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CF Industries Holdings, Inc. Reports First Quarter 2023 Net Earnings of $560 Million, Adjusted EBITDA of $866 Million

Strong Operational Performance, Energy Spreads Underpin Solid Results

W
aggaman Ammonia Facility Purchase to Support Growth, Clean Energy Strategy

MOU with LOTTE CHEMICAL for Clean Ammonia Supply to South Korea

CF Industries Holdings, Inc. (NYSE: CF), a leading global manufacturer of hydrogen and nitrogen products, today announced results for the first quarter ended March 31, 2023.

Highlights

  • First quarter 2023 net earnings of $560 million(1), or $2.85 per diluted share, EBITDA(2) of $924 million, and adjusted EBITDA(2) of $866 million
  • Trailing twelve months net cash from operating activities of $3.41 billion and free cash flow(3) of $2.33 billion
  • Signed a definitive asset purchase agreement with Incitec Pivot Limited (IPL) for IPL’s ammonia production complex located in Waggaman, Louisiana
  • Executed memorandum of understanding (MOU) with LOTTE CHEMICAL Corporation (LOTTE), South Korea’s leading chemical company, regarding clean ammonia supply into South Korea
  • Repurchased more than 1 million shares for $75 million during the first quarter of 2023

“The CF Industries team executed our business well in the first quarter of 2023 as we worked safely, delivered strong operational performance and advanced our clean energy and growth initiatives, including our agreement to buy the Waggaman ammonia production complex,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “Despite downward pressure in the global nitrogen market compared to the unprecedented pricing environment in 2022, industry fundamentals remain positive and forward global energy curves suggest attractive margin opportunities for our cost-advantaged network for the foreseeable future. As a result, we expect to continue to drive strong cash generation, enabling us to create long-term shareholder value through disciplined investments in clean energy, inorganic growth opportunities and returning substantial capital to shareholders.”

Nitrogen Market Outlook

Global nitrogen prices weakened during the first quarter of 2023 as higher global operating rates increased supply availability during a period of low global demand from delayed purchasing in the agriculture sector, high inventory levels in Europe from 2022 imports and lower industrial activity. Global urea prices have risen as demand emerged in April for the spring application season in North America. Longer-term, management expects the global nitrogen supply-demand balance will remain positive, underpinned by agriculture-led demand and forward energy curves that point to wider-than-average energy spreads for LNG-dependent producers in Europe and Asia.

The need to replenish global grains stocks, which has supported high prices for corn, wheat and canola, continues to drive global nitrogen demand. Stocks-to-use ratios remain low for feed grains and oilseeds following lower-than-expected production in 2022. Management believes that it will take at least two years of harvests at trend yield to fully replenish global grains stocks, supporting strong grains plantings and incentivizing nitrogen fertilizer application over this time period.

  • North America: The outlook for farm profitability in North America remains strong for all major crops, with futures prices supporting high corn and wheat plantings. The U.S. Department of Agriculture projects 92 million acres of corn and nearly 50 million acres of wheat will be planted in the United States in 2023.
  • India: Higher domestic urea operating rates and higher stocks of urea compared to the year before limited tender activity in the first quarter of 2023. Management expects that India will continue to be one of the world’s largest importers of urea in 2023, with frequent urea tenders in the second half of the year despite higher domestic production as the country focuses on achieving its urea inventory goals.
  • Brazil: Management expects urea consumption in Brazil in 2023 to remain strong, supported by higher crop prices, expected higher corn planted acres and robust farm incomes. Despite a small increase in domestic production, imports are forecast to continue growing in the medium term in line with increased crop planting.
  • Europe: Management expects a higher-than-normal level of nitrogen imports into Europe in 2023 due to continued lower-than-normal ammonia operating rates in the region.

Management expects global trade flows to continue to adjust to market dynamics that have affected global supply availability over the previous 18 months.

  • Europe: Management believes that production economics in Europe will remain challenging. While natural gas prices in the region have fallen significantly from the highs of 2022, ammonia plants in Europe remain the global marginal producer with production costs above recent global ammonia spot prices. An estimated 20-30% of European ammonia capacity remains shut down or curtailed. The Company does not expect full ammonia capacity production rates to return in the region during the year, with some facilities continuing to favor importing ammonia in order to manufacture upgraded products.
  • China: Urea exports from China from July 2022-March 2023 were well below their 3-year average due to government measures to limit exports and domestic prices that have exceeded international values. Management continues to project urea exports from China will be in a range of 2-3 million metric tons in 2023 under current measures with exports returning to a range of 3-5 million metric tons on an annual basis if government measures limiting exports are loosened.
  • Russia: Exports of ammonia from Russia remain lower compared to prior years due to geopolitical disruptions arising from Russia’s invasion of Ukraine and the resulting closure of the ammonia pipeline from Russia to the port of Odessa in Ukraine. Exports of other nitrogen products from Russia are at pre-war levels, with product forced to countries that have not applied sanctions on Russian fertilizer, including Brazil and the United States.

