CF Industries Holdings, Inc. Reports First Quarter 2021 Net Earnings of $151 Million, EBITDA of $398 Million, Adjusted EBITDA of $398 Million

: Business Wire; Posted On Thursday, 06 May 2021 01:02

Rising Nitrogen Prices Supported by Increased Global Energy Spreads

Positive Nitrogen Outlook Driven by Robust Demand

Continued Progress on Clean Energy Initiatives

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 quarter ended March 31, 2021.

Highlights

First quarter net earnings of $151 million⁽¹⁾, or $0.70 per diluted share; EBITDA⁽²⁾ of $398 million; adjusted EBITDA⁽²⁾ of $398 million
Trailing twelve month net cash from operating activities of $1.52 billion, free cash flow⁽³⁾of $1.05 billion
Company completed redemption of remaining $250 million of Senior Secured Notes due December 2021
Engineering and procurement contract signed with thyssenkrupp for electrolysis plant to supply green hydrogen for green ammonia production at Donaldsonville

“The CF team delivered solid results in the first quarter as increased global energy spreads and strong demand led to rising nitrogen prices,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “We experienced a number of unusual negative impacts from weather and other factors that created challenges during the quarter, but we navigated those issues successfully in a way that mitigated a potentially negative outcome.”

Operations Overview

The Company continues to operate safely and efficiently across its network. As of March 31, 2021, the 12-month rolling average recordable incident rate was 0.28 incidents per 200,000 work hours, which is significantly better than industry benchmarks.

Gross ammonia production for the first quarter of 2021 was approximately 2.5 million tons compared to 2.7 million tons for the first quarter of 2020. During the quarter, winter weather events in the United States disrupted the natural gas market, temporarily restricting the availability of natural gas into several of the Company’s manufacturing complexes, which resulted in lower gross ammonia production. Plant outages generated higher costs for the Company related to fixed cost write-offs and higher maintenance expenses. The Company also experienced higher realized natural gas costs compared to the first quarter of 2020.

During the severe weather-related disruption of the natural gas market, management was informed that gas deliveries would be curtailed and force majeure gas shut-offs were likely at several of the Company’s facilities. Facing imminent shut-down of several plants, management worked with its suppliers of natural gas to net settle certain gas contracts the Company had in place. The net settlement of the natural gas purchase contracts resulted in the Company receiving prevailing market prices for the natural gas, resulting in a gain of $112 million.

Management expects gross ammonia production in 2021 will be approximately 9.5 - 10 million tons. This is lower than 2020 production due to a higher number of planned maintenance activities this year and knock-on plant outages from the forced February shut-downs due to natural gas availability issues.

“I am particularly proud of the way the CF team responded to the challenging situation brought on by the lack of gas availability at our plants. This would have been an extremely costly event had the team not responded quickly, and effectively mitigated the higher costs and lost production we were facing,” said Will.

First Quarter 2021 Financial Results Overview

For the first quarter of 2021, net earnings attributable to common stockholders were $151 million, or $0.70 per diluted share; EBITDA was $398 million; and adjusted EBITDA was $398 million. These results compare to first quarter 2020 net earnings attributable to common stockholders of $68 million, or $0.31 per diluted share; EBITDA of $314 million; and adjusted EBITDA of $318 million.

Net sales in the first quarter of 2021 were $1.05 billion compared to $971 million in the first quarter of 2020. Average selling prices for the first quarter of 2021 were higher than the first quarter of 2020 across most segments due to decreased global supply availability as higher global energy costs drove lower global operating rates. Sales volumes in the first quarter of 2021 were lower than the first quarter of 2020 due to lower supply availability from lower production.

Cost of sales for the first quarter of 2021 was essentially flat with the first quarter of 2020 on lower sales volume.

In the first quarter of 2021, the average cost of natural gas reflected in the Company’s cost of sales was $3.22 per MMBtu⁽⁴⁾ compared to the average cost of natural gas in cost of sales of $2.61 per MMBtu in the first quarter of 2020 due to higher natural gas costs in the United Kingdom as well as higher daily gas prices in North America due to severe winter weather.

