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CF Industries (CF) Q4 Loss Wider than Expected, Sales Miss

Zacks

Fertilizer maker, CF Industries CF swung to a loss of $320 million or $1.38 per share in the fourth quarter of 2016 from a profit of $27 million or 11 cents per share recorded a year ago. The results in the reported quarter include impairment charges of $134 million related to the company’s investment in Point Lisas Nitrogen Limited.

Barring one-time items, adjusted loss came in at 39 cents per share for the quarter, versus earnings of 72 cents per share recorded a year ago. Loss per share was wider than the Zacks Consensus Estimate of a loss of 6 cents.

Sales slipped roughly 22% year over year to $867 million in the quarter, and missed the Zacks Consensus Estimate of $905.6 million. Sales were hurt by reduced average selling prices across all segments. Excess nitrogen supply continued to weigh on prices in the quarter.

CF Industries Holdings, Inc. Price, Consensus and EPS Surprise

CF Industries Holdings, Inc. Price, Consensus and EPS Surprise | CF Industries Holdings, Inc. Quote


Segment Review

Sales for the Ammonia segment plunged roughly 44% year over year to $211 million in the reported quarter. Ammonia sales volumes fell 7% year over year to 762,000 tons, affected by unfavorable weather conditions and certain economic factors. Average selling prices declined 40% to $277 per ton owing to excess global nitrogen supply.

Sales for the Granular Urea segment dipped roughly 3% year over year to $189 million. Sales volumes jumped 25% year over year to 883,000 tons, driven by additional volume available for sale from the company's Donaldsonville Nitrogen Complex. Average selling prices for granular urea declined 22% to $214 per ton owing to elevated global nitrogen supply.

Sales in the UAN (urea ammonium nitrate solution) segment dropped 17% year over year to $305 million. UAN sales volume jumped 28% to 2,047,000 in the quarter due to additional volume available for sale from the Donaldsonville plant. Average selling prices went down 35% to $149 per ton, hurt by elevated global nitrogen supply.

Sales in the AN (ammonium nitrate) segment fell 19% year over year to $93 million. Sales volumes rose 9% to 541,000 tons on higher volumes across North America and the U.K. Average selling prices dropped 26% to $172 per ton on excess nitrogen supply.

The Other segment’s sales rose around 9% year over year to $69 million. Sales volumes were 24% higher in the reported quarter at 450,000 tons. Average selling price decreased 13% to $153 per ton due to high levels of global nitrogen supply.

Financials

CF Industries’ cash and cash equivalents were $1,164 million at the end of 2016, a four-fold year over year rise. Long-term debt was $5,778 million, up around 4% year over year.

Outlook


CF Industries sees demand for nitrogen in North America to be relatively unchanged on a year over year basis in 2017. The company envisions 89.5 million acres of corn to be planted and less than 50 million acres of wheat to be planted in the U.S. this year. In Canada, reduced grain planting is expected to be more than offset by higher canola plantings. As such, the company sees total nitrogen fertilizer demand in North America to be roughly 16 million nutrient tons for 2017.

CF Industries anticipates nitrogen prices to continue to improve in North America during the first half of 2017. However, an uncertain pricing environment is expected during the second half as additional nitrogen capacity comes online globally including a considerable increase in North America.

For 2017, the company expects new capital expenditures in the band of around $400 to $450 million for sustaining and other operations.

Price Performance

CF Industries has outperformed the Zacks categorized Fertilizers industry in the past three months, aided by its efforts to boost production capacity. The company’s shares have gained around 27.2% over this period, compared with roughly 16.4% gain recorded by the industry.



Zacks Rank & Key Picks

CF Industries currently carries a Zacks Rank #3 (Hold).

Better-ranked companies in the basic materials space include Methanex Corporation MEOH, Albemarle Corporation ALB and The Scotts Miracle-Gro Company SMG.

Methanex has an expected long-term growth of 15% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Albemarle holds a Zacks Rank #2 (Buy) and has an expected long-term growth of 10%.

Scotts Miracle-Gro holds a Zacks Rank #2 and has an expected long-term growth of 12.4%.

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