CF Industries Holdings, Inc. (CF) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to CF Industries' First 9 Months and Third Quarter of 2026 Conference Call. [Operator Instructions] I would now like to turn the presentation over to the host for today, Mr. Martin Jarosick with CF Investor Relations. Sir, please proceed.

Good morning, and thanks for joining the CF Industries earnings conference call. With me today are Chris Bohn, President and CEO; Bert Frost, Executive Vice President and Chief Commercial Officer; and Andrew Scribner, Executive Vice President and Chief Financial Officer. CF Industries reported its results for the first 9 months and third quarter of 2026 yesterday afternoon. On this call, we'll review the results, discuss our outlook and then host a question-and-answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These times are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you'll find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Now let me introduce Chris Bohn.

Thanks, Martin, and good morning, everyone. Yesterday afternoon, we reported results for the first 9 months of 2026, which we generated adjusted EBITDA of approximately $3 billion. Our results reflect the strength of CF Industries' operational performance and the structural advantages of our business. At the foundation of that performance is our team's relentless focus on safety excellence. We closed the quarter with a trailing 12-month incident rate of 0.1 incidents for 200,000 hours worked, well below industry averages. That outstanding safety performance directly supports reliable production and high asset utilization. Since the beginning of the year, we have operated our available ammonia capacity at 97% utilization. Along with our consistent operational performance, we benefit from the structural advantages of our low-cost, low-risk North American asset base. Our low-cost position on the global nitrogen cost curve supports our current $2.9 billion mid-cycle EBITDA estimate, while our low-risk network provides upside during periods of global nitrogen market disruption. We have seen that dynamic play out this year with adjusted EBITDA through the first 9 months already exceeding our mid-cycle. Together, these strengths translate into strong cash generation. CF Industries consistently convert approximately 60% of EBITDA into free cash flow. The highest rate in the material sector and well above other fertilizer companies. This gives us the financial strength to invest in high-return projects while returning capital to shareholders. Today, we are making tangible progress on investments to grow our advantaged network and enhance margins. BluePoint 1 began site construction in August. Donaldsonville CCS is operating well and the Yazoo City CCS project is progressing towards start-up in 2028. We expect these projects to add $400 million to our mid-cycle EBITDA estimate by 2030, bringing it to $3.3 billion. Further out, we have begun a FEED study for our court right diesel exhaust fluid project. Alongside those investments, we have returned $1.3 billion to shareholders over the last 12 months to share repurchases and dividends. Over that period, we have repurchased approximately 6% of our outstanding shares bringing total repurchases over the last 3 years to 22% of outstanding shares. Taken together, our structural advantages, operating performance, growth investments and disciplined capital allocation position us to build on our track record of compounding value for long-term shareholders. With that, I'll turn it over to Bert to discuss the global nitrogen market environment. Bert?

Thanks, Chris. The global nitrogen market environment remained constructive through the third quarter. Demand strengthened as the quarter progressed, while supply remained constrained. Buying activity accelerated in North America, South America and Europe as deferred demand returned to the market. Cornaweed value strengthened during the third quarter before giving back some of the gains in the fourth quarter. At the same time, nitrogen values remain below the peaks reached during spring applications. We saw that demand pick up clearly in North America. Participation in our fall ammonia program has been very strong. Weather permitting, we expect fall ammonia volumes to be amongst our highest in the last 10 years. Our UAN fill program also helped us ship nearly 2 million tons in the third quarter, our largest quarterly UAN volume this decade. Globally, demand also remains robust. India has maintained a steady pace of urea tenders, and we expect imports to exceed 10 million metric tons this year. Brazil has been slower to purchase in part because of credit constraints. However, improved crop values in the third quarter supported farmer economics in [indiscernible]. With nitrogen inventories low across the global system, including North America, South America, Europe and Southeast Asia, we believe substantial purchasing remains ahead. On the supply side, geopolitical disruptions remain a significant factor since hostilities began in the Middle East in late February, we estimate that the global market has lost approximately 9 million metric tons of urea supply. Shipping availability and significantly higher freight and insurance costs remain constrained. Russia is another source of uncertainty. While production levels and plant availability are difficult to assess, disruptions in the Black Sea shipping lanes have affected traditional routes. At the same time, high-cost producers remain under pressure. European producers faced challenging economics from high natural gas prices. We believe more than 35% of ammonia capacity in the region is curtailed. Additionally, natural gas availability continues to constrain production in other regions. Chinese urea exports are helping to fill part of the global supply gap, particularly into India but have not materially loosen the global nitrogen supply demand balance. We expect the Chinese government to continue to manage export levels in line with its domestic food security policies. Against this backdrop, we expect the global nitrogen supply demand balance to remain constructive into 2027. Purchasing activity that was delayed earlier this year is now being realized. Global inventories remain low and meaningful portions of global production and trade remain constrained. Longer term, our outlook has not changed. Nitrogen capacity currently under construction is not sufficient to meet global nitrogen demand growth and expected permanent shutdowns through 2030. Additionally, the timeline and capital costs required to bring future capacity online have become longer and more challenging. This supports a structurally tighter global nitrogen environment through the end of the decade and reinforces the value of CF Industries low-cost, low-risk North American production and distribution network. With that, I'll turn the call over to Andrew.