Capital Management

Capital expenditures in the first quarter of 2021 were $71 million. Management projects capital expenditures for full year 2021 will be in the range of $450 million, which reflects a return to a normal level of maintenance activities and includes expenditures for the green ammonia project at the Donaldsonville manufacturing complex.

The Company’s wholly owned subsidiary CF Industries, Inc. redeemed in full all of the remaining $250 million outstanding principal amount of its 3.400% Senior Secured Notes due December 2021 (the “2021 Notes”) on March 20, 2021, in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes. The total amount for the redemption of the 2021 Notes was $258 million, including accrued interest.

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 first quarter of 2021 is approximately $50 million.

Nitrogen Market Outlook

The global nitrogen pricing outlook remains positive, as low global coarse grains stocks-to-use ratios and higher energy prices in Europe and Asia have significantly tightened the global nitrogen supply and demand balance. CF Industries believes these dynamics are highly favorable for low-cost nitrogen producers and appear sustainable into at least 2022.

Strong global coarse grains demand has brought major global coarse grains stocks-to-use ratios to multi-year lows. This has driven commodity crop near-term and futures prices to the highest prices in nearly a decade, supporting strong demand for nitrogen fertilizer to maximize yield. The Company projects that coarse grains stocks will require more than one growing season to be replenished.

In line with the global nitrogen demand outlook, CF Industries expects strong nitrogen demand in North America. The Company expects 90-92 million planted corn acres in the United States, higher canola plantings in Canada and industrial use rising with higher economic activity in 2021.

Nitrogen requirements in other key regions are expected to remain robust throughout the year, driven by continued strong demand for urea imports from India and Brazil. The Company projects urea tender volumes in India this year will be well above the five-year average of 6.5-7.0 million metric tons. The Company also believes that improved farm incomes in Brazil will support demand in 2021 at a similar level to 2020.

Energy prices in Europe and Asia have increased significantly from the lows of 2020 and returned to sizable differentials compared to Henry Hub natural gas prices in North America. This has steepened the global nitrogen cost curve and increased margin opportunities for low-cost North American producers. Forward curves suggest that these energy spreads will persist throughout 2021 and into 2022.

Clean Energy Strategy Update

The Company continues to advance its plans to support the global hydrogen and clean fuel economy, which is expected to grow significantly over the next decade.

In April, CF Industries signed an engineering and procurement contract with thyssenkrupp to supply a 20 MW alkaline water electrolysis plant to produce green hydrogen at the Company’s Donaldsonville, Louisiana, manufacturing complex. Construction and installation, which will be managed by CF Industries, is expected to begin in the second half of 2021 and to finish in 2023. The cost of the project is expected to fit within the Company’s annual capital expenditure budget. CF Industries will integrate the green hydrogen generated by the electrolysis plant into existing ammonia synthesis loops to enable the production of 20,000 tons per year of green ammonia. When complete in 2023, the Donaldsonville green ammonia project will be the largest of its kind in North America.

CF Industries also is developing initiatives related to carbon dioxide sequestration and other carbon abatement projects across the Company's network to enable net-zero carbon blue ammonia production.

________________________________________________________________

(1)		Certain items recognized during the first 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 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
	Three months ended March 31,
	2021				2020
	(dollars in millions, except per share and per MMBtu amounts)
Net sales	$	1,048			$	971
Cost of sales	759				767
Gross margin	$	289			$	204
Gross margin percentage	27.6			%	21.0			%

Net earnings attributable to common stockholders	$	151			$	68
Net earnings per diluted share	$	0.70			$	0.31

EBITDA⁽¹⁾	$	398			$	314
Adjusted EBITDA⁽¹⁾	$	398			$	318

Tons of product sold (000s)	4,564				4,688

Natural gas supplemental data (per MMBtu):
Cost of natural gas used for production in cost of sales⁽²⁾	$	3.22			$	2.61
Average daily market price of natural gas Henry Hub (Louisiana)	$	3.38			$	1.88
Average daily market price of natural gas National Balancing Point (UK)	$	6.90			$	3.20

Unrealized net mark-to-market gain on natural gas derivatives	$	(6	)		$	(12	)
Depreciation and amortization	$	204			$	211
Capital expenditures	$	71			$	67

Production volume by product tons (000s):
Ammonia⁽³⁾	2,479				2,670
Granular urea	1,184				1,285
UAN (32%)	1,689				1,599
AN	475				515

