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

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Summary:
We are maintaining our Neutral recommendation on CF Industries. Profit for the second quarter slid year over year on a double-digit decline in sales, hurt by lower fertilizer pricing. Earnings missed the Zacks Consensus Estimate while sales beat. 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.

Overview:

CF Industries Holdings Incorporated (CF), headquartered in Deerfield, Illinois, is one of the largest manufacturers and distributors of nitrogenous and phosphatic fertilizer products in the world. The company's principal products in the nitrogenous fertilizer business are ammonia, granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Its main products in the phosphatic fertilizer business are diammonium phosphate (DAP) and monoammonium phosphate (MAP).

CF Industries is a leading nitrogen fertilizer producer in North America. Approximately 85% of its total sales in the year 2013 came from the nitrogen business and the remaining 15% from the phosphate fertilizer business. In the nitrogen business, CF Industries operates two of the largest fertilizer complexes in North America, one in Donaldsonville, Louisiana, U.S. and the other in Medicine Hat, Alberta, Canada.

CF Industries is a major manufacturer of phosphate fertilizer products. Its phosphate fertilizer manufacturing operations are located in central Florida and consist of a phosphate fertilizer chemical complex in Plant City, a phosphate rock mine, a beneficiation plant and phosphate rock reserves in Hardee County and a deepwater terminal facility in the port of Tampa.

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 The Mosaic Company (MOS) for $1.4 billion in cash (including $200 million to fund CF Industries' asset retirement obligation escrow). The company completed the sale 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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: CF , UAN , AN , MOS

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