Energy differentials between North America and marginal producers in Europe and Asia remain well above historical levels. Forward energy curves continue to suggest that these wider differentials will persist for an extended period. As a result, the Company believes the global nitrogen cost curve will remain supportive of significant margin opportunities for low-cost North American producers.

Operations Overview

The Company continues to operate safely and efficiently across its network. As of March 31, 2023, the 12-month rolling average recordable incident rate was 0.33 incidents per 200,000 work hours, significantly better than industry benchmarks.

Gross ammonia production for the first quarter of 2023 was approximately 2.4 million tons. The Company expects that gross ammonia production for 2023 will be approximately 9.5 million tons(4).

Financial Results Overview

For the first quarter of 2023, net earnings attributable to common stockholders were $560 million, or $2.85 per diluted share, EBITDA was $924 million, and adjusted EBITDA was $866 million. These results compare to first quarter 2022 net earnings attributable to common stockholders of $883 million, or $4.21 per diluted share, EBITDA of $1.68 billion, and adjusted EBITDA of $1.65 billion.

Net sales in the first quarter of 2023 were $2.01 billion compared to $2.87 billion in 2022. Average selling prices for 2023 were lower than 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates. Sales volumes in the first quarter of 2023 were lower than 2022 as lower UAN, ammonia and AN sales volumes were partially offset by higher granular urea sales volumes.

Cost of sales for the first quarter of 2023 was similar to 2022 as higher natural gas costs due primarily to the impact of realized derivatives were offset by the impact of lower sales volumes.

The average cost of natural gas reflected in the Company’s cost of sales was $6.62 per MMBtu in the first quarter of 2023 compared to the average cost of natural gas in cost of sales of $6.48 per MMBtu in the first quarter of 2022.

Capital Management

Capital Expenditures

Capital expenditures in the first quarter 2023 were $69 million. Management projects capital expenditures for full year 2023 will be in the range of $500-$550 million.

Share Repurchase Programs

The Company repurchased more than 1 million shares for $75 million during the first quarter of 2023. At the end of the quarter, approximately $80 million remained under the $1.5 billion share repurchase authorization that went into effect January 1, 2022, and is effective through the end of 2024. A $3 billion share repurchase program, which was authorized in November 2022 by the Board of Directors of CF Industries Holdings, Inc., will commence upon the completion of the current share repurchase program and is effective through the end of 2025.

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 first quarter of 2023 is approximately $110 million.

Strategic Initiatives

Agreement to Purchase Waggaman, Louisiana, Ammonia Production Complex

On March 20, 2023, CF Industries Holdings, Inc. announced that it had signed a definitive asset purchase agreement with IPL for its ammonia production complex located in Waggaman, Louisiana. Under the terms of the agreement, CF Industries will purchase the Waggaman ammonia plant and related assets for $1.675 billion, subject to adjustment. The companies will allocate $425 million of the purchase price to a long-term ammonia offtake agreement to IPL’s Dyno Nobel subsidiary. CF Industries expects to fund the remaining $1.25 billion of the purchase price, subject to adjustment, with cash on hand.

The transaction remains subject to the receipt of certain regulatory approvals and other customary closing conditions.

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 ammonia (ammonia produced with the corresponding carbon dioxide (CO2) byproduct removed through carbon capture and sequestration) and green ammonia (ammonia produced from carbon-free sources).

  • Memorandum of Understanding with JERA Co., Inc.: On January 17, 2023, CF Industries announced that it had signed an MOU with JERA Co., Inc., regarding the supply of up to 500,000 metric tons per year of clean ammonia beginning in 2027. The companies expect to evaluate a range of potential supply options, including an equity investment alongside CF Industries to develop a clean ammonia facility in Louisiana and a supplementary long-term offtake agreement.
  • Memorandum of Understanding with LOTTE: On February 27, 2023, CF Industries announced that it had entered into an MOU with LOTTE to assess the joint development of and investment in a greenfield clean ammonia production facility in the U.S. and quantify expected clean ammonia demand in South Korea.
  • Proposed Joint Venture with Mitsui & Co., Ltd. at CF Industries’ Blue Point Complex: CF Industries and Mitsui & Co., Ltd. (Mitsui) continue to progress a front-end engineering and design (FEED) study, which is being conducted by thyssenkrupp UHDE, for their proposed joint venture to construct an export-oriented blue ammonia facility in Louisiana. CF Industries and Mitsui expect to make a final investment decision on the proposed facility in the second half of 2023. Construction and commissioning of a new world-scale ammonia plant typically takes approximately 4 years from that point.
  • Donaldsonville Complex Blue Ammonia Project: Engineering activities for the construction of a dehydration and compression unit at the Donaldsonville Complex continue to advance, procurement of major equipment for the facility is in progress, and fabrication of the CO2 compressors has begun. Once in service, the dehydration and compression unit will enable up to 2 million tons of process CO2 to be transported and stored by ExxonMobil. Start-up for the project is scheduled for 2025.
  • Donaldsonville Green Ammonia Project: The Donaldsonville green ammonia project, which involves installing an electrolysis system at the Donaldsonville Complex to generate carbon-free hydrogen from water that will then be supplied to existing ammonia plants to produce green ammonia, continues to progress. Major equipment is being fabricated and site work is ongoing for installation of the new electrolyzer unit and integration into Donaldsonville’s existing operations. Once complete, the project will enable the Company to produce approximately 20,000 tons of green ammonia per year.
  • Evaluation of Green Hydrogen/Ammonia Debottleneck Project at Verdigris Complex: CF Industries and NextEra Energy Resources, LLC, have signed an MOU under which the companies are evaluating a joint venture to develop a zero-carbon intensity (green) hydrogen project at CF Industries’ Verdigris Complex in Oklahoma, which would include debottlenecking the site’s ammonia plants. The proposed project was included in the funding application submitted to the U.S. Department of Energy (DOE) in April by the HALO Hydrogen Hub, a three-state partnership established by Arkansas, Louisiana and Oklahoma to compete for funding from the DOE’s regional clean hydrogen hub program. CF Industries and NextEra Energy Resources anticipate that support for the project from the DOE program will be a key aspect of their evaluation process. A final investment decision has not been made for this project.
______________________________________________________
(1)