Thanks, Bert, and good morning, everyone. For the first 9 months of 2026, the company reported net earnings attributable to common stockholders of approximately $1.8 billion or $11.60 per diluted share. EBITDA and adjusted EBITDA were both approximately $3 billion. For the third quarter, net earnings attributable to common stockholders were $436 million or $2.87 per diluted share. EBITDA was $822 million and adjusted EBITDA was $833 million. We continue to convert EBITDA into free cash flow at a consistently high rate. For trailing 12-month net cash from operations was approximately $3.1 billion, and free cash flow was approximately $2 billion. As you can see on Slide 9, our EBITDA to free cash flow conversion has averaged approximately 60% over the last 5 years. Conversion over the last 12 months has been slightly lower due to $306 million of deposits related to historical U.S. Canada transfer pricing matter dating back to 2012. These deposits limit the accrual of additional interest in Canada, while the matter is resolved between the 2 governments. Following resolution, we expect to file amended U.S. federal and state tax returns seeking refunds of related taxes previously paid. Looking ahead, our 2026 consolidated capital expenditure outlook remains approximately $1.3 billion with shipping industry share at approximately $950 million. Construction on the BluePoint One ammonia plant is moving forward in line with our expectations. The projected total cost remains $3.7 billion with ammonia production expected to commence in 2029. The cost of BluePoint common facilities also remains our initial estimate of $550 million. Our 40% share of the remaining investment in BluePoint One will be spread over 3 years is manageable given our consistently strong free cash flow generation. At the same time, we continue to return substantial capital to shareholders. During the third quarter, we repurchased 3 million shares for approximately $367 million. As we discussed last quarter, we believe the market continues to describe too much of our earnings and free cash flow performance to short-term geopolitical factors. Structural advantages as Chris discussed, combined with the global nitrogen supply-demand dynamics Bert outlined, underpin our confidence in CF Industries mid-cycle earnings power. We do not believe our earnings power is fully reflected in our valuation, supporting our continued opportunistic share repurchases. With that, I'll hand it back to Chris before we open the call for Q&A.

Thanks, Andrew. I want to thank CF Industries employees for their outstanding performance through the first 9 months of 2026. Our team is operating safely and executing exceptionally well while navigating significant disruption in the global nitrogen market. We are especially proud of our team's commitment to safety excellence. Our recordable incident rate at the end of the quarter was the lowest we've ever achieved as a company, a testament to our employees living our do-it-right culture every day. That commitment was also on display and this year's Wilson Award for Safety Excellence. Our medicine [indiscernible] complex earned this year's award, and I want to recognize that team, along with all of our finalists for the innovative approaches to safety they developed and shared. As you've heard today, structural changes in the global nitrogen market are reinforcing the value of CF Industries low-cost, low-risk North American asset base. Combined with our consistent operational execution, differentiated sales and distribution capabilities and industry-leading free cash flow conversion, we have a strong foundation for long-term shareholder value creation. We are building on that foundation today through disciplined growth investments and capital returns. As you can see on Slide 10, our current growth projects, combined with our existing share repurchase authorization are expected to increase nitrogen per share by 15% by 2030. These initiatives build on our long track record of compounding value and leave us well positioned to continue to create value for long-term shareholders. With that, operator, we'll open the call to questions.

[Operator Instructions] The first question comes from Kristen Owen of Oppenheimer.

I just wanted to start with sort of your long-term supply outlook. You called out the 37% of European nameplate capacity that's currently curtailed. Just given the volatility in energy prices, never mind the absolute cost challenges. Like what's the structural settling out point? And has your view on the long-term supply backdrop changed?

