Yahoo Finance CF Industries Holdings, Inc. (NYSE:CF) Q1 2024 Earnings Call Transcript
CF Industries Holdings, Inc. (NYSE:CF) Q1 2024 Earnings Call Transcript May 2, 2024
CF Industries Holdings, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, and welcome to CF Industries' First Quarter of 2024. All participants will be in a listen-only mode. [Operator Instructions] I would now like to turn the presentation over to the host for today, Mr. Martin Jarosick, with CF Investor Relations. Sir, please proceed.
Martin Jarosick: Good morning and thanks for joining the CF Industries earnings conference call. With me today are Tony Will, CEO; Chris Bohn, Executive Vice President and Chief Operating Officer; and Bert Frost, Executive Vice President of Sales, Market Development and Supply Chain. CF Industries reported its results for the first quarter of 2024 yesterday afternoon. On this call, we'll review the results, discuss our outlook, and then host a question-and-answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Now, let me introduce Tony Will, our President and CEO.
Tony Will: Thanks, Martin and good morning everyone. Yesterday afternoon, we posted results for the first quarter of 2024 in which we generated adjusted EBITDA of $460 million. Our performance reflects a challenging quarter for our production network plant outages caused by severe cold in January as well as other unplanned downtime, resulted in a significant loss of production and maintenance activity. Even with the production outages and associated expenses, our business generated strong cash flow for the quarter. Net cash from operations from the first quarter was $445 million and free cash flow was approximately $200 million. Longer term, we expect the global energy cost structure to continue to provide a significant margin opportunities for our North American production network and for clean energy to provide a growth platform for the company.
As a result, we expect to have significant free cash flow available to both invest in growth and return capital to shareholders. We remain focused on disciplined investments in clean energy that offer returns well above our cost of capital. These include decarbonization projects within our existing network and potential new low-carbon on capacity. We also remain committed to returning capital to shareholders through our dividend and share repurchases. In the first quarter, we returned $445 million, including repurchasing 4.3 million cars. We have approximately $2.2 billion remaining on our current share repurchase authorization, which we intend to complete by the end of next year. With that, let me turn it over to Bert, who will discuss the global nitrogen market conditions in more detail.
Bert?
Bert Frost: Thanks Tony. The global nitrogen market has experienced rapidly changing dynamics throughout 2024, including in North America. The spring application season began earlier than normal in late February with demand for ammonia applications brought forward from the second quarter into the first or weather at the end of March, subsequently stalled field work and fertilizer purchases with the region now on a normal application and planting pace. Overall, we expect nitrogen demand in North America to be positive with approximately 91 million acres of corn planted. Good soil moisture supports higher application rates than in previous years, and farm economics remain constructive, but weaker than the record highs from previous and recent years.
We believe the spring ammonia season will see fewer tons of ammonia applied this year. However, total ammonia application volumes for the fertilizer year, which runs from July 2023 through June 2024, should be comparable to previous years, given the strong fall ammonia season. As the pace of spring application season has normalized, the lineup urea and UAN imports for the region has grown. These tons will be necessary to meet expected demand, given low inventories in the region to start the year and production disruptions in January. Even with the imports, we expect that inventory in the North American nitrogen channel across all products will be low at the end of the season. This activity is occurring as the global nitrogen market supply position has loosened, leading to lower global prices than we saw earlier this year.
Lower imports of urea to India, including the impacts of lower volumes taken in the recent tender, lower-than-expected deferred demand in Europe and other countries and good production from the era Gulf in North Africa all played a role. We did not believe demand during the spring season in North America will resolve the length in the global nitrogen market by itself. As North America hits its traditional pricing reset in the summer, Brazil, India, and China will provide the most important signals regarding the state of the market. We project that urea consumption and imports in Brazil will grow in 2024, maintaining that company's status as the world's largest importer of urea. India will remain a major importer urea, though they have lower requirements today, reflecting their commitment to increase domestically produced urea.
China continues to prioritize lower fertilizer prices for their farmers with export restrictions playing a significant role in that effort. We expect China sold export approximately 4 million metric tons of urea this year, but actual volumes will depend on the timing and duration of when exports are allowed. Even with these sources of near-term uncertainty, North American producers remain firmly positioned on the low end of the global cost curve. Forward energy curves continue to show spread between North America and Europe, which is home to the industry's marginal high-cost production remaining wider than historical averages. As a result, we expect attractive margin opportunities for our network in the near and longer term. With that, let me turn the call over to Chris.
Chris Bohn: Thanks Bert. For the first quarter of 2024, the company reported net earnings attributable to common stockholders of approximately $194 million or $1.03 per diluted share. EBITDA was $488 million, and adjusted EBITDA was approximately $460 million. The production outages that we experienced earlier this year affected our results in two significant ways. Maintenance expenses were approximately $75 million higher in the first quarter of 2024 compared to the first quarter of 2023. Additionally, we had approximately 160,000 fewer tons of ammonia available to upgrade in the quarter compared to the same quarter last year. This equates to approximately 275,000 tons of urea that we would otherwise have been able to produce and sell at higher margins.
The production issues were continued through the first quarter, and our network is operating at our typical high utilization rates today. We believe we currently project that growth ammonia production for 2024 will be approximately 9.8 million tons, which reflects normal asset utilization rates moving forward. Our forecast for 2024 capital expenditures remains approximately $550 million. Capital expenditures were higher in the first quarter of 2024 compared to the first quarter of 2023, primarily due to a large planned turnaround event. We are making continued progress on our clean energy initiatives. Commissioning activities for our green ammonia projects are nearing completion. We intend to purchase 45 compliant renewable energy certificates to pair with the startup of the electrolyzer to enable green ammonia production and maximize the value of the hydrogen production tax credit.
Additionally, construction of the carbon dioxide hydration and compression unit at Donaldsonville is progressing well. We believe it will be ready for start-up in 2025, at which point our partner, ExxonMobil will be to begin transportation and permanent frustration of up to 2 million tons of CO2 from the facility per year. This will not only significantly reduce our carbon emissions, but also enable low carbon ammonia production and generate substantial 45Q tax codes. Our evaluation of low-carbon ammonia capacity growth continues with potential partners and offtakers. We have made additional progress on our auto re-thermal reforming ammonia plant and flu gas capture FEED studies. These should be complete before the end of the year and will be an important component of our final investment decision.
We continue to emphasize a disciplined approach based on the return profile of new capacity, the technologies needed to meet customers' carbon intensity requirements and the global demand outlook. With that, Tony will provide some closing remarks before we open the call to Q&A.
Tony Will: Thanks Chris. Before we move on to your questions, I want to thank everyone at CF Industries for their hard work during the difficult first quarter of 2024. In particular, the team did an outstanding job for storing our network to full utilization rates and most importantly, doing so safely. Our 12-month recordable incident rate at the end of the quarter was 0.36 incidents per 200,000 labor hours, significantly better than industry averages. Despite the challenges we faced earlier this year, we believe CF industry is well positioned for the years ahead. In the near-term, the global energy cost structure remains favorable to our North American production network. Longer term disciplined investments in low-carbon ammonia production provide a robust growth platform for the company.
Taken together, we expect to drive strong cash generation and continue to create substantial value for long-term shareholders. With that, operator, we will now open the call to your questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Chris Parkinson with Wolfe Research. Please go ahead.
See also
15 Largest Beer Companies in the World and
20 Countries with the Highest Cancer Survival Rates in the World.
To continue reading the Q&A session, please click here.