Certain items recognized during the first quarter of 2023 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)

Gross ammonia production volumes for 2023 could be higher or lower than 9.5 million tons depending on ammonia operating rates at the Company’s Billingham Complex.

Consolidated Results

 

Three months ended

March 31,

 

2023

 

2022

 

(dollars in millions, except per

share and per MMBtu amounts)

Net sales

$

2,012

 

 

$

2,868

 

Cost of sales

 

1,149

 

 

 

1,170

 

Gross margin

$

863

 

 

$

1,698

 

Gross margin percentage

 

42.9

%

 

 

59.2

%

 

 

 

 

Net earnings attributable to common stockholders

$

560

 

 

$

883

 

Net earnings per diluted share

$

2.85

 

 

$

4.21

 

 

 

 

 

EBITDA(1)

$

924

 

 

$

1,675

 

Adjusted EBITDA(1)

$

866

 

 

$

1,648

 

 

 

 

 

Tons of product sold (000s)

 

4,535

 

 

 

4,624

 

 

 

 

 

Natural gas supplemental data (per MMBtu):

 

 

 

Natural gas costs in cost of sales(2)

$

5.14

 

 

$

6.70

 

Realized derivatives loss (gain) in cost of sales(3)

 

1.48

 

 

 

(0.22

)

Cost of natural gas used for production in cost of sales

$

6.62

 

 

$

6.48

 

Average daily market price of natural gas Henry Hub (Louisiana)

$

2.68

 

 

$

4.60

 

Average daily market price of natural gas National Balancing Point (United Kingdom)

$

16.20

 

 

$

30.20

 

 

 

 

 

Unrealized net mark-to-market gain on natural gas derivatives

$

(72

)

 

$

(33

)

Depreciation and amortization

$

206

 

 

$

208

 

Capital expenditures

$

69

 

 

$

63

 

 

 

 

 

Production volume by product tons (000s):

 

 

 

Ammonia(4)

 

2,359

 

 

 

2,613

 

Granular urea

 

1,211

 

 

 

1,074

 

UAN (32%)

 

1,598

 

 

 

1,865

 

AN

 

388

 

 

 

405

 

____________________________________________________________________________
(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. Excludes unrealized mark-to-market gains and losses on natural gas derivatives.

(3)

Includes realized gains and losses on natural gas derivatives settled during the period.

(4)

Gross ammonia production, including amounts subsequently upgraded on-site into granular urea, UAN, or AN

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. In addition, the Company upgrades ammonia into other nitrogen products such as urea, UAN and AN.

 

Three months ended

March 31,

 

2023

 

2022

 

(dollars in millions,

except per ton amounts)

Net sales

$

424

 

 

$

640

 

Cost of sales

 

280

 

 

 

280

 

Gross margin

$

144

 

 

$

360

 

Gross margin percentage

 

34.0

%

 

 

56.3

%

 

 

 

 

Sales volume by product tons (000s)

 

652

 

 

 

727

 

Sales volume by nutrient tons (000s)(1)

 

535

 

 

 

596

 

 

 

 

 

Average selling price per product ton

$

650

 

 

$

880

 

Average selling price per nutrient ton(1)

 

793

 

 

 

1,074

 

 

 

 

 

Adjusted gross margin(2):

 

 

 

Gross margin

$

144

 

 

$

360

 

Depreciation and amortization

 

31

 

 

 

34

 

Unrealized net mark-to-market gain on natural gas derivatives

 

(21

)

 

 

(8

)

Adjusted gross margin

$

154

 

 

$

386

 

Adjusted gross margin as a percent of net sales

 

36.3

%

 

 

60.3

%

 

 

 

 

Gross margin per product ton

$

221

 

 

$

495

 

Gross margin per nutrient ton(1)

 

269

 

 

 

604

 

Adjusted gross margin per product ton

 

236

 

 

 

531

 

Adjusted gross margin per nutrient ton(1)

 

288

 

 

 

648

 

