EUR 850.00 For Business Accounts Only

Morningstar | CF Industries Reports Solid 1Q Despite Weather Delays; Maintaining $50 FVE. See Updated Analyst Note from 02 May 2019

As weather-related issues delayed farmer planting and fertilizer applications across the United States for a second straight year, CF Industries reported relatively solid first-quarter results. Thanks to higher prices, adjusted EBITDA was up 3% year on year to $305 million despite a 5% drop in total product volumes. Similar to what occurred in 2018, we expect that CF will be able to make up nearly all of the lower first-quarter volumes throughout the remainder of the year. We forecast 5% higher product volumes in 2019 versus 2018 due to more corn acres planted in North America.

With our outlook largely unchanged, we maintain our $50 fair value estimate. Our no-moat rating is also unchanged. CF is currently trading at a discount to our fair value estimate. However, we reiterate our very high uncertainty rating as the company's profits are sensitive to nitrogen prices and the spread with U.S. natural gas, both of which can be volatile.

During the earnings call, CF said it would discontinue exporting urea ammonium nitrate to Europe due to the EU Commission's import tax on the product under the EU antidumping response. We think the tax was implemented to help protect Europe-based UAN producers, which sit near the top of the cost curve due to their use of higher-cost European natural gas feedstock.

In 2018, CF exported roughly 850,000 metric tons of UAN to the European Union, over 4% of total product volumes. However, we do not expect CF to be affected going forward, as the company will begin to export more UAN volumes to South America. Additionally, CF will reduce UAN production and produce more urea instead. The largest shift we foresee from the EU Commission ruling is a small shift in global nitrogen fertilizer trade patterns; we maintain our long-term urea forecast of $260 per ton in 2019 real terms.