CF Industries: Positioning Itself for a Strong 2014
CF Industries (NYSE:CF), the largest producer of nitrogen fertilizers in North America, reported better-than-expected quarterly results. The company reported 4Q13 adjusted EPS of $5.04, above consensus estimates of $4.49. The headline EPS of $5.71 was adjusted for a $0.60 per share gain from natural gas derivatives and a $0.07 per share gain from FX.
Better-than-expected nitrogen sales volumes of ammonia, urea, and UAN largely drove the beat, with CF citing export sales opportunities as a driver of higher shipments. This is an encouraging sign of the company’s ability to place tons in the most opportune market available, even if those markets are offshore. Tony Will, CF’s CEO, said in a comment last month that he considers CF not a North American nitrogen producer but a global producer advantaged by its asset base located in the low-cost region of North America. CF’s quarterly results are a proof of its global reach.
Natural Gas Hedges a Positive
Investors were pleasantly surprised by CF’s 1H14 natural gas hedging. CF has locked in attractive hedges covering much of the company’s 1H14 needs in the mid-$3.50 range. This is in comparison to 1Q14 natural gas prices, which are tracking closer to $4.76/mmbtu on average. Investors were fearing increase in input costs due to extreme weather throughout the U.S., but it turns out natural gas headwinds are not as strong as feared. Although it was unlikely that elevated natural gas prices would have persisted throughout 2014, the locked prices are even below market expectations, setting up for a potential cost tailwind.