________________________________________________________________________________
(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 first quarter 2023 to first quarter 2022:

  • Ammonia sales volume for 2023 decreased compared to 2022 due primarily to lower demand compared to a robust ammonia sales environment in the first quarter of 2022.
  • Ammonia average selling prices decreased for 2023 compared to 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates.
  • Ammonia adjusted gross margin per ton decreased for 2023 compared to 2022 due to lower average selling prices and the impact of realized derivatives on 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,

 

2023

 

2022

 

(dollars in millions,

except per ton amounts)

Net sales

$

611

 

 

$

765

 

Cost of sales

 

327

 

 

 

270

 

Gross margin

$

284

 

 

$

495

 

Gross margin percentage

 

46.5

%

 

 

64.7

%

 

 

 

 

Sales volume by product tons (000s)

 

1,323

 

 

 

1,096

 

Sales volume by nutrient tons (000s)(1)

 

608

 

 

 

504

 

 

 

 

 

Average selling price per product ton

$

462

 

 

$

698

 

Average selling price per nutrient ton(1)

 

1,005

 

 

 

1,518

 

 

 

 

 

Adjusted gross margin(2):

 

 

 

Gross margin

$

284

 

 

$

495

 

Depreciation and amortization

 

79

 

 

 

64

 

Unrealized net mark-to-market gain on natural gas derivatives

 

(20

)

 

 

(7

)

Adjusted gross margin

$

343

 

 

$

552

 

Adjusted gross margin as a percent of net sales

 

56.1

%

 

 

72.2

%

 

 

 

 

Gross margin per product ton

$

215

 

 

$

452

 

Gross margin per nutrient ton(1)

 

467

 

 

 

982

 

Adjusted gross margin per product ton

 

259

 

 

 

504

 

Adjusted gross margin per nutrient ton(1)

 

564

 

 

 

1,095

 

________________________________________________________________________________
(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 first quarter 2023 to first quarter 2022:

  • Granular urea sales volume increased for 2023 compared to 2022 due to greater supply availability from higher production.
  • Urea average selling prices decreased for 2023 compared to 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates.
  • Granular urea adjusted gross margin per ton decreased for 2023 compared to 2022 primarily due to lower average selling prices.

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,

 

2023

 

2022

 

(dollars in millions,

except per ton amounts)

Net sales

$

667

 

 

$

1,015

 

Cost of sales

 

346

 

 

 

345

 

Gross margin

$

321

 

 

$

670

 

Gross margin percentage

 

48.1

%

 

 

66.0

%

 

 

 

 

Sales volume by product tons (000s)

 

1,662

 

 

 

1,828

 

Sales volume by nutrient tons (000s)(1)

 

524

 

 

 

576

 

 

 

 

 

Average selling price per product ton

$

401

 

 

$

555

 

Average selling price per nutrient ton(1)

 

1,273

 

 

 

1,762

 

 

 

 

 

Adjusted gross margin(2):

 

 

 

Gross margin

$

321

 

 

$

670

 

Depreciation and amortization

 

66

 

 

 

70

 

Unrealized net mark-to-market gain on natural gas derivatives

 

(21

)

 

 

(8

)

Adjusted gross margin

$

366

 

 

$

732

 

Adjusted gross margin as a percent of net sales

 

54.9

%

 

 

72.1

%

 

 

 

 

Gross margin per product ton

$

193

 

 

$

367

 

Gross margin per nutrient ton(1)

 

613

 

 

 

1,163

 

Adjusted gross margin per product ton

 

220

 

 

 

400

 

Adjusted gross margin per nutrient ton(1)

 

698

 

 

 

1,271

 

________________________________________________________________________________
(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 first quarter 2023 to first quarter 2022:

  • UAN sales volume decreased for 2023 compared to 2022 due primarily to lower supply availability from lower production.
  • UAN average selling prices decreased for 2023 compared to 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates.
  • UAN adjusted gross margin per ton decreased for 2023 compared to 2022 primarily due to lower average selling prices.

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,

 

2023

 

2022

 

(dollars in millions,

except per ton amounts)

Net sales

$

159

 

 

$

223

 

Cost of sales

 

104

 

 

 

171

 

Gross margin

$

55

 

 

$

52

 

Gross margin percentage

 

34.6

%

 

 

23.3

%

 

 

 

 

Sales volume by product tons (000s)

 

374

 

 

 

428

 

Sales volume by nutrient tons (000s)(1)

 

128

 

 

 

146

 

 

 

 

 

Average selling price per product ton

$

425

 

 

$

521

 

Average selling price per nutrient ton(1)

 

1,242

 

 

 

1,527

 

 

 

 

 

Adjusted gross margin(2):

 

 

 

Gross margin

$

55

 

 

$

52

 

Depreciation and amortization

 

11

 

 

 

17

 

Unrealized net mark-to-market gain on natural gas derivatives

 

(3

)

 

 

(6

)

Adjusted gross margin

$

63

 

 

$

63

 

Adjusted gross margin as a percent of net sales

 

39.6

%

 

 

28.3

%

 

 

 

 

Gross margin per product ton

$

147

 

 

$

121

 

Gross margin per nutrient ton(1)

 

430

 

 

 

356

 

Adjusted gross margin per product ton

 

168

 

 

 

147

 

Adjusted gross margin per nutrient ton(1)

 

492

 

 

 

432

 

________________________________________________________________________________
(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 first quarter 2023 to first quarter 2022:

  • AN sales volume for 2023 decreased compared to 2022 due to lower supply availability from lower production in the U.K.
  • AN average selling prices for 2023 decreased compared to 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates.
  • AN adjusted gross margin per ton increased for 2023 compared to 2022 primarily due to the impact of using lower-cost imported ammonia for AN production in the U.K.

