CF Industries Holdings, Inc. Q3 2025 earnings call

Good morning and thanks for joining the CF Industries earnings conference call. With me today are Tony Will, President and CEO; Chris Bohn, Executive Vice President and Chief Operating Officer; Bert Frost, Executive Vice President of Sales, Market Development, and Supply Chain; and Greg Cameron, Executive Vice President and Chief Financial Officer. CF Industries reported its results for the first nine months and third quarter of 2025 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 statements 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. Before we begin today's call, I want to provide an update on the incident we experienced at our Yazoo City, Mississippi, complex last evening. All employees and contractors are safe and have been accounted for, and there are no significant injuries. The incident has been contained, and an investigation is underway. Now, let me introduce Tony Will.

Thanks, Martin, and good morning, everyone. Yesterday afternoon, we posted results for the first nine months of 2025, in which we generated adjusted EBITDA of $2.1 billion. These results reflect outstanding execution by the CF Industries team across all aspects of our business, and most importantly, our team continued to work safely. At the end of the quarter, our trailing 12-month average recordable incident rate was 0.37 incidents per 200,000 work hours. Five years ago, October 2020, we announced a significant shift in the company's strategic direction, including an ambitious plan to begin decarbonizing our production network, a plan to become the world's leader in clean ammonia and a model example of environmental stewardship and how to abate an energy-intensive business in a financially responsible way. Today, that vision has been realized.

I'm very excited to announce that the plans we launched five years ago have begun delivering real value to our shareholders and broader benefits to society as a whole. We have made great strides over the last five years and have reduced our GHG emissions intensity by a whopping 25% from our original baseline. Every single one of the initiatives that contributed to this remarkable achievement have been highly NPV positive, creating substantial value for shareholders. We are the best example of how being environmentally responsible can actually go hand in hand with creating significant shareholder value. On our journey, we have executed all of the following initiatives. We closed two of our least efficient, highest emissions plants that were also borderline uneconomic to continue operating. We commissioned two new, highly efficient, lower emissions plants that have return profiles exceeding 20% IRR.

We acquired the Waggaman, Louisiana, ammonia plant, a very efficient plant with relatively low GHG emissions intensity, and increased production at that facility significantly from 750,000 tons annually to over 900,000 tons, resulting in an IRR of over 20%. We installed N2O abatement systems into certain nitric acid plants, the resulting carbon credits from which are being sold at high values, more than recovering our costs within just a single year. Finally, we have begun sequestering approximately 2 million metric tons per year of CO2 from our Donaldsonville complex. The 45Q tax credits from this project will more than pay our installation costs within two years, generating an IRR of over 20%. We are currently selling the resulting low-carbon ammonia at a premium.

What is otherwise a commodity product, chemically identical to ammonia produced anywhere else in the world, has become differentiated and now commands a premium in the marketplace. These initiatives have helped reduce our emissions intensity by roughly 25% from our baseline while creating significant value for our shareholders. We are embarking on the development of the world's largest ultra-low emissions ammonia plant at our Blue Point Complex in Louisiana. We have two world-class equity partners, JERA and Mitsui, with us in this venture, and I fully expect the financial and societal benefits will be equally as impressive as the initiatives we have already completed. Additionally, we have a second carbon capture and sequestration project underway at our Yazoo City, Mississippi, complex and numerous other initiatives yet to be announced.

The end result is that we have a robust, high-return growth trajectory in front of us through the end of the decade that will continue to dramatically reduce our GHG emissions intensity while providing exceptional financial returns. Before I turn the call over to Chris to talk more about our operating results, I do want to take a moment and highlight what I consider to be a great misconception in the market. I want to refer you all to slides numbered 10, 11, and 12 in our materials. Slides 10 and 11 show our consistently strong free cash flow generation and our relentless share repurchase program. Slide 12 shows our remarkable free cash flow conversion efficiency from EBITDA and yet amazingly how we trade at a shockingly low valuation. Oftentimes, CF Industries is compared to agricultural companies, and yet we are very different from most of those.

The seed and chemical companies face challenges of products coming off patent and declining margins or of distribution channels being stuffed full and having to go through the pain of destocking. We are also very different from capital equipment companies or those selling more discretionarily applied products like phosphate and potash, who are really and truly subject to grower profitability. However, our sole product, nitrogen, is fundamentally different. Even in periods of relatively weak grower profitability, nitrogen demand is unaffected, almost completely inelastic. This year, when there was great hand-wringing due to subdued grower profitability, high-planted corn acres, and global nitrogen supply production disruptions in other parts of the world, it created a situation where nitrogen demand and resulting pricing was very, very strong. As Bert will talk about in a few minutes, we see the same strong demand dynamic shaping up for next year.

Nitrogen and certainly CF Industries' financial performance is not impacted by most of the factors affecting the rest of the ag sector companies. While other times we are compared to industrials or material sectors, again, we have very little in common with most of those companies either, especially the chemical companies. We do not suffer from global overcapacity, nor from sluggish or declining demand. Our free cash flow generation is consistently high, and yet, as shown on page 12, we have traded at an anemic average cash flow multiple of barely 7.5x free cash flow. Realistically, that should be the low end of an EBITDA multiple, not a cash flow multiple. ODDLY, businesses that are on a whole more volatile and structurally way less advantaged than CF trade at a higher valuation. The industrial sector trades at 27x cash flow.

The materials sector trades at 30x cash flow, while our consistently high cash flow generation on average has traded at a sickly 7.6x. All of this is a long way of saying the market does not really understand our business or our consistently high free cash generation. As Greg will talk about shortly, we have made great progress on our share repurchases and continue to do so. We, around this table, believe CF represents an amazing value, especially when only trading at an average 7.5 cash flow. We will continue aggressively repurchasing shares from the non-believers and those that do not take the time to understand why we are fundamentally different from most ag, industrial, and materials companies. With that, I will now turn it over to Chris to provide more details on our operating