CF Industries Holdings Q1 2010 Earnings Call Transcript

CF Industries Holdings Q1 2010 Earnings Call Transcript
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CF Industries Holdings (CF)

Q1 2010 Earnings Call

May 07, 2010 10:00 am ET

Executives

Terrell Huch - Senior Director of Investor Relations & Corporate Communications

Anthony Nocchiero - Chief Financial Officer and Senior Vice President

Stephen Wilson - Chairman, Chief Executive Officer and President

Analysts

Jeffrey Zekauskas - JP Morgan Chase & Co

Mark Connelly - Credit Suisse

Chris Damas

David Silver - BofA Merrill Lynch

Michael Picken - CRC

Horst Hueniken - Thomas Weisel Partners Equity Research

Donald Carson - UBS Investment Bank

Edlain Rodriguez - Broadpoint AmTech, Inc.

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Q1 2010 CF Industries Results Conference Call. [Operator Instructions] I would now like to turn the call over to Terry Huch, Senior Director of Investor Relations and Corporate Communications. Please proceed.

Terrell Huch

Thank you, Antoine. Good morning, and thanks to everyone for joining us on this conference call for CF Industries holdings, Inc. I'm Terry Huch, Senior Director, Investor Relations and Corporate Communications. And with me are Steve Wilson, our Chairman and Chief Executive Officer; and Tony Nocchiero, our Senior Vice President and Chief Financial Officer.

CF Industries Holdings, Inc. reported its first quarter 2010 results this morning. Terra Nitrogen and Terra Industries, which we acquired after the end of the quarter, reported their results yesterday. On this call, we'll review the CF Industries results in detail and provide brief comments on the results of Terra and Terra Nitrogen. We'll also discuss our outlook for industry and company performance in 2010 and field questions about the combined enterprise. If you have detailed modeling questions regarding the future consolidation of financial results, let me suggest that you address those questions to me after the call.

As you review the news releases posted on the Investor Relations section of our website at www.cfindustries.com and as you listen to this conference call, please recognize that they contain forward-looking statements as defined by Federal Securities laws. All statements in the release and on this call other than those relating to historical information or current conditions are considered forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in the Safe Harbor statement included in today's news release. Consider all forward-looking statements in light of those and other risks and uncertainties and do not place undue reliance on any forward-looking statements.

Now let me introduce Steve Wilson, our Chairman and CEO.

Stephen Wilson

Thanks, Terry, and thank you, all, for joining us today. For the first quarter of 2010, CF Industries reported a net loss of $4 million or $0.09 per diluted share, down from earnings of $63 million or $1.28 per share in the same period last year. Excluding unusual items, which Tony will discuss later in the call, results were generally in line with our expectations and give us no reason to change our bullish outlook for the spring season.

The fact that stocking activity was light in the first quarter, set as up for tighter market conditions in the second quarter, which increases the value of our industry-leading storage and distribution capability. That value became evident in April, as ideal planting conditions for corn emerged throughout most of the Midwest.

The investment case for CF Industries starts with a significant advantage for nitrogen production in North America, due to low natural gas costs relative to the world sling producers. That advantage was visible in the quarter and we expect it to continue to be visible in the second quarter, helped by recent weakness in the natural gas prices in North America.

The acquisition of Terra Industries, which we completed on April 15, provides us with opportunities to capitalize on the North American natural gas advantage that were not possible previously. Through the acquisition, we have more than doubled our nitrogen capacity; multiplied our logistical options; gain synergy opportunities for costs, capital expenditures and working capital; enhanced our ability to serve our customers; and improved our ability to invest in future growth because of our larger capital base.

We remain focused on doing an excellent job of serving our customers through the spring and integrating the operations of the two companies. I'm pleased to report that we're off to a very good start in both respects, with key employees engaged in the integration process. After a month of operating the combined company, we've confirmed the major assumptions we made before the acquisition.

Terra has excellent people throughout the organization, the cultures of the two companies are clearly compatible and the high end of our cost synergy range is achievable. We're very happy to have completed our common stock and unsecured notes offerings, which were substantially oversubscribed. I'd like to welcome our new stockholders and bondholders on board. It was good to be able to meet so many of you on our road shows and we look forward to meeting others as occasion permits.

At this point, I'll drill down on the business fundamentals for the first quarter in a little more detail, Tony will then take you through our financial results and then I will return to discuss the outlook. During the first quarter, we typically don't see much nitrogen fertilizer going to the ground in the Corn Belt. Buying activity is driven by application in the Southern Plains and channel stocking across the Northern Midwest.

In the Southern Plains, first quarter activity was slower than normal because of wet conditions and below-normal wheat planting. In the heart of the Corn Belt, we saw a continued reluctance to stock the distribution channel. As a result, our nitrogen sales volume of 1.2 million tons was 5% lower than the first quarter of last year, with all of the reduction coming in urea volume.

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