Other Segment

CF Industries’ Other segment includes diesel exhaust fluid (DEF), urea liquor and nitric acid. The Company previously produced compound fertilizers (NPKs) only at its Ince manufacturing facility and closure of this facility has resulted in the discontinuation of this product line.

 

Three months ended

March 31,

 

2023

 

2022

 

(dollars in millions,

except per ton amounts)

Net sales

$

151

 

 

$

225

 

Cost of sales

 

92

 

 

 

104

 

Gross margin

$

59

 

 

$

121

 

Gross margin percentage

 

39.1

%

 

 

53.8

%

 

 

 

 

Sales volume by product tons (000s)

 

524

 

 

 

545

 

Sales volume by nutrient tons (000s)(1)

 

103

 

 

 

104

 

 

 

 

 

Average selling price per product ton

$

288

 

 

$

413

 

Average selling price per nutrient ton(1)

 

1,466

 

 

 

2,163

 

 

 

 

 

Adjusted gross margin(2):

 

 

 

Gross margin

$

59

 

 

$

121

 

Depreciation and amortization

 

16

 

 

 

19

 

Unrealized net mark-to-market gain on natural gas derivatives

 

(7

)

 

 

(4

)

Adjusted gross margin

$

68

 

 

$

136

 

Adjusted gross margin as a percent of net sales

 

45.0

%

 

 

60.4

%

 

 

 

 

Gross margin per product ton

$

113

 

 

$

222

 

Gross margin per nutrient ton(1)

 

573

 

 

 

1,163

 

Adjusted gross margin per product ton

 

130

 

 

 

250

 

Adjusted gross margin per nutrient ton(1)

 

660

 

 

 

1,308

 

________________________________________________________________________________
(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 first quarter 2023 to first quarter 2022:

  • Other sales volume for 2023 decreased compared to 2022 due to lower supply availability from lower production in the U.K.
  • Other average selling prices for 2023 decreased compared to 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates.
  • Other adjusted gross margin per ton decreased for 2023 compared to 2022 primarily due to lower average selling prices.

Conference Call

CF Industries will hold a conference call to discuss its first quarter 2023 results at 11:00 a.m. ET on Tuesday, May 2, 2023. This conference call will include discussion of CF Industries’ business environment and outlook. Investors can access the call and find dial-in information on the Investor Relations section of the Company’s website at www.cfindustries.com.

About CF Industries Holdings, Inc.

At CF Industries, our mission is to provide clean energy to feed and fuel the world sustainably. With our employees focused on safe and reliable operations, environmental stewardship, and disciplined capital and corporate management, we are on a path to decarbonize our ammonia production network – the world’s largest – to enable green and blue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other industrial activities. Our manufacturing complexes in the United States, Canada, and the United Kingdom, an unparalleled storage, transportation and distribution network in North America, and logistics capabilities enabling a global reach underpin our strategy to leverage our unique capabilities to accelerate the world’s transition to clean energy. CF Industries routinely posts investor announcements and additional information on the Company’s website at www.cfindustries.com and encourages those interested in the Company to check there frequently.

Note Regarding Non-GAAP Financial Measures

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that EBITDA, EBITDA per ton, adjusted EBITDA, adjusted EBITDA per ton, free cash flow, and, on a segment basis, adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton, which are non-GAAP financial measures, provide additional meaningful information regarding the Company’s performance and financial strength. Management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. In addition, because not all companies use identical calculations, EBITDA, EBITDA per ton, adjusted EBITDA, adjusted EBITDA per ton, free cash flow, adjusted gross margin, adjusted gross margin as a percent of net sales and adjusted gross margin per product ton and per nutrient ton, included in this release may not be comparable to similarly titled measures of other companies. Reconciliations of EBITDA, EBITDA per ton, adjusted EBITDA, adjusted EBITDA per ton, and free cash flow to the most directly comparable GAAP measures are provided in the tables accompanying this release under “CF Industries Holdings, Inc.-Selected Financial Information-Non-GAAP Disclosure Items.” Reconciliations 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 the most directly comparable GAAP measures are provided in the segment tables included in this release.

