01—Abstract
Summary
Summary of the 10-K filed February 22, 2019. Cited figures are marked; the original filing is the authoritative source.
CF Industries Holdings, Inc. reported net sales of $4.43 billiona for 2018, up 7% from $4.13 billion in 2017, driven by an 11% increase in average selling prices to $229 per ton, partially offset by a 3% decrease in sales volume to 19.3 million tons.
Gross margin rose to $917 millionb from $434 million, and operating earnings increased to $766 million from $234 million. Net earnings attributable to common stockholders were $290 million, or $1.24 per diluted share, compared with $358 million, or $1.53 per diluted share, in 2017; the 2017 result included a $491 million income tax benefit from the Tax Cuts and Jobs Act. The company is a leading global fertilizer and chemical company operating nitrogen complexes in the United States, Canada and the United Kingdom, including the Donaldsonville, Louisiana complex the filing describes as the world's largest nitrogen fertilizer complex.
Cash and cash equivalents were $682 millionc at December 31, 2018, and total debt was $4.70 billion. In 2018 the company completed a $388 million purchase of the Terra Nitrogen public units and a $500 million share repurchase program, and on February 13, 2019 its board authorized a further $1 billion repurchase program through December 31, 2021. The filing also highlights risks that investors should weigh: the business is cyclical and exposed to global nitrogen oversupply, natural gas price volatility, a significant concentration in key facilities, credit rating downgrades in 2016 and a BB+/Ba2/BB+ rating profile, and pending litigation from the 2013 West Fertilizer Co. explosion, with the next group of cases reset for trial beginning July 23, 2019.
02—Key points
Key Highlights
- Net sales rose 7% to $4.43 billion in 2018, driven by an 11% increase in average selling prices to $229 per ton.
- Gross margin more than doubled to $917 million from $434 million, with gross margin percentage rising to 20.7% from 10.5%.
- Net earnings attributable to common stockholders fell to $290 million ($1.24 per diluted share) from $358 million ($1.53), largely because 2017 included a $491 million Tax Act benefit.
- Operating earnings increased to $766 million from $234 million, and net interest expense declined to $228 million from $303 million after 2017 debt redemptions.
- The company completed a $500 million share repurchase in 2018 and board authorized a further $1 billion repurchase program on February 13, 2019.
- Total debt was $4.70 billion at December 31, 2018, with a $746 million revolving credit availability and a stated 2019 capital expenditure estimate of $400 to $450 million.
- Key risks include industry oversupply, natural gas price volatility, reliance on a limited number of key facilities, and the West Fertilizer Co. litigation, with the next group of cases set for trial beginning July 23, 2019.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, CF Industries Holdings kept $0.07.
- Revenue$4.43B100.0%
- Cost of revenue−$3.51B79.3%
- Gross profit$917.0M20.7%
- Operating costs−$151.0M3.4%
- Operating income$766.0M17.3%
- Interest, other & tax−$476.0M10.7%
- Net income$290.0M6.5%
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 22, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $4.43B$4.13B | +7.2% |
| Cost of Revenue | $3.51B$3.70B | −5.1% |
| Gross Profit | $917.00M$434.00M | +111.3% |
| SG&A Expenses | $214.00M$191.00M | +12.0% |
| Operating Income | $766.00M$234.00M | +227.4% |
| Interest Expense | $241.00M$315.00M | −23.5% |
| Net Income | $290.00M$358.00M | −19.0% |
| EPS (Basic) | $1.25$1.53 | −18.3% |
| EPS (Diluted) | $1.24$1.53 | −19.0% |
| Shares Outstanding (Basic) | 232.60M233.50M | −0.4% |
| Shares Outstanding (Diluted) | 233.80M233.90M | 0.0% |
05—Questions
Frequently Asked Questions
Why did net earnings per share decline in 2018 even though operating performance improved?
Diluted earnings per share fell to $1.24 from $1.53 primarily because 2017 included a $491 million income tax benefit from the Tax Cuts and Jobs Act, which added $2.10 to diluted earnings per share that year. Operating results improved, with gross margin rising to $917 million from $434 million.
What drove the increase in gross margin in 2018?
The filing attributes the increase primarily to an 11% rise in average selling prices, which increased gross margin by $520 million, along with a $74 million benefit from unrealized natural gas derivative mark-to-market changes and a $57 million benefit from lower physical natural gas costs. These were partially offset by $142 million of higher costs tied to plant turnaround and maintenance activity.
How leveraged is CF Industries and what are the key credit considerations?
As of December 31, 2018, the company had approximately $4.70 billion of total funded indebtedness, about 45% of total capitalization, with senior notes maturing between 2020 and 2044. Corporate credit ratings were BB+ (S&P), Ba2 (Moody's) and BB+ (Fitch), all with stable outlooks as of February 14, 2019. The filing notes that further downgrades could increase borrowing costs and affect access to capital.
What is the status of the West Fertilizer Co. litigation?
Lawsuits relating to the April 2013 explosion at the West Fertilizer Co. facility remain pending. Over two hundred cases have been resolved through confidential settlements expected to be funded by insurance, and the next group of cases was reset for trial beginning July 23, 2019. The company states it cannot provide a range of reasonably possible loss but does not believe the litigation will have a material adverse effect, based on available information including insurance coverage.
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