – ammonia produced with the corresponding CO2 byproduct removed through carbon capture and sequestration – from the Company’s existing network starting in 2024.
The projects will involve constructing units at the Donaldsonville and Yazoo City complexes that dehydrate and compress CO2, a process essential for CO2 transport via pipeline to sequestration sites. Management expects that, once the units are in service and sequestration is initiated, the Company could sequester up to 2.5 million tons of CO2 per year (2 million tons at Donaldsonville and 500,000 tons at Yazoo City). Under current regulations, the projects would be expected to qualify for tax credits under Section 45Q of the Internal Revenue Code, which provides a credit per metric ton of CO2 sequestered.
The Company is currently in advanced discussions with several parties regarding transportation and sequestration of CO2 from Donaldsonville. Construction of the units at the Donaldsonville Complex is expected to begin in 2022 and to be completed in 2024, with an estimated total cost of $200 million. The Yazoo City project will commence once a third-party transport and sequestration partner has been confirmed and timed to coincide with CO2 transport pipeline construction. Once started, the project is expected to be completed in three years with an estimated total cost of $85 million.
CF Industries continues to develop other initiatives related to its clean energy strategy across the Company’s network.
UAN Antidumping and Countervailing Duty Investigations
On June 30, 2021, CF Industries, through certain of its production facilities, filed petitions with the U.S. Department of Commerce (“Commerce”) and the U.S. International Trade Commission (“ITC”) requesting the initiation of antidumping and countervailing duty investigations on imports of urea ammonium nitrate solutions (“UAN”) from Russia and Trinidad.
CF Industries, which is the largest producer of UAN in the United States, requested the investigations due to the harm the domestic UAN industry has experienced from dumped and unfairly subsidized UAN imports from Russia and Trinidad. CF Industries filed its petitions under United States antidumping and countervailing duty laws, which authorize Commerce to level the playing field for domestic industries injured by foreign imports that are dumped and unfairly subsidized.
On August 13, 2021, the ITC issued an affirmative decision in the preliminary phase of its antidumping and countervailing duty investigation of UAN imports from Russia and Trinidad. The ITC decision found that there is a reasonable indication that imports of UAN from Russia and Trinidad materially injure the U.S. UAN industry. Under U.S. trade laws, a finding of injury to the domestic industry is a prerequisite for imposing antidumping and countervailing duties.
As a result of the ITC’s determination, Commerce will continue its own investigations of UAN imports from Russia and Trinidad. The purpose of Commerce’s investigations is to determine whether imports of UAN from Russia and Trinidad are being dumped in the U.S. market or unfairly subsidized, and if so at what levels. Commerce is scheduled to issue its preliminary countervailing duty determinations in November 2021, followed by preliminary antidumping determinations. The Company expects that Commerce will then issue final determinations in 2022.
If Commerce’s final determinations are affirmative, then the ITC would make a final injury determination. If both agencies make affirmative final determinations – which typically takes approximately one year – then Commerce would issue antidumping and countervailing duty orders on UAN from Russia and Trinidad, which would remain in place for at least five years. At this time, management cannot predict the outcome of the proceedings, including whether antidumping or countervailing duties will be imposed on imports from either country, or the rate of any such duties.
| ____________ | ||
| (1) | Certain items recognized during the first nine months and third quarter of 2021 impacted our financial results and their comparability to the prior year period. See the table accompanying this release for a summary of these items. |
|
| (2) | EBITDA is defined as net (loss) earnings attributable to common stockholders plus interest expense—net, income taxes and depreciation and amortization. See reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP measures in the tables accompanying this release. |
|
| (3) | Free cash flow is defined as net cash from operating activities less capital expenditures and distributions to noncontrolling interest. See reconciliation of free cash flow to the most directly comparable GAAP measure in the table accompanying this release. |
|
| (4) | Average cost of natural gas excludes the $112 million gain the Company recognized from the net settlement of certain natural gas contracts with suppliers during February 2021. |
|
Consolidated Results |
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Three months ended
|
|
Nine months ended
|
|||||||||||||
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|||||||||
|
(dollars in millions, except per share and per MMBtu amounts) |
|||||||||||||||
Net sales |
$ |
1,362 |
|
|
$ |
847 |
|
|
$ |
3,998 |
|
|
$ |
3,022 |
|
|
Cost of sales |
|
922 |
|
|
|
764 |
|
|
|
2,766 |
|
|
|
2,401 |
|
|
Gross margin |
$ |
440 |
|
|
$ |
83 |
|
|
$ |
1,232 |
|
|
$ |
621 |
|
|
Gross margin percentage |