Kristen, I would say our view has not changed. I think it's something that we've been talking about for quite a while. The only part that has changed -- our view, I should say, in the aggregate, hasn't changed, is we believe it's going to accelerate from what we thought was a 2030 time frame with some of those European shutdowns to occur whether it be 12 months or 18 months sooner than that given the current dynamics that you discussed in the energy volatility. So today, we're seeing like you said, close to 40%, either offline or curtailed in Europe. And additionally, each quarter that this goes on makes it more and more challenging to start up that equipment because the capital cost that would be associated and additionally, to have fixed overhead absorption that continues and the work that's needed to keep that equipment in line to be started up at some unknown date is quite expensive. So I would say our position on the tightening in the global S&D market has been one that we have back all the way to 2025. It's just being accelerated now. That's also being compounded by what we're seeing in Russia and Ukraine with no true resolution there. And I would even say what we're seeing in the Middle East even if there is some sort of resumption, it will take a while in order for that supply to begin flowing again.

And my follow-up is for Bert, I think you said fall application demand among the highest in 10 years. It's been a pretty dynamic year from a commodity price perspective. Obviously, a pretty healthy crop this year, but just maybe some indications on how you're thinking about acreage in 2027 would be helpful.

The positive implications or directions in our fall ammonia program, which is one of the highest in 10 years. One, it has to -- weather -- we always put in the caveat of weather dependent because we're just starting the program now. We're well through our movement in Canada, and that's moving down into the Dakotas, then we have to move into the Illinois, Iowa and Nebraska states. So right now, that's a little bit delayed just because of the wet weather and elevated temperatures. But the -- right, the indications are with that big program for fall applications does lead to positive implications for corn planting in 2027. And what we're looking at is probably in line with what the other recommendations or indications are from the other players, is 95 million to 96 million acres could be elevated depending on pricing. Right now, where corn is settling, one of the positive things for this year is and -- for farm revenue is a settling of the crop revenue guarantee programs at 4.75 for harvest, that will lead to, I think, some a nice floor for a farmer in today's economics. And then interesting to see what's going to happen globally with yields due to, I think, some under-applications of nutrients around the world and what that does to stocks-to-use ratios and how that correlates then to demand, which we see is healthy in the ethanol and protein markets and then, therefore, drives price. And I would say the expectation is driving price for corn at least up in 2027, which could drive acreage even higher than the 95% or 96% that we're targeting today.

The next question comes from Andrew Wong of RBC Capital Markets.

Just curious your thoughts on how you see the setup on nitrogen in the market today when you compare it to where we were last year. It seems like we're in a tighter situation with a lot of things you mentioned, higher energy prices. We also see stronger crop prices. When you look at nitrogen prices and like, I think, in aggregate or -- with only like 10% higher from where we were last year at this time. Like what's your thoughts on that? And why do you think that is?

Yes, I think you're correct. In terms of your 10%, we are trading in the high 380s -- probably [ 360 to 380s ] last year and today, trading at [ 430 ] for Q4 for a short -- that's on a short ton for NOLA. And I do see a positive market going forward. Just a lot of this demand that has been deferred is going to catch up and then you throw in like we've talked about a lack of supply and the first world countries that can pay and will pay as we go into the Northern Hemisphere planting and application seasons, we see a robust demand coming, and we're actually seeing that with orders for our UAN programs and urea as well. And so my expectation would be we're on a positive trajectory in 20 -- at least the first half of 2027 for nitrogen pricing.

Okay. Perfect. And then maybe just between the different products, you look at urea, ammonia, UAN, and we've seen more strength in ammonia and UAN recently, which I think is more reflective of what you've been seeing on European nat gas, but then urea seems to have lagged a bit, right? Like why do you think that is? And do you expect some catch-up as well on that [indiscernible].

When you look at the global market in urea, you're trading about 4.5 million to 5 million tons per month seaborne traded. And I think with the Chinese supply that has come in to kind of covering what has been lost from the Middle East, as I said in my prepared remarks, we've probably lost 9 million tons, and it's in our deck of what's been lost and what's been made up with different places. And so as we're trending into the back half of this year and in Q4, I think the market just in pause as you transition from hemispheres to hemispheres and planting and applications and building of supply. But inventories are low across the globe in our channel checks and so I do see a positive movement for urea, UAN has been trading on a higher differential to urea at this time, and we're seeing solid uptake in the UAN program for 2027 as well. Ammonia globally is more impacted, you're correct, European demand and global demand for ammonia. As like Chris's comments mentioned, you're seeing curtailments and shutdowns and inability to source and that has driven ammonia up higher in recent weeks.

