CF Industry’s wholly owned subsidiary Terra Nitrogen Company, L.P. (NYSE:TNH) also reported earnings yesterday, but fared a little worse. Similar to CVR Partners LP (NYSE:UAN), the master limited partnership’s small size allows it to specialize solely in high-value nitrogen and return large amounts of cash to shareholders. However, the narrow focus also reduces flexibility, which comes in handy when market prices turn south.
Phosphate
As noted above, margins for the segment sank as CF Industries got slapped with lower phosphate selling prices and higher production costs.
| 2011 | 2012 | |
|---|---|---|
| Tons of Product Sold | 1,922,000 | 2,035,000 |
| Gross Margin | 30.6% | 19.8% |
Source: CF Industries
The company sold 78% of its phosphate to American farmers in 2012, down slightly from 82% in 2011. Similar to its nitrogen segment, production was down at phosphate mines and upgrading facilities compared to 2011 as the company looked to inventory during planned plant turnovers.
A look around
Investors not wanting to trade the sky-high yields of CVR Partners or Terra Nitrogen for the added flexibility and low yield of CF Industries may want to consider Agrium Inc. (USA) (NYSE:AGU) . The company, which reports earnings this Friday, is slightly larger than CF Industries, operates in the nitrogen, phosphorous, and potassium (potash) markets, and pays a respectable 1.9% dividend. The company’s diversity comes at the price of lower product volumes, but an increased focus on efficiency throughout the industry will pay dividends for Agrium as well.
Foolish bottom line
Should the phosphate market improve heading into 2014 as management expects and nitrogen capacity expansions be met with sustained prices for nitrogen products in the future, CF Industries will become an even bigger cash-spewing monster for investors. It may be difficult to believe, but it is well within the realm of possibility. While fertilizer and nutrient markets are cyclical – and both are currently in the upswing – I don’t see the world’s need for food subsiding anytime soon. Investors should enjoy a job well done with CF Industries and look forward to continued success in the next year or so.
The article CF Industries Earnings Spoil Investors Again originally appeared on Fool.com and is written by Maxx Chatsko.
Fool contributor Maxx Chatsko owns shares of CVR Partners. Check out his personal portfolio, his CAPS page, or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool owns shares of CF Industries Holdings (NYSE:CF).
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