Now again, despite what are eye popping numbers we are in an environment where very little matters. So most likely we'll file this piece of news away in our head and realize how much cheaper this stock just became on a trailing earnings basis (and forward). EPS of $5.02 vs analysts $3.60 will do that for you. However, as always CF has some mark to market (hey it's not just banks) in it's natural gas hedges which generated 92 cents of the $1.42 in excess of analysts. And oh yes, a slight (ahem) "miss" on revenue... they'll find something to raise a fuss about a stock when the sector is out of favor.
Once more all we can do now is continue to monitor the companies in our portfolio or watch list that are exceeding expectations and wait for them to return back to favor in the market. No amount of good news is being rewarded in most cases. Let's take a closer look.
- Net sales rose to best-ever $1.16 billion, up 37 percent from second quarter 2007, as substantial price increases for all products more than offset volume impact of adverse weather conditions in U.S. Midwest
- Operating earnings totaled $452.1 million, up from $159.4 million in year-earlier quarter
- Net earnings totaled a record $288.6 million, or $5.02 per diluted share, compared to $93.6 million, or $1.65 per diluted share, in second quarter 200. The results are three times its earnings in the second quarter of 2007, when the company earned $93.6 million, or $1.65 per diluted share.
- Second quarter results included $83.2 million in non-cash, pre-tax unrealized gains, or $0.92 per diluted share on an after-tax basis, from mark-to-market adjustments on natural gas derivatives. In the year-earlier quarter, CF Industries reported $36.3 million in non-cash, pre-tax unrealized losses, or $0.41 per diluted share on an after-tax basis, from mark-to-market adjustments
- “The cold, wet spring resulted in lower volumes in our nitrogen and phosphate businesses. However, that impact was more than offset by record high prices for all major fertilizer products, which helped us achieve our first-ever billion dollar sales quarter,” Wilson added.
Nitrogen
- Significant increases in average selling prices for all of the company’s nitrogen products more than compensated for increased natural gas costs and lower volumes, driving sharply higher net sales and gross margin compared to the second quarter of 2007.
- Nitrogen net sales totaled $848.6 million, up 26 percent from $671.5 million in second quarter 2007. During the 2008 quarter, CF Industries sold 2.12 million tons of nitrogen fertilizer, down 5 percent from the 2.24 million tons sold in the year-earlier period. The cold, wet spring delayed plantings and limited farmers’ ability to apply fertilizer.
- Second quarter 2008 nitrogen gross margin, including the segment’s mark-to-market gain, was 42.7 percent of sales, compared to 18.3 percent in the year-earlier quarter. (I love this statistic, although the mark to market does not make it a clean number)
- “China’s imposition of a substantial increase in their tax on fertilizer exports during the quarter clearly helped tighten the market for nitrogen, especially for urea,” Wilson noted.
- Net sales of phosphate totaled $312.4 million, up 76 percent from the $177.4 million reported for second quarter 2007. Volume was 456,000 tons, down from 510,000 tons in the year-earlier quarter. Volume in domestic markets approximated last year’s level, despite the reduction in corn acreage. However, export volume fell by 55,000 tons, due in part to timing of shipments to customers in India, Brazil, and other Southern Hemisphere markets.
- Gross margin was 34.5 percent of second quarter phosphate sales, up from 30.9 percent in second quarter 2007. Gross margin also improved sequentially from 32.1 percent in 2008’s first quarter, despite a second quarter increase of approximately $200 per ton in the cost of sulfur, a key component in phosphate fertilizer production. (so in English this means despite a substantial increase in their input costs they were able to pass along even higher prices, and their gross margin expanded)
- “The global supply/demand balance for phosphate, already tight going into the second quarter, tightened further when China increased its tax on fertilizer exports. There are published reports that recent earthquakes may have damaged a portion of China’s phosphate production capacity, which could further limit global supply,” Wilson pointed out. (notice a theme?)
- On July 23, 2008, the company’s Board of Directors declared the regular quarterly dividend of $0.10 per common share. The dividend will be paid on September 2, 2008 to stockholders of record on August 15, 2008.
- In July of 2008, CF Industries Holdings, Inc. and the Block 88 Contractor Companies (B88CC) reached agreement on a natural gas term sheet. The B88CC is developing Perรบ’s Camisea gas fields, which would provide the feedstock for a world-scale nitrogen fertilizer complex that CF Industries has proposed building in that nation.
The CF Industries executive also addressed questions about the potential impact of today’s fertilizer price levels on farmers. “Current high crop prices encourage farmers to maximize acreage and yield, and that means optimizing their use of fertilizer, here and around the world. Prices have responded to the tight global supply/demand balance. Fortunately, increases in crop prices have so far outpaced increases in fertilizer prices, so crop economics remain positive for farmers.”
[May 27: WSJ: Lofty Prices for Fertilizer Put Farmers in a Squeeze]
[May 5: Senators Call on EPA to Reconsider Ethanol Output Mandate]
[Apr 24: CF Industries Earnings]
Long CF Industries in fund; no personal position
