01—Abstract
Summary
Summary of the 10-K filed February 24, 2020. Cited figures are marked; the original filing is the authoritative source.
CF Industries Holdings, Inc. reported net earnings attributable to common stockholders of $493 milliona in 2019, up 70% from $290 million in 2018, with diluted earnings per share of $2.23 versus $1.24.
Net sales rose 4% to $4.59 billionb on a 1% increase in sales volume to 19.5 million tons and a 3% increase in average selling prices to $235 per ton. Gross margin increased 28% to $1.17 billion, driven primarily by a 13% decrease in natural gas costs, with gross margin percentage reaching 25.6% versus 20.7% in 2018. Net earnings attributable to noncontrolling interests rose to $153 million, reflecting the approximately 11% CHS minority stake in CF Industries Nitrogen, LLC (CFN).
Results were supported by a $45 millionc pre-tax gain on the sale of the Pine Bend facility and $37 million of insurance proceeds, partly offset by a $16 million PLNL withholding tax charge and a $21 million loss on early debt extinguishment. Operating cash flow was $1.51 billion, and the company repurchased 7.6 million shares for $337 million under its 2019 program.
Total funded debt was $4.0 billiond at December 31, 2019, with $750 million of revolving credit availability, and the company cited a credit rating of BB+ (S&P, positive outlook), Ba1 (Moody's, stable) and BB+ (Fitch, positive outlook) as of February 18, 2020. The filing notes ongoing exposure to the West Fertilizer Co. litigation, with the next group of cases reset for trial beginning September 14, 2020, and significant regulatory exposure to greenhouse gas rules in Canada, the UK and Alberta.
02—Key points
Key Highlights
- Net earnings attributable to common stockholders rose 70% to $493 million, or $2.23 diluted EPS, versus $290 million, or $1.24, in 2018.
- Gross margin increased 28% to $1.17 billion; gross margin percentage was 25.6% versus 20.7% in 2018, driven by a 13% decrease in natural gas costs to $2.74 per MMBtu.
- Net sales increased 4% to $4.59 billion on 19.5 million product tons sold (up 1%) and average selling prices of $235 per ton (up 3%).
- Other operating income of $73 million included a $45 million gain on the Pine Bend facility sale and $37 million of insurance proceeds.
- Total funded debt was $4.0 billion (about 41% of total capitalization), with an undrawn $750 million revolving credit facility maturing December 5, 2024.
- Repurchased 7.6 million shares for $337 million in 2019 under the $1 billion 2019 Share Repurchase Program; cash dividends were $1.20 per share.
- Operating cash flow was $1.51 billion, and capital expenditures were $404 million, with 2020 capital expenditures estimated at $400 to $450 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, CF Industries Holdings kept $0.11.
- Revenue$4.59B100.0%
- Cost of revenue−$3.42B74.4%
- Gross profit$1.17B25.6%
- Operating costs−$171.0M3.7%
- Operating income$1.00B21.9%
- Interest, other & tax−$510.0M11.1%
- Net income$493.0M10.7%
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 24, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $4.59B$4.43B | +3.6% |
| Cost of Revenue | $3.42B$3.51B | −2.7% |
| Gross Profit | $1.17B$917.00M | +28.0% |
| SG&A Expenses | $239.00M$214.00M | +11.7% |
| Operating Income | $1.00B$766.00M | +30.9% |
| Interest Expense | $237.00M$241.00M | −1.7% |
| Net Income | $493.00M$290.00M | +70.0% |
| EPS (Basic) | $2.24$1.25 | +79.2% |
| EPS (Diluted) | $2.23$1.24 | +79.8% |
| Shares Outstanding (Basic) | 220.20M232.60M | −5.3% |
| Shares Outstanding (Diluted) | 221.60M233.80M | −5.2% |
05—Questions
Frequently Asked Questions
What drove the increase in earnings in 2019?
The increase was driven primarily by lower realized natural gas costs, higher average selling prices due to a tighter global nitrogen supply and demand balance, and higher sales volume. Gross margin rose $257 million, and other operating income increased $46 million, largely from the Pine Bend gain and insurance proceeds.
How much debt does CF Industries carry and when does it mature?
As of December 31, 2019, total long-term debt was $3.96 billion carrying value ($4.0 billion principal), consisting of senior notes maturing between 2021 and 2044. The company redeemed the $500 million 7.125% notes due 2020 and $250 million of the 3.400% notes due 2021 during 2019. There were no borrowings under the $750 million revolving credit agreement.
What are the main risks highlighted in the filing?
The filing highlights the cyclical nature of nitrogen fertilizer prices and global oversupply, dependence on North American natural gas prices, reliance on a limited number of key facilities (Donaldsonville represents about 40% of ammonia capacity), greenhouse gas regulation in the UK, Canada and Alberta, the West Fertilizer Co. litigation, and the loss of portions of the Magellan ammonia pipeline serving Verdigris and Port Neal.
What is the status of the CHS strategic venture?
CHS owns approximately 11% of CF Industries Nitrogen, LLC (CFN), which is consolidated, and CHS was the company's largest customer in 2019, accounting for about 15% of consolidated net sales. CFN made an $88 million semi-annual distribution to CHS on January 31, 2020, and CHS holds the right to purchase up to about 1.1 million tons of granular urea and 580,000 tons of UAN annually.
What cash tax items are expected in 2020?
The company expects an increase in cash taxes in 2020 because there are no remaining U.S. federal tax loss carryforwards as of December 31, 2019. This is partly offset by an expected cash refund of approximately $57 million in the first half of 2020 related to the Terra amended tax returns, with a possible further refund of approximately $29 million pending Joint Committee approval of the withholding tax matter.
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