CF Industries Holdings, Inc. (NYSE:CF) announced its earnings results on Tuesday. The company reported $8.38 earnings per share for the quarter, beating the analysts’ consensus estimate of $7.64 by $0.74. The company had revenue of $1.71 billion for the quarter, compared to the consensus estimate of $1.67 billion. During the same quarter last year, the company posted $8.71 earnings per share. CF Industries Holdings’s revenue was down 1.2% compared to the same quarter last year.
CF Industries benefits from an abundant supply of natural gas
Ample supplies of shale-derived natural gas, a key ingredient in nitrogen production, have been a boon for CF, although the price of natural gas has rebounded in the past year. CF Industries Holdings, Inc. (NYSE:CF) continued to benefit from the abundant supply of natural gas driven by production of North American shale gas. The company’s realized natural gas cost increased from $3.13 per MMBtu in 2012 to an average $3.79 per MMBtu in the second quarter of 2013. However, natural gas market prices declined from the beginning to the end of the 2013 second quarter reflecting milder than normal weather in May and June and persistently strong gas production, which hit record levels in May. At the end of the quarter, U.S. natural gas storage inventory was about at the five-year average.
Sales were down due to lower phosphate segment volumes and prices
Sales were down 1.7% to $1,714.9 million in the quarter from $1,735.6 million in the prior-year quarter. But it surpassed the Consensus Estimate of $1.67 billion.
The decrease reflects lower phosphate segment volumes and prices, which were offset partially by higher nitrogen segment revenues. 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). According to Citi phosphate segment gross profit dropped 65% Y/Y to $18mm, well below Citi’s $48mm forecast. The weakness reflected both lower sales volumes compared to Citi model (421k tons vs. 500k tons) and lower DAP/MAP prices. CF believes that spring phosphate demand in the US was below average, which could result in a stronger 2H13 for the segment.
Costs and Margins
Cost of sales stood at $849.7 million in the reported quarter compared with $692.3 million in the year-earlier quarter. Gross profit decreased 17% year over year to $865.2 million in the quarter. Selling, general and administrative expenses increased 7.7% to $44.5 million from $41.3 million in the year-ago quarter. The company reported an operating income of $833.7 million, down 17% from $1,005 million in the prior-year quarter.
Daniel Loeb: CF access to inexpensive natural gas a cost advantage
Third Point LLC, the hedge fund run by activist investor Daniel Loeb, said it held an unspecified stake in the Illinois supplier of nitrogen and phosphate fertilizers. Third Point said in a letter to investors that CF Industries Holdings, Inc. (NYSE:CF), one of the world’s largest agricultural and industrial fertilizer producers, should significantly increase its dividend. Third Point said it took a position in CF Industries because the company’s access to inexpensive natural gas, a key raw material in the production of fertilizer, provides it with a low cost advantage over global rivals.
A number of analysts have recently weighed in on CF Industries Holdings, Inc. (NYSE:CF) shares. Analysts at Scotiabank raised their price target on shares of CF Industries Holdings from $210.00 to $234.00 in a research note to investors on Thursday, August 1st. Finally, analysts at BGC Financial raised their price target on shares of CF Industries Holdings, Inc. (NYSE:CF) from $170.00 to $175.00 in a research note to investors on Tuesday, July 30th.