Safe Harbor Statement

All statements in this communication by CF Industries Holdings, Inc. (together with its subsidiaries, the “Company”), other than those relating to historical facts, are forward-looking statements. Forward-looking statements can generally be identified by their use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” or “would” and similar terms and phrases, including references to assumptions. Forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. These statements may include, but are not limited to, statements about the financing, synergies and other benefits, and other aspects of the proposed transactions with Incitec Pivot Limited (“IPL”), strategic plans and management’s expectations with respect to the production of green and blue (low-carbon) ammonia, the development of carbon capture and sequestration projects, the transition to and growth of a hydrogen economy, greenhouse gas reduction targets, projected capital expenditures, statements about future financial and operating results, and other items described in this communication.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among others, the risk that regulatory approvals required for the proposed transactions with IPL are not obtained or that required approvals delay the transactions or cause the parties to abandon the transactions; the risk that other conditions to the closing of the proposed transactions with IPL are not satisfied; risks and uncertainties arising from the length of time necessary to consummate the proposed transactions with IPL and the possibility that the proposed transactions with IPL may be delayed or may not occur; the risk of obstacles to realization of the benefits of the proposed transactions with IPL; the risk that the synergies from the proposed transactions with IPL may not be fully realized or may take longer to realize than expected; the risk that the pendency or completion of the proposed transactions with IPL, including integration of the Waggaman ammonia production complex into the Company’s operations, disrupt current operations or harm relationships with customers, employees and suppliers; the risk that integration of the Waggaman ammonia production complex with the Company’s current operations will be more costly or difficult than expected or may otherwise be unsuccessful; diversion of management time and attention to issues relating to the proposed transactions with IPL; unanticipated costs or liabilities associated with the IPL transactions; the cyclical nature of the Company’s business and the impact of global supply and demand on the Company’s selling prices; the global commodity nature of the Company’s nitrogen products, the conditions in the international market for nitrogen products, and the intense global competition from other producers; conditions in the United States, Europe and other agricultural areas, including the influence of governmental policies and technological developments on the demand for our fertilizer products; the volatility of natural gas prices in North America and the United Kingdom; weather conditions and the impact of adverse weather events; the seasonality of the fertilizer business; the impact of changing market conditions on the Company’s forward sales programs; difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery; reliance on third party providers of transportation services and equipment; the Company’s reliance on a limited number of key facilities; risks associated with cybersecurity; acts of terrorism and regulations to combat terrorism; risks associated with international operations; the significant risks and hazards involved in producing and handling the Company’s products against which the Company may not be fully insured; the Company’s ability to manage its indebtedness and any additional indebtedness that may be incurred; the Company’s ability to maintain compliance with covenants under its revolving credit agreement and the agreements governing its indebtedness; downgrades of the Company’s credit ratings; risks associated with changes in tax laws and disagreements with taxing authorities; risks involving derivatives and the effectiveness of the Company’s risk management and hedging activities; potential liabilities and expenditures related to environmental, health and safety laws and regulations and permitting requirements; regulatory restrictions and requirements related to greenhouse gas emissions; the development and growth of the market for green and blue (low-carbon) ammonia and the risks and uncertainties relating to the development and implementation of the Company’s green and blue ammonia projects; risks associated with expansions of the Company’s business, including unanticipated adverse consequences and the significant resources that could be required; and risks associated with the operation or management of the strategic venture with CHS (the “CHS Strategic Venture”), risks and uncertainties relating to the market prices of the fertilizer products that are the subject of the supply agreement with CHS over the life of the supply agreement, and the risk that any challenges related to the CHS Strategic Venture will harm the Company’s other business relationships.

More detailed information about factors that may affect the Company’s performance and could cause actual results to differ materially from those in any forward-looking statements may be found in CF Industries Holdings, Inc.’s filings with the Securities and Exchange Commission, including CF Industries Holdings, Inc.’s most recent annual and quarterly reports on Form 10-K and Form 10-Q, which are available in the Investor Relations section of the Company’s web site. It is not possible to predict or identify all risks and uncertainties that might affect the accuracy of our forward-looking statements and, consequently, our descriptions of such risks and uncertainties should not be considered exhaustive. There is no guarantee that any of the events, plans or goals anticipated by these forward-looking statements will occur, and if any of the events do occur, there is no guarantee what effect they will have on our business, results of operations, cash flows, financial condition and future prospects. Forward-looking statements are given only as of the date of this communication and the Company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

CF INDUSTRIES HOLDINGS, INC.

SELECTED FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

Three months ended

March 31,

 

2023

 

2022

 

(in millions, except per share amounts)

Net sales

$

2,012

 

 

$

2,868

 

Cost of sales

 

1,149

 

 

 

1,170

 

Gross margin

 

863

 

 

 

1,698

 

Selling, general and administrative expenses

 

74

 

 

 

64

 

U.K. operations restructuring

 

2

 

 

 

 

Transaction costs

 

13

 

 

 

 

Other operating—net

 

(35

)

 

 

2

 

Total other operating costs and expenses

 

54

 

 

 

66

 

Equity in earnings of operating affiliate

 

17

 

 

 

26

 

Operating earnings

 

826

 

 

 

1,658

 

Interest expense

 

40

 

 

 

241

 

Interest income

 

(30

)

 

 

(36

)

Other non-operating—net

 

(3

)