The next question comes from James Hooper of Bernstein.

How long do you think that the Northern Hemisphere farmer can wait if we buy. I mean are they looking at events this week, thinking the Iran war might end and they can hold on for some time? Is that why pricing is only 10% higher than last year?

Well, I think you're seeing some indications of actual stepping in and buying. Our UAN program from our retail friends has been sold down a lot to farmers. And so that's a product we've already shipped. And we talked about the ammonia program, has been sold down to farmers. And I think ours and the other suppliers in United States and Canada have also done and nor had or have prepared a good program for fall, which indicates, again, farmer uptake. We will launch our spring program for ammonia post the application season this fall, and I expect that to be well updated. I think where you've seen some cutbacks in P&K is a reflection of the higher prices for those products. But I think nitrogen is a very good value, and it's been reflected in purchasing. I think the slowdown, if you're taking the whole Northern Hemisphere and the slowdown in Europe is a reflection of just those natural gas costs and European producers of nitrogen, those prices are much higher than in North America.

And just as a follow-up, can you just expand a little bit more on where you see Chinese urea exports going? I mean it looks like this is the highest level in 10 years. But do you think this could be a new normal or just a one-off helping India out effectively?

There are 2 Chinas. There's the prilled urea producers and the granular urea producers. What has helped stabilize the market in India and Southeast Asia has been the prill supply, which is generally not demanded in first-tier, first world markets like South America or the United States or Europe. And so if you extract the prilled supply out, I would say the granular supply of China has probably given a balanced market at this point. So Chinese -- the export authorizations now total almost 9 million tons. So it is higher. Historically, last year was just a little under 5 million tons. But again, on a strange year with the limits out of the Middle East, it would -- it made sense for China to open up a little bit more. But it is consistent with, I think, what China has focused on is their own food security and food production and supply of fertilizers to their farmers on an economic basis. And so I think that's the first focus for China and then excess has been exported, whether that's next year, $6 million, $7 million, $8 million, I won't project at this point.

Yes. I think the other thing with China, you said it's their highest export in over 10 years. It would also require them to have their highest asset utilization over a decade. So I'm not so certain some of the 8 million to 9 million tons of export that Bert was talking about there don't move a little bit into early part of the next calendar year as well. And that's where maybe that bumps up against some of the domestic food supply constraints that they're looking at doing there. So a lot to keep our eye on with that. But it is -- it would be quite a bit for them to export before the end of the year here.

The next question comes from Joel Jackson of BMO Capital Markets.

I just want to get an update on Yazoo. And would you expect the level of insurance inflow from Yazoo to be similar in Q4 and Q1, let's say, as Q3 levels? That's the first question.

Yes. So I'll let the numbers in the insurance part go to Andrew. But just on an overall update with Yazoo, our expectations are still that towards the end of the first half of next year that we will be starting up components of that plant. As you recall, we've idled the ammonia, the nitric acid and the AN plants there as we rebuild the AN supply Additionally, we're looking at as part of that reconfiguration is building out some of the logistics and distribution attributes of the site to make it more flexible than what it's been in the past being able to serve more customers. So we're excited about that plant getting back in operation in the first half of next year. But I'll turn it over to Andrew. He'll talk through a little bit more of the timing of insurance payments.

Yes, Joel. So the way that I would think about it is I would take a longer view. I think when you look at both the capital build and the timing of when the cash payments will go out, at the end of this year and into next year relative to the insurance pieces, what we expect is that you are going to offset. So if you take a longer-term view and you kind of go through once we're complete with the rebuild and this is all wrapped up. We see that the 2 will largely offset. We're not trying to give guidance on what it's going to look like quarter-over-quarter. So -- but I would say feel assured that, that longer-term view will largely offset.

Okay. And then you're just a little bit of month into you and your partners into construction at BluePoint. Any observations or thoughts you want to share what you've learned so far about the project, things you're thinking about changing or any observations?

Well, I would say we're in very early days related to that. But we have hit some significant milestones with receiving the permits that were required. There's significant civil work that's ongoing down there. our long lead items have been ordered, and we're looking to begin our module work at the beginning part of next year. I would say the learning is that I think we are fortunate we made the decision when we did on a timing basis. So we -- if you think about it, we made FID 18 months ago, but about 6 months prior to that, we had put in orders on electrical gear given we knew that to get in queue there was important. So we're really 2 years ahead on some of our ordering of equipment. And I would say if you were to announce a project today, and look to build a world-class plant of something as similar to that, no matter where it is globally, you probably would have an extension of the duration by 12 to 18 months in completion of that. So I think the one thing that we're happy that we made was the decision when we did and also the preordering of some of that critical equipment prior to the start. Operator, we can move to the next?

