CF Industries Holdings' CEO Discusses Q2 2012 Earnings Results - Earnings Call Transcript

CF Industries Holdings, Inc. (CF)

Q2 2012 Earnings Call

August 7, 2012 10:00 am ET

Executives

Dan Swenson – Senior Director of Investor Relations & Corporate Communications

Stephen R. Wilson – Chairman of the Board, President & Chief Executive Officer

Dennis P. Kelleher – Chief Financial Officer & Senior Vice President

Bert A. Frost – Senior Vice President Sales & Market Development

W. Anthony Will – Senior Vice President Manufacturing & Distribution

Analyst

Kevin McCarthy – Bank of America

Don Carson – Susquehanna International Group

Vincent Andrews – Morgan Stanley

Michael Piken – Cleveland Research Company

P. J. Juvekar – Citigroup

Jeffrey Zekauskas – JP Morgan Securities

Edlain Rodriquez – Lazard Capital Markets

Analyst for Mark Connelly – CLSA

Tim Tiberio – Miller Tabak & Co., LLC.

Ben Isaacson – Scotia Capital

Ian Horowitz – Topeka Capital Markets

[Mark Gooley – Gooley & Associates]

Presentation

Operator

Welcome to the second quarter 2012 CF Industries Holdings earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn your conference over to your host for today Mr. Dan Swenson, Senior Director of Investor Relations and Corporate Communications.

Dan Swenson

Thanks for joining us on this conference call for CF Industries Holdings, Inc. I’m Dan Swenson, Senior Director of Investor Relations and Corporate Communications and with me are Steve Wilson, our Chairman and Chief Executive Officer; Dennis Kelleher, our Senior Vice President and Chief Financial Officer; Bert Frost, our Senior Vice President of Sales and Market Development; and Tony Will, our Senior Vice President of Manufacturing and Distribution.

CF Industries Holdings, Inc. reported its second quarter 2012 results yesterday afternoon as did Terra Nitrogen LP. On this call we’ll review the CF Industries results in detail and discuss our outlook referring to several of the slides that are posted on our website. At the end of the call we’ll host a question and answer session.

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 of 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 yesterday’s new release and the Slides accompanying this call. Consider all forward-looking statements in light of those and other risks and uncertainties and do now place undue reliance on any forward-looking statements.

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

Stephen R. Wilson

Yesterday afternoon CF Industries reported earnings of $606 million and diluted earnings per share of $9.31, both records for any quarter in the company’s history. We also generated over $1 billion of EBITDA during the quarter. These results attest to the earnings power of CF Industries, the execution of our business plans, and very favorable market conditions.

With the early start to the planting season, strong corn demand, and attractive farm level economics, over 96 million acres of corn were planted, a post WWII record. The high corn acreage along with ideal spring weather conditions created strong nitrogen demand that continued through the planting season. As a result, for the first six months of the year, we sold a record volume of nitrogen products driven by ammonia and urea.

During this time period we sold nearly 75,000 tons more ammonia than last year and about 120,000 tons more urea. The increase in urea sales was possible due to our flexible configuration that allowed us to cut back UAN production in order to maximize higher margin urea. Market demand in the second quarter was strong for all nitrogen products although we sold less nitrogen in the second quarter 2012 than in 2011. This was primarily due to demand that was pulled forward to the first quarter.

The strong demand and movement through distributors and retailers during the quarter resulted in exceptionally low North American nitrogen inventories at June 30 th. Using our own inventories as proxies for those across North America, we believe that producer inventories of nitrogen products were at or near historical lows.

Throughout this period of high demand our team worked diligently to meet our customers’ nutrient needs. This is evidenced by the record 95,000 tons of ammonia that we shipped through our Velva North Dakota terminal in April and May. To put this movement in context, we have only 30,000 tons of storage at Velva which means we turned the inventory in that location three times during those two months. Our employees demonstrated terrific execution which allowed us to capture incremental sales and margin during a peak period.

The application season demand was evident in the prices we realized during the quarter. Urea prices increased 34% compared to a year ago driven by strong demand and tight North American inventory. Ammonia prices increased 7% due to high demand for direct application. UAN prices were essentially unchanged from the second quarter 2011 but were up sequentially as customers came into the market after delaying purchases earlier in the year.

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