 

 

1

 

Earnings before income taxes

 

819

 

 

 

1,452

 

Income tax provision

 

169

 

 

 

401

 

Net earnings

 

650

 

 

 

1,051

 

Less: Net earnings attributable to noncontrolling interest

 

90

 

 

 

168

 

Net earnings attributable to common stockholders

$

560

 

 

$

883

 

 

 

 

 

Net earnings per share attributable to common stockholders:

 

 

 

Basic

$

2.86

 

 

$

4.23

 

Diluted

$

2.85

 

 

$

4.21

 

Weighted-average common shares outstanding:

 

 

 

Basic

 

196.2

 

 

 

208.6

 

Diluted

 

196.9

 

 

 

209.9

 

CF INDUSTRIES HOLDINGS, INC.

SELECTED FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

(unaudited)

 

 

 

March 31,

2023

 

December 31,

2022

 

(in millions)

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

2,825

 

$

2,323

Accounts receivable—net

 

482

 

 

582

Inventories

 

430

 

 

474

Prepaid income taxes

 

69

 

 

215

Other current assets

 

42

 

 

79

Total current assets

 

3,848

 

 

3,673

Property, plant and equipment—net

 

6,294

 

 

6,437

Investment in affiliate

 

81

 

 

74

Goodwill

 

2,089

 

 

2,089

Operating lease right-of-use assets

 

288

 

 

254

Other assets

 

798

 

 

786

Total assets

$

13,398

 

$

13,313

 

 

 

 

Liabilities and Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

452

 

$

575

Income taxes payable

 

10

 

 

3

Customer advances

 

284

 

 

229

Current operating lease liabilities

 

104

 

 

93

Other current liabilities

 

12

 

 

95

Total current liabilities

 

862

 

 

995

Long-term debt

 

2,966

 

 

2,965

Deferred income taxes

 

933

 

 

958

Operating lease liabilities

 

182

 

 

167

Other liabilities

 

365

 

 

375

Equity:

 

 

 

Stockholders’ equity

 

5,453

 

 

5,051

Noncontrolling interest

 

2,637

 

 

2,802

Total equity

 

8,090

 

 

7,853

Total liabilities and equity

$

13,398

 

$

13,313

CF INDUSTRIES HOLDINGS, INC.

SELECTED FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

Three months ended

March 31,

 

2023

 

2022

 

(in millions)

Operating Activities:

 

 

 

Net earnings

$

650

 

 

$

1,051

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

206

 

 

 

208

 

Deferred income taxes

 

(26

)

 

 

(2

)

Stock-based compensation expense

 

12

 

 

 

10

 

Unrealized net gain on natural gas derivatives

 

(72

)

 

 

(33

)

Gain on sale of emission credits

 

(35

)

 

 

 

Undistributed earnings of affiliate—net of taxes

 

(7

)

 

 

(2

)

Changes in:

 

 

 

Accounts receivable—net

 

101

 

 

 

(185

)

Inventories

 

39

 

 

 

(66

)

Accrued and prepaid income taxes

 

153

 

 

 

387

 

Accounts payable and accrued expenses

 

(135

)

 

 

76

 

Customer advances

 

55

 

 

 

(102

)

Other—net

 

6

 

 

 

49

 

Net cash provided by operating activities

 

947

 

 

 

1,391

 

Investing Activities:

 

 

 

Additions to property, plant and equipment

 

(69

)

 

 

(63

)

Proceeds from sale of property, plant and equipment

 

 

 

 

1

 

Purchase of emission credits

 

 

 

 

(9

)

Proceeds from sale of emission credits

 

35

 

 

 

9

 

Net cash used in investing activities

 

(34

)

 

 

(62

)

Financing Activities:

 

 

 

Financing fees

 

 

 

 

(4

)

Dividends paid

 

(79

)

 

 

(64

)

Distributions to noncontrolling interest

 

(255

)

 

 

(247

)

Purchases of treasury stock

 

(54

)

 

 

(98

)

Proceeds from issuances of common stock under employee stock plans

 

 

 

 

97

 

Cash paid for shares withheld for taxes

 

(22

)

 

 

(23

)

Net cash used in financing activities

 

(410

)

 

 

(339

)

Effect of exchange rate changes on cash and cash equivalents

 

(1

)

 

 

(1

)

Increase in cash and cash equivalents

 

502

 

 

 

989

 

Cash and cash equivalents at beginning of period

 

2,323

 

 

 

1,628

 

Cash and cash equivalents at end of period

$

2,825

 

 

$

2,617

 

CF INDUSTRIES HOLDINGS, INC.

SELECTED FINANCIAL INFORMATION

NON-GAAP DISCLOSURE ITEMS

Reconciliation of net cash provided by operating activities (GAAP measure) to free cash flow (non-GAAP measure):

Free cash flow is defined as net cash provided by operating activities, as stated in the consolidated statements of cash flows, reduced by capital expenditures and distributions to noncontrolling interest. The Company has presented free cash flow because management uses this measure and believes it is useful to investors, as an indication of the strength of the Company and its ability to generate cash and to evaluate the Company’s cash generation ability relative to its industry competitors. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures.

