CF Industries Holdings, Inc. (CF): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


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We are retaining our Neutral recommendation on CF Industries. Profit for the third quarter slid year over year on a double-digit decline in sales. Both revenues and earnings missed Zacks Consensus Estimates. CF Industries should benefit from favorable natural gas costs in North America and a healthy start to the domestic planting season. It remains on track with its capacity expansion projects. The company also remains committed to boosting shareholder returns. However, CF Industries continues to face pricing pressure. Higher Chinese urea exports are expected to hurt nitrogen prices. The company is also exposed to volatility in raw material costs and has significant debt.


CF Industries Holdings Incorporated (CF), headquartered in Deerfield, Illinois, is one of the largest manufacturers and distributors of nitrogenous fertilizer and other nitrogen products globally. The company's principal nitrogenous fertilizer products are ammonia, granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN).

CF Industries is a leading nitrogen fertilizer producer in North America. The company operates two of the largest fertilizer complexes in North America, one in Donaldsonville, Louisiana, U.S. and the other in Medicine Hat, Alberta, Canada. Roughly 85% of its total sales in 2013 came from the nitrogen business while the remaining 15% derived from the phosphate fertilizer business. The company completed the divestment of its phosphate unit to The Mosaic Company (MOS) in March 2014.

The Terra Acquisition

In April 2010, CF Industries finally acquired the long chased after rival Terra Industries for $4.7 billion. With the acquisition, the company has become the global leader in the nitrogen fertilizer industry and has expanded geographically. In the Terra acquisition, CF Holdings issued an aggregate of 9.5 million shares of its common stock and paid an aggregate of $3.7 billion in cash. The acquisition added the following new assets:

Five nitrogen fertilizer manufacturing facilities located in Port Neal, Iowa Courtright, Ontario Yazoo City, Mississippi Woodward, Oklahoma and Donaldsonville, Louisiana, adjacent to the CF Industries Donaldsonville facility.

A 75.3% interest in Terra Nitrogen Company, a publicly traded limited partnership, which through its subsidiary Terra Nitrogen Limited Partnership operates a nitrogen fertilizer manufacturing facility in Verdigris, Oklahoma.

A 100% economic interest in the largest nitrogen fertilizer complex in Canada (which it operates in Medicine Hat, Alberta through Canadian Fertilizers Limited (CFL), a consolidated variable interest entity).

A 50% interest in Point Lisas Nitrogen Limited, or Point Lisas, an ammonia production joint venture located in Trinidad serving international nitrogen markets.

A 50% interest in GrowHow UK Limited, a nitrogen products production joint venture in the UK. The joint venture serves the British agricultural and industrial markets.

A 50% interest in KEYTRADE AG (Keytrade), a global fertilizer trading company headquartered near Zurich, Switzerland.

Disposal of Phosphate Business

CF Industries, in October 2013, signed a definitive agreement to sell its phosphate mining and manufacturing business to fertilizer producer Mosaic for $1.4 billion in cash (including $200 million to fund CF Industries' asset retirement obligation escrow). The transaction was closed in March 2014.

Under the deal, CF Industries disposed the Hardee County phosphate rock mine, the Plant City phosphate complex, an ammonia terminal, phosphate warehouse and dock at the Port of Tampa and the site of the former Bartow phosphate complex to Mosaic. The facilities acquired by Mosaic currently produce roughly 1.8 million tons of phosphate fertilizer per year.

CF Industries and Mosaic also entered into a long-term ammonia supply agreement, under which, the former agreed to supply ammonia to Mosaic from its Donaldsonville, LA, nitrogen complex and its 50% owned Point Lisas Nitrogen Ltd. (PLNL) facility in the Republic of Trinidad and Tobago.

Under the Donaldsonville Ammonia Agreement, CF Industries will supply between 600,000 and 800,000 tons of ammonia per year for up to 15 years, which is expected to begin by 2017. The ammonia to be supplied will be used for phosphate production and its price will depend on the cost of natural gas delivered to Donaldsonville. Pricing of ammonia, under the Trinidad ammonia agreement, will be in sync with the existing agreement under which CF Industries purchases ammonia from PLNL. CF Industries has commenced ammonia shipments from its operations in Trinidad.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: CF , UAN , AN , MOS

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