CF Industries Holdings Earnings Call Insights: North America Late Planting and Natural Gas Hedging

CF Industries Holdings  (NYSE:CF) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

North America Late Planting

Kevin McCarthy – Bank of America Merrill Lynch: Steve, in light of the late planting in North America, could you comment on the likely impact on the quarterly cadence of your earnings and perhaps discuss how late in the growing season growers can apply ammonia and UAN and your anticipated mix effects there?

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Stephen R. Wilson – Chairman, President and CEO: Well, in terms of the – I mean, the quarterly cadence of our earnings is frankly not something that we spend a lot of time worrying about. We look at our season from early spring through the beginning of summer and we move in much product as we can into the marketplace when it’s demanded, the split between Q1 and Q2 ends up being whatever it is. But having said that we have a very good order book, we’re very optimistic about the amount of (indiscernible) moving into the market and the economics associated with that. Bert, I’ll ask you to handle the second one.

Bert A. Frost – VP, Sales and Market Development: Regarding ammonia application and how later how long that will go, we’re seeing good movement throughout our system today and we have throughout the last week, and that’s distributed around where we have our terminals on the pipelines and on the river, and we anticipate that to continue. The area that were most affected by not applying ammonia last year were in the north, North Dakota, Minnesota, and Canada and that’s the area where we believe significantly ammonia needs to go down and that area also has a window to put that product down. So we anticipate that area to start this week and if you look at North Dakota on the weather map, which we seem to follow every day they’ve got an open window probably for the next week with appropriate temperatures and lack of moisture. On ammonia, you can apply ammonia for pre-plant and have a cure as short as three days as long as seven days, and so let’s take an average of five. So you need a window to apply, and then wait for the product to cure and the plant a seed. But don’t forget that the side-dress season can continue until the plant is up to 3 foot tall; let’s take an average of 3 feet tall. So, I would expect that side-dress due to the late planting will continue into July. So we will see positive movement of ammonia, even though we’ve recognized that ammonia areas may move to UAN, ammonia would still be going through to early July…

Kevin McCarthy – Bank of America Merrill Lynch: The second question, can you comment on the reasons behind the deferral of $400 million in your capital program to the new range of $600 million to $800 million for 2013? Why was that reduced and also why – given the reduction is there no impact on your expected timeline?

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Stephen R. Wilson – Chairman, President and CEO: Kevin, there is actually no deferral involved in this. When we put our estimates together early on in terms of these projects we tend to (err) on the conservative side in terms of the timing so that we are prepared to handle liquidity needs that could come up. As we move forward in the projects and we begin to negotiate for individual pieces of equipment and individual pieces of work. We are going through contract negotiations with suppliers and the resulting terms of those contracts then determine the cash outflow pattern. So, what we have is much more visibility into the actual outflows that will occur. So, it is simply a refinement in our estimate and it is – and obviously it’s good working capital management if we can manage it in this fashion.

Kevin McCarthy – Bank of America Merrill Lynch: Steve, just to clarify, is the total expected cost of the project any lower at this juncture?

Stephen R. Wilson – Chairman, President and CEO: It is not. We are comfortable with our estimate and things are going along in a way that has at least worked in the direction of increasing our confidence level.

Natural Gas Hedging

Kimberly Teller – Barclays: This is (Kimberly Teller) sitting in for Matthew. I just wanted to know has your willingness to hedge additional natural gas over the rest of the year changed at all?

Stephen R. Wilson – Chairman, President and CEO: We have announced that we are – we have in place call options that cap our cost of natural gas for 90% of our expected usage between now and the end of July, and we revisit this opportunity on a regular basis, should we find the right opportunity to do more of the – we certainly will, but we’ve made no decisions at this point.

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Kimberly Teller – Barclays: Then just one other question, could you speak a little bit about whether or not you see continued high Chinese export levels for urea being concerning just because they’ve had a weak demand season, what the potential is there over the course of the year?

Stephen R. Wilson – Chairman, President and CEO: Well, the early signals are that we might experience urea import levels similar to those that we experienced last year. We don’t really know until the window opens up, but we – in terms of our own planning, we’re assuming another stronger year of Chinese urea exports.

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