 

Twelve months ended

March 31,

 

2023

 

2022

 

(in millions)

Net cash provided by operating activities(1)

$

3,411

 

 

$

3,686

 

Capital expenditures

 

(459

)

 

 

(506

)

Distributions to noncontrolling interest

 

(627

)

 

 

(377

)

Free cash flow(1)

$

2,325

 

 

$

2,803

 

______________________________________________________________________
(1)

Includes the impact of $491 million in tax and interest payments made to Canadian tax authorities in relation to an arbitration decision covering tax years 2006 through 2011 and transfer pricing positions between Canada and the United States for open years 2012 and after. The Company has filed amended tax returns in the U.S. seeking refunds of related taxes paid.

CF INDUSTRIES HOLDINGS, INC.

SELECTED FINANCIAL INFORMATION

NON-GAAP DISCLOSURE ITEMS (CONTINUED)

Reconciliation of net earnings attributable to common stockholders and net earnings attributable to common stockholders per ton (GAAP measures) to EBITDA, EBITDA per ton, adjusted EBITDA and adjusted EBITDA per ton (non-GAAP measures), as applicable:

EBITDA is defined as net earnings attributable to common stockholders plus interest expense—net, income taxes and depreciation and amortization. Other adjustments include the elimination of loan fee amortization that is included in both interest and amortization, and the portion of depreciation that is included in noncontrolling interest.

The Company has presented EBITDA and EBITDA per ton because management uses these measures to track performance and believes that they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry.

Adjusted EBITDA is defined as EBITDA adjusted with the selected items as summarized in the table below. The Company has presented adjusted EBITDA and adjusted EBITDA per ton because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance.

 

Three months ended

March 31,

 

2023

 

2022

 

(in millions)

Net earnings

$

650

 

 

$

1,051

 

Less: Net earnings attributable to noncontrolling interest

 

(90

)

 

 

(168

)

Net earnings attributable to common stockholders

 

560

 

 

 

883

 

Interest expense—net

 

10

 

 

 

205

 

Income tax provision

 

169

 

 

 

401

 

Depreciation and amortization

 

206

 

 

 

208

 

Less other adjustments:

 

 

 

Depreciation and amortization in noncontrolling interest

 

(20

)

 

 

(21

)

Loan fee amortization(1)

 

(1

)

 

 

(1

)

EBITDA

 

924

 

 

 

1,675

 

Unrealized net mark-to-market gain on natural gas derivatives

 

(72

)

 

 

(33

)

(Gain) loss on foreign currency transactions, including intercompany loans

 

(1

)

 

 

6

 

U.K. operations restructuring

 

2

 

 

 

 

Transaction costs related to acquisition agreement

 

13

 

 

 

 

Total adjustments

 

(58

)

 

 

(27

)

Adjusted EBITDA

$

866

 

 

$

1,648

 

 

 

 

 

Net sales

$

2,012

 

 

$

2,868

 

Tons of product sold (000s)

 

4,535

 

 

 

4,624

 

 

 

 

 

Net earnings attributable to common stockholders per ton

$

123.48

 

 

$

190.96

 

EBITDA per ton

$

203.75

 

 

$

362.24

 

Adjusted EBITDA per ton

$

190.96

 

 

$

356.40

 

(1)

Loan fee amortization is included in both interest expense—net and depreciation and amortization.

CF INDUSTRIES HOLDINGS, INC.

SELECTED FINANCIAL INFORMATION

ITEMS AFFECTING COMPARABILITY

During the three months ended March 31, 2023 and 2022, certain items impacted our financial results. The following table outlines these items that affected the comparability of our financial results during these periods. During the three months ended March 31, 2023 and 2022, we reported net earnings attributable to common stockholders of $560 million and $883 million, respectively.

 

Three months ended

March 31,

 

2023

 

2022

 

Pre-Tax

After-Tax

 

Pre-Tax

After-Tax

 

(in millions)

Unrealized net mark-to-market gain on natural gas derivatives(1)

$

(72

)

$

(55

)

 

$

(33

)

$

(25

)

(Gain) loss on foreign currency transactions, including intercompany loans(2)

 

(1

)

 

(1

)

 

 

6

 

 

5

 

U.K. operations restructuring

 

2

 

 

2

 

 

 

 

 

 

Transaction costs related to acquisition agreement

 

13

 

 

10

 

 

 

 

 

 

Canada Revenue Agency Competent Authority Matter and transfer pricing reserves:

 

 

 

 

 

Interest expense

 

 

 

 

 

 

198

 

 

196

 

Interest income

 

 

 

 

 

 

(36

)

 

(28

)

Income tax provision(3)

 

 

 

 

 

 

 

 

72

 

________________________________________________________________________________
(1)

Included in cost of sales in our consolidated statements of operations.

(2)

Included in other operating—net in our consolidated statements of operations.

(3)

For the three months ended March 31, 2022, amount represents the combined impact of these tax matters of $78 million less a net $6 million of income tax provision on the related interest.

 

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