_______________________________________________________________________________

(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. 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 March 31,
	2021				2020
	(dollars in millions, except per ton amounts)
Net sales	$	206			$	193
Cost of sales	80				173
Gross margin	$	126			$	20
Gross margin percentage	61.2			%	10.4			%

Sales volume by product tons (000s)	683				762
Sales volume by nutrient tons (000s)⁽¹⁾	560				625

Average selling price per product ton	$	302			$	253
Average selling price per nutrient ton⁽¹⁾	368				309

Adjusted gross margin⁽²⁾:
Gross margin	$	126			$	20
Depreciation and amortization	36				39
Unrealized net mark-to-market gain on natural gas derivatives	(2		)		(4		)
Adjusted gross margin	$	160			$	55
Adjusted gross margin as a percent of net sales	77.7			%	28.5			%

Gross margin per product ton	$	184			$	26
Gross margin per nutrient ton⁽¹⁾	225				32
Adjusted gross margin per product ton	234				72
Adjusted gross margin per nutrient ton⁽¹⁾	286				88

_______________________________________________________________________________

(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.

Comparison of 2021 to 2020 first quarter periods:

Ammonia sales volume decreased for the first quarter of 2021 compared to 2020 due to lower supply availability from lower production.
Ammonia average selling prices increased for the first quarter of 2021 compared to 2020 due to decreased global supply availability as higher global energy costs drove lower global operating rates.
Ammonia adjusted gross margin per ton increased for the first quarter of 2021 compared to 2020 due to the gain the Company recognized from the net settlement of certain natural gas contracts with suppliers during February 2021 and higher average selling prices, partially offset by higher maintenance costs and higher realized natural gas costs.

Granular Urea Segment

CF Industries’ granular urea segment produces granular urea, which contains 46 percent nitrogen. Produced from ammonia and carbon dioxide, it has the highest nitrogen content of any of the Company’s solid nitrogen products.

	Three months ended March 31,
	2021				2020
	(dollars in millions, except per ton amounts)
Net sales	$	399			$	337
Cost of sales	264				224
Gross margin	$	135			$	113
Gross margin percentage	33.8			%	33.5			%

Sales volume by product tons (000s)	1,320				1,381
Sales volume by nutrient tons (000s)⁽¹⁾	607				635

Average selling price per product ton	$	302			$	244
Average selling price per nutrient ton⁽¹⁾	657				531

Adjusted gross margin⁽²⁾:
Gross margin	$	135			$	113
Depreciation and amortization	66				72
Unrealized net mark-to-market gain on natural gas derivatives	(2		)		(4		)
Adjusted gross margin	$	199			$	181
Adjusted gross margin as a percent of net sales	49.9			%	53.7			%

Gross margin per product ton	$	102			$	82
Gross margin per nutrient ton⁽¹⁾	222				178
Adjusted gross margin per product ton	151				131
Adjusted gross margin per nutrient ton⁽¹⁾	328				285

_______________________________________________________________________________

(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.

Comparison of 2021 to 2020 first quarter periods:

Granular urea sales volume decreased for the first quarter of 2021 compared to 2020 due to lower supply availability from lower production partially offset by 97,000 tons of purchased urea.
Urea average selling prices increased for the first quarter of 2021 compared to 2020 due to decreased global supply availability as higher global energy costs drove lower global operating rates.
Granular urea adjusted gross margin per ton increased for the first quarter 2021 compared to 2020 due to higher average selling prices and $32 million in net sales related to purchased urea, partially offset by $33 million in cost of sales related to purchased urea and higher realized natural gas costs.

UAN Segment

CF Industries’ UAN segment produces urea ammonium nitrate solution (UAN). UAN is a liquid product with nitrogen content that typically ranges from 28 percent to 32 percent and is produced by combining urea and ammonium nitrate in solution.

	Three months ended March 31,
	2021				2020
	(dollars in millions, except per ton amounts)
Net sales	$	232			$	235
Cost of sales	230				193
Gross margin	$	2			$	42
Gross margin percentage	0.9			%	17.9			%

Sales volume by product tons (000s)	1,514				1,390
Sales volume by nutrient tons (000s)⁽¹⁾	476				436

Average selling price per product ton	$	153			$	169
Average selling price per nutrient ton⁽¹⁾	487				539

Adjusted gross margin⁽²⁾:
Gross margin	$	2			$	42
Depreciation and amortization	56				52
Unrealized net mark-to-market gain on natural gas derivatives	(2		)		(3		)
Adjusted gross margin	$	56			$	91
Adjusted gross margin as a percent of net sales	24.1			%	38.7			%

Gross margin per product ton	$	1			$	30
Gross margin per nutrient ton⁽¹⁾	4				96
Adjusted gross margin per product ton	37				65
Adjusted gross margin per nutrient ton⁽¹⁾	118				209

_______________________________________________________________________________

(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.

Comparison of 2021 to 2020 first quarter periods:

UAN sales volume increased for the first quarter of 2021 compared to 2020 due to higher supply availability from higher production.
UAN average selling prices decreased for the first quarter of 2021 compared to 2020 as a substantial volume of first quarter shipments were priced in 2020 at a time of increased global supply availability.
UAN adjusted gross margin per ton decreased for the first quarter of 2021 compared to 2020 due to lower average selling prices and higher realized natural gas costs.

AN Segment

CF Industries’ AN segment produces ammonium nitrate (AN). AN is used as a nitrogen fertilizer with nitrogen content between 29 percent to 35 percent, and also is used by industrial customers for commercial explosives and blasting systems.

	Three months ended March 31,
	2021			2020
	(dollars in millions, except per ton amounts)
Net sales	$	105		$	116
Cost of sales	95			103
Gross margin	$	10		$	13
Gross margin percentage	9.5		%	11.2			%

Sales volume by product tons (000s)	438			547
Sales volume by nutrient tons (000s)⁽¹⁾	147			184

Average selling price per product ton	$	240		$	212
Average selling price per nutrient ton⁽¹⁾	714			630

Adjusted gross margin⁽²⁾:
Gross margin	$	10		$	13
Depreciation and amortization	19			26
Unrealized net mark-to-market gain on natural gas derivatives	—			(1		)
Adjusted gross margin	$	29		$	38
Adjusted gross margin as a percent of net sales	27.6		%	32.8			%

Gross margin per product ton	$	23		$	24
Gross margin per nutrient ton⁽¹⁾	68			71
Adjusted gross margin per product ton	66			69
Adjusted gross margin per nutrient ton⁽¹⁾	197			207

_______________________________________________________________________________

(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.

Comparison of 2021 to 2020 first quarter periods:

AN sales volume decreased for the first quarter of 2021 compared to 2020 due to lower supply availability from lower production.
AN average selling prices for the first quarter of 2021 increased compared to 2020 due to decreased global supply availability as higher global energy costs drove lower global operating rates.
AN adjusted gross margin per ton decreased for the first quarter of 2021 compared to 2020 due primarily to higher realized natural gas costs, partially offset by higher average selling prices.

Other Segment

CF Industries’ Other segment includes diesel exhaust fluid (DEF), urea liquor, nitric acid and compound fertilizer products (NPKs).

	Three months ended March 31,
	2021			2020
	(dollars in millions, except per ton amounts)
Net sales	$	106		$	90
Cost of sales	90			74
Gross margin	$	16		$	16
Gross margin percentage	15.1		%	17.8		%

Sales volume by product tons (000s)	609			608
Sales volume by nutrient tons (000s)⁽¹⁾	122			120

Average selling price per product ton	$	174		$	148
Average selling price per nutrient ton⁽¹⁾	869			750

Adjusted gross margin⁽²⁾:
Gross margin	$	16		$	16
Depreciation and amortization	22			17
Unrealized net mark-to-market (gain) loss on natural gas derivatives	—			—
Adjusted gross margin	$	38		$	33
Adjusted gross margin as a percent of net sales	35.8		%	36.7		%

Gross margin per product ton	$	26		$	26
Gross margin per nutrient ton⁽¹⁾	131			133
Adjusted gross margin per product ton	62			54
Adjusted gross margin per nutrient ton⁽¹⁾	311			275

Contacts

Media
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Director, Corporate Communications
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Investors
Martin Jarosick
Vice President, Investor Relations
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