We are reaffirming our Neutral recommendation on
CF Industries Holdings Inc.
). Second-quarter 2012 revenues and earnings missed the Zacks
Consensus Estimates. Lower volumes and a decline in phosphate
product prices stemming from weak demand hurt sales in the quarter.
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(CF): ETF Research Reports
(POT): ETF Research Reports
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Revenues from the core Nitrogen segment remained flat, while sales
from the Phosphate division slipped 22% in the quarter. Gross
margin in the Nitrogen segment surged 27%, benefiting from lower
realized natural gas costs. However, margins shrank in the
Phosphate unit due to lower average selling prices.
CF Industries remains optimistic for the remainder of 2012 and 2013
based on high corn planting expectations for 2013, strong global
demand, tight domestic nitrogen supply and favorable natural gas
Illinois-based CF Industries is one of the largest manufacturers
and distributors of nitrogenous and phosphatic fertilizer products
globally. The company became the global producer of nitrogen
fertilizers following its $4.7 billion buyout of Terra Industries
in April 2010.
CF Industries is benefiting from high global prices for
commodities, declining natural gas costs in North America and a
solid start to the domestic planting season. Moreover, the company
has a strong cash flow profile, which allows it to return value to
shareholders and invest in growth initiatives.
Falling natural gas prices have been a boon for CF Industries. The
company's Nitrogen segment is reaping the benefit of abundant
natural gas supply, driven by increased production of North
American shale gas and favorable weather. Moreover, CF Industries
is expected to benefit from strong U.S. corn plantations.
However, CF Industries faces intense pricing competition from both
domestic and foreign fertilizer producers. Its domestic competitors
Potash Corp. of Saskatchewan Inc.
) holds significant command in the marketplace.
CF Industries is susceptible to cyclical and seasonal changes. The
prices of its products are highly sensitive to demand and supply.
It is also exposed to volatility in raw material costs and has
CF Industries currently retains a Zacks #2 Rank, which translates
into a short-term Buy rating.