|
32.3 |
% |
|
|
9.8 |
% |
|
|
30.8 |
% |
|
|
20.5 |
% |
|
|
|
|
|
|
|
|
|
|||||||||
Net (loss) earnings attributable to common stockholders |
$ |
(185 |
) |
|
$ |
(28 |
) |
|
$ |
212 |
|
|
$ |
230 |
|
|
Net (loss) earnings per diluted share |
$ |
(0.86 |
) |
|
$ |
(0.13 |
) |
|
$ |
0.98 |
|
|
$ |
1.07 |
|
|
|
|
|
|
|
|
|
|
|||||||||
EBITDA(1) |
$ |
(10 |
) |
|
$ |
196 |
|
|
$ |
984 |
|
|
$ |
982 |
|
|
Adjusted EBITDA(1) |
$ |
488 |
|
|
$ |
204 |
|
|
$ |
1,485 |
|
|
$ |
1,012 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Tons of product sold (000s) |
|
3,784 |
|
|
|
4,743 |
|
|
|
13,522 |
|
|
|
14,817 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Natural gas supplemental data (per MMBtu): |
|
|
|
|
|
|
|
|||||||||
Cost of natural gas used for production in cost of sales(2) |
$ |
4.21 |
|
|
$ |
1.91 |
|
|
$ |
3.51 |
|
|
$ |
2.11 |
|
|
Average daily market price of natural gas Henry Hub (Louisiana) |
$ |
4.27 |
|
|
$ |
1.95 |
|
|
$ |
3.52 |
|
|
$ |
1.82 |
|
|
Average daily market price of natural gas National Balancing Point (United Kingdom) |
$ |
15.98 |
|
|
$ |
2.69 |
|
|
$ |
10.63 |
|
|
$ |
2.49 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Unrealized net mark-to-market gain on natural gas derivatives |
$ |
(12 |
) |
|
$ |
— |
|
|
$ |
(18 |
) |
|
$ |
(12 |
) |
|
Depreciation and amortization |
$ |
203 |
|
|
$ |
212 |
|
|
$ |
650 |
|
|
$ |
662 |
|
|
Capital expenditures |
$ |
201 |
|
|
$ |
87 |
|
|
$ |
382 |
|
|
$ |
206 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Production volume by product tons (000s): |
|
|
|
|
|
|
|
|||||||||
Ammonia(3) |
|
2,186 |
|
|
|
2,468 |
|
|
|
6,897 |
|
|
|
7,621 |
|
|
Granular urea |
|
987 |
|
|
|
1,149 |
|
|
|
3,139 |
|
|
|
3,640 |
|
|
UAN (32%) |
|
1,311 |
|
|
|
1,572 |
|
|
|
4,628 |
|
|
|
4,879 |
|
|
AN |
|
332 |
|
|
|
471 |
|
|
|
1,256 |
|
|
|
1,532 |
|
|
| ____________ | ||
| (1) | See reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP measures in the tables accompanying this release. |
|
| (2) | Includes the cost of natural gas used for production and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method. Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives. For the nine months ended September 30, 2021, excludes the $112 million gain on net settlement of certain natural gas contracts with suppliers due to Winter Storm Uri in February 2021. |
|
| (3) | Gross ammonia production, including amounts subsequently upgraded into other products. |
|
Ammonia Segment
CF Industries’ ammonia segment produces anhydrous ammonia (ammonia), which is the base product that the Company manufactures, containing 82 percent nitrogen and 18 percent hydrogen. The results of the ammonia segment consist of sales of ammonia to external customers for its nitrogen content as a fertilizer, in emissions control and in other industrial applications. The Company has also announced steps to produce blue ammonia and market to external customers for its hydrogen content in clean energy applications. In addition, the Company upgrades ammonia into other nitrogen products such as urea, UAN and AN.
|
Three months ended
|
|
Nine months ended
|
|||||||||||||
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|||||||||
|
(dollars in millions, except per ton amounts) |
|||||||||||||||
Net sales |
$ |
344 |
|
|
$ |
165 |
|
|
$ |
1,009 |
|
|
$ |
722 |
|
|
Cost of sales |
|
262 |
|
|
|
174 |
|
|
|
675 |
|
|
|
609 |
|
|
Gross margin |
$ |
82 |
|
|
$ |
(9 |
) |
|
$ |
334 |
|
|
$ |
113 |
|
|
Gross margin percentage |
|
23.8 |
% |
|
|
(5.5 |
)% |
|
|
33.1 |
% |
|
|
15.7 |
% |
|
|
|
|
|
|
|
|
|
|||||||||
Sales volume by product tons (000s) |
|
690 |
|
|
|
795 |
|
|
|
2,409 |
|
|
|
2,675 |
|
|
Sales volume by nutrient tons (000s)(1) |
|
566 |
|
|
|
651 |
|
|
|
1,976 |
|
|
|
2,193 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Average selling price per product ton |
$ |
499 |
|
|
$ |
208 |
|
|
$ |
419 |
|
|
$ |
270 |
|
|
Average selling price per nutrient ton(1) |
|
608 |
|
|
|
253 |
|
|
|
511 |
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Adjusted gross margin(2): |
|
|
|
|
|
|
|
|||||||||
Gross margin |
$ |
82 |
|
|
$ |
(9 |
) |
|
$ |
334 |
|
|
$ |
113 |
|
|
Depreciation and amortization |
|
41 |
|
|
|
34 |
|
|
|
138 |
|
|
|
133 |
|
|
Unrealized net mark-to-market gain on natural gas derivatives |
|
(4 |
) |
|
|
— |
|
|
|
(6 |
) |
|
|
(4 |
) |
|
Adjusted gross margin |
$ |
119 |
|
|
$ |
25 |
|
|
$ |
466 |
|
|
$ |
242 |
|
|
Adjusted gross margin as a percent of net sales |
|
34.6 |
% |
|
|
15.2 |
% |
|
|
46.2 |
% |
|
|
33.5 |
% |
|
|
|
|
|
|
|
|
|
|||||||||
Gross margin per product ton |
$ |
119 |
|
|
$ |
(11 |
) |
|
$ |
139 |
|
|
$ |
42 |
|
|
Gross margin per nutrient ton(1) |
|
145 |
|
|
|
(14 |
) |
|
|
169 |
|
|
|
52 |
|
|
Adjusted gross margin per product ton |
|
172 |
|
|
|
31 |
|
|
|
193 |
|
|
|
90 |
|
|
Adjusted gross margin per nutrient ton(1) |
|
210 |
|
|
|
38 |
|
|
|
236 |
|
|
|
110 |
|
|
| ____________ | ||
| (1) | Nutrient tons represent the tons of nitrogen within the product tons. |
|
| (2) | Adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. A reconciliation of adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton to gross margin, the most directly comparable GAAP measure, is provided in the table above. See “Note Regarding Non-GAAP Financial Measures” in this release. |
|
Contacts
Media
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Investors
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