CF Industries Holdings, Inc. Q2 FY2025 earnings call

• Safety and operational excellence: CF Industries had 3 recordable incidents and 0 loss time days in the first half of 2025. - Carbon capture project: The Donaldsonville Complex Carbon Capture and Sequestration Project began operation in July, with the carbon dioxide dehydration and compression unit reaching full nameplate capacity quickly, reducing emissions and generating 45Q tax credits and premium for low-carbon ammonia. - Joint venture progress: The Blue Point joint venture with JERA and Mitsui is building the project team and has placed orders for long lead time items, including an agreement with Linde for an air separation unit. - Capital return: CF Industries returned approximately $2 billion to shareholders over the last 12 months, including repurchasing over 10% of outstanding shares since last July. - Market dynamics: The global nitrogen supply-demand balance was tight, with strong demand in North America and India, and CF Industries leveraged its logistics to capture opportunities.

For the first half of 2025, CF Industries reported an adjusted EBITDA of $1.4 billion. In the second quarter of 2025, net earnings attributable to common stockholders were $386 million, or $2.37 per diluted share, with EBITDA and adjusted EBITDA both approximately $760 million. Through the end of June, 5.2 million tons of gross ammonia were produced, achieving a 99% utilization rate. The Donaldsonville Carbon Capture and Sequestration Project started operating in early July and is running at designed rates. The Blue Point joint venture is progressing with the ordering of long lead time items.

• The Donaldsonville CCS project will contribute incremental EBITDA and free cash flow starting in the third quarter, with annual EBITDA and free cash flow expected to be over $100 million from tax incentives and product premiums. - CF Industries plans to complete the remaining $425 million of the current share repurchase authorization by the end of the year and then initiate the $2 billion authorization. - The Blue Point project is expected to cost $3.7 billion, with CF Industries' portion and wholly owned common facilities totaling approximately $2 billion over the next 4 years. - The global nitrogen supply-demand balance is expected to remain tight in the near and medium term, with demand for low-carbon ammonia further tightening the balance.

• Geopolitical events: Production halts in Egypt, Iran, and Russia in the second quarter impacted global nitrogen supply. - Natural gas issues: Chronic natural gas availability problems in Egypt, Iran, and Trinidad affected nitrogen industries. - Margin challenges: High natural gas prices in Europe and Asia challenged nitrogen producer margins. - Policy uncertainty: Geopolitical events and policies like CBAM exacerbated structural challenges in the nitrogen industry.

Q: Richard Garchitorena inquired about the outlook for returns and the impact of depreciation on Blue Point and CCS taxes.

A: Gregory D. Cameron stated they are modeling various variables including depreciation, timing of earnings, and monetization of the 45Q credit, with depreciation already on an accelerated basis and not expected to materially change overall project returns.

Q: Edlain Rodriguez asked about crop and fertilizer prices in 2026 and beyond.

A: Bert A. Frost said fertilizer is a significant input cost, and farmers would optimize yield for profitability, expecting full nitrogen application rates. Tony Will agreed, noting nitrogen is nondiscretionary and needed for yield optimization.

Q: Joel Jackson questioned a report about no loading at Donaldsonville.

A: Christopher D. Bohn said the report was incorrect, not an operational issue, and Bert A. Frost explained it was due to tight inventory and a team decision to build inventory.

Q: Lucas Beaumont asked about cost pressure in SG&A and controllable non-gas production costs.

A: Gregory D. Cameron mentioned SG&A had discrete items like legal fees for Blue Point and variable compensation adjustment; Christopher D. Bohn added unplanned outages at some facilities and increased logistics costs due to tight inventory.

Q: Jeff Zekauskas asked about cash flow from DCS project tax credits.

A: Gregory D. Cameron said they start accruing the 45Q credit into EBITDA in Q3 and will see cash benefits from September payments.

Q: Chris Parkinson asked about supply side dynamics and uses of cash.

A: Tony Will said they have $2.4 billion for share repurchase and will deploy capital against repurchases expeditiously as cash is generated.

Q: Mason Manor asked about EOR credit economics for carbon capture.

A: Christopher D. Bohn said their base case assumes Class 6 permanent sequestration, and EOR credit has equivalent economics to permanent sequestration.

Q: Vincent Andrews asked about China's urea exports.

A: Bert A. Frost said China's exports were underperforming, with high demand in the Southern Hemisphere and a tight supply balance.

Q: Matthew Dale asked about China's urea capacity additions.

A: Bert A. Frost said new production in China was often replacement of old plants, and the global nitrogen supply-demand balance remained tight with increasing demand and constrained supply.

Q: Andrew Wong asked about the impact of a Russia-Ukraine truce on gas and nitrogen markets.

A: Bert A. Frost said peace would be positive but Nord Stream not rebuilding soon, and Russian product traded at a discount; Christopher D. Bohn added European production constraints continued.

Q: Andrew Wong asked about CBAM's impact on Europe and the nitrogen market.

A: Christopher D. Bohn said CBAM is in a transitional phase, and low-carbon ammonia from Donaldsonville has cost advantages; Bert A. Frost agreed CBAM raised product costs in Europe and tightened the supply-demand balance.

Q: Aron Ceccarelli asked about nitrogen fixation products.

A: Bert A. Frost said nitrogen fixation products were questionable as they hadn't performed as advertised; Tony Will added they saw it as a value enhancement to growers for increased yield rather than cost reduction.