Okay. I'll move on. The next question is Lucas Beaumont of UBS.

I just wanted to ask about the controllable non-gas costs. So it has sort of been running up about $200 million year-to-date year-on-year, which is about a 12% increase. So I mean it's been choppy quarter-to-quarter that has generally been higher. Could you just kind of talk us through the drivers there and how you see that evolving into the fourth quarter and into next year?

Lucas, this is Andrew. Let me kind of talk you through Q3 because I think what you'll see in Q3 was also consistent with Q2, and now I'll give you some context here. So if you look at Q3, our cost of sales were up 11%. If you tease out the impact of volume, it was up about 4%. You probably saw within the quarter, we had some gas favorability. But I know what you're focused on is kind of what are some of those offsets. There were really 3 things that were coming through there, and I'll kind of put them in a materiality order. There's a couple of ones I want you to make connections on. So the biggest impact that we saw coming through was higher cost of purchased ammonia and this is largely in support of our U.K. operations. Just keep in mind, we benefit from higher ammonia selling prices. And so there's kind of an overall -- when you think about the overall P&L, that flows through our fixed costs, but it's not necessarily structurally disadvantageous to us in aggregate. The second piece is fixed cost absorption. We do have puts and takes between timing of turnarounds of this year versus last year. But the net of what's coming through is the Yazoo City rebuild that we're doing and the fixed cost absorption coming through. The other connection I want to make there is, I know it would be intuitive potentially to say, I'm going to tease out the impact of the insurance costs and just look at the fixed costs, but those 2 need to ride in tandem because that insurance recovery is in part to offset those higher fixed costs we're actually seeing coming through. And so I would kind of think about those 2 things together. And then the third bucket, which is probably the smallest of the 3, but it is have a an impact is distribution and logistics. And there's 2 things happening within that. One, you do have some mode mix, where we're seeing some shifting from more -- shifting from barge into rail. That's really a function of our order book, and we're really focused on our netback. But you do see some of those costs coming through from a mix standpoint. But you do see that's a little bit more sticky as you do see increases in rail itself and some fuel surcharges. But I think when you tease that out what we've been seeing for the last couple of quarters, it's largely been the purchased ammonia and Yazoo City fixed costs flowing through has been the primary driver that you've been seeing come through. Hopefully, that helps.

Great. And then you said -- you mentioned that you've sort of seen Middle East and urea exports tracking at about half the levels they were previously sort of coming out of the region since the conflict began. How has that been trending over time? Are you -- is that improving? Is it slowing? Is it stable? And how do you kind of see the outlook there short of us getting a full resumption in Open trade?

So the Middle East has been a question of fairly opaque at first when hospitality began in late February and March, there are vessels that were tracked behind, unloaded or empty as well as loaded. That delayed months to get out. So there was a period of time when it kind of opened up and things moved in May and June and then obviously froze up again. And there's been a lot of vessels that have moved with transponders turned off. And so it's kind of difficult to track those. But outside of Oman, we're probably considering 500,000 to 550,000 tons per month has been exiting the Gulf and then throwing Oman on top of that because it sits outside the Gulf, you're probably around 800,000 tons out of 1.5 to 1.7 normally per month. Iran has been moving some tons but less than their previous capacities. And so when you consider that of that, you're probably losing close to 700,000 to 1 million tons per month out of the Gulf consistently. How quickly that recovers is another question because of the risks and costs of going in and out of the Gulf today, it will take a long time not only to untangle what's there, but for vessels to reposition themselves to load and just the costs associated with freight. So if [ hospitals ] were to end tomorrow, I would think it would take months to get back to what is a "normal" volume. And then you've got to consider what -- which of those plants have not -- are inoperable or operating at a suboptimal rate due to some activities with drones or with inattention or maintenance. So I think those 2 or 3 things combined would say you're going to be 4 to 6 months if everything ended today.

The next question comes from Edlain Rodriguez of Mizuho.

Just a philosophical question. So when you look at the overall ag complex, corn prices have been down sharply since last was the [indiscernible] whether it gets revised down or not next week, who knows? So [indiscernible] income is under pressure. Like what do you think this is doing to farmers psychology and willingness to pay higher prices for club inputs.

Well, you have to start with the premise of that's the business that they're in is to plant the crop, harvest a crop.