CF Industries Holdings, Inc. — Q1 2024 10-Q
Reporting period: Three months ended March 31, 2024. CF Industries produces and sells nitrogen fertilizers and industrial products, with manufacturing operations in North America and the U.K. Its business is exposed to global nitrogen-product prices, natural gas costs, weather and seasonal fertilizer demand.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $1.470 billion | $2.012 billion | Down 27% |
| Gross margin | $409 million | $863 million | Down 53%; margin 27.8% vs. 42.9% |
| Operating earnings | $303 million | $826 million | Down 63% |
| Net earnings attributable to common stockholders | $194 million | $560 million | Down 65% |
| Diluted EPS | $1.03 | $2.85 | Down 64% |
| Cash provided by operating activities | $445 million | $947 million | Down $502 million |
| Capital expenditures | $98 million | $69 million | Up $29 million |
Management attributed lower earnings primarily to a 27% decrease in average selling prices, to $325 per ton from $444. Lower natural-gas costs partly offset the price decline: production gas cost, including realized derivatives, fell 52% to $3.19 per MMBtu and added an estimated $269 million to gross margin versus Q1 2023. Sales volume was broadly flat at 4.52 million tons. Natural-gas derivative results included $33 million of unrealized gains, versus $72 million a year earlier; derivatives are not accounted for as hedges, so mark-to-market changes affect reported earnings.
Gross ammonia production fell 9% to 2.1 million tons. Management cited a January winter storm, temporary plant shutdowns and increased maintenance, which together led to approximately $75 million of additional maintenance, repair and unabsorbed fixed costs. Waggaman added approximately 122,000 tons of ammonia sales volume.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1.773 billion at March 31, 2024, down $259 million from year-end 2023. Current assets were $2.719 billion and current liabilities $690 million.
- Long-term debt had a $2.969 billion carrying amount and $3.000 billion principal outstanding. The company had no revolver borrowings and $750 million of unused capacity under its $750 million revolving facility, maturing in October 2028; it reported covenant compliance.
- Operating cash flow was $445 million; investing cash outflow was $100 million and financing cash outflow was $602 million. Financing outflows included $339 million paid for share repurchases, $97 million of common dividends and $144 million distributed to the noncontrolling interest.
- The company repurchased approximately 4.3 million shares for $347 million under its $3 billion repurchase authorization. The quarterly dividend declared was $0.50 per share, up 25% from $0.40.
Outlook, strategy and material items
- Management expects 2024 gross ammonia production of approximately 9.8 million tons and full-year capital expenditures of approximately $550 million.
- At Donaldsonville, commissioning of the 20 MW green-hydrogen facility was nearing completion. The company expects it to support production of approximately 20,000 tons of green ammonia annually. A separate, estimated $200 million carbon-capture project is planned to start up in 2025 and could enable dehydration and compression of up to 2 million tons of process CO2 per year.
- CF and Mitsui are targeting a second-half 2024 investment decision for a proposed Louisiana low-carbon ammonia project; estimated project cost is approximately $3 billion. Further engineering studies were expected to report in the second half of 2024.
- On April 17, 2024, after quarter-end, CF and JERA announced a joint development agreement to assess a proposed 1.4 million-tonne-per-year low-carbon ammonia facility. The contemplated terms include a possible 48% JERA stake and annual procurement of more than 500,000 tonnes; the parties aim for an investment decision within a year and production in 2028. These plans remain subject to evaluation and agreement.
- The December 2023 Waggaman acquisition cost $1.675 billion, subject to adjustment; $425 million was allocated to the ammonia offtake agreement. A final purchase-price adjustment was expected in Q2 2024 and was not expected to be material.
Key risks include volatile fertilizer selling prices and natural-gas costs, weather and plant reliability, seasonality and changing customer forward-purchase activity, competition and global supply-demand conditions, transportation and input availability, environmental and permitting requirements, and execution, cost and market risks associated with low-carbon ammonia projects. Reported quarterly results are not necessarily indicative of future results.
Important facts for investors to verify
- Whether nitrogen selling prices and margins stabilize or recover, and how natural-gas prices and derivative positions affect realized production costs.
- Whether production recovers from Q1 weather and maintenance disruptions and the company achieves its approximately 9.8 million-ton 2024 production outlook.
- Whether planned capital spending remains near $550 million and whether major decarbonization projects meet their cost, schedule, permitting and investment-decision milestones.
- Progress on JERA and Mitsui proposals, including final project terms, committed offtake, financing and investment approvals.
- Cash generation and liquidity after dividends, repurchases, noncontrolling-interest distributions and capital expenditures; also confirm remaining authorization under the share repurchase program.
- How the remaining Waggaman purchase-price adjustment and the long-term supply agreement affect future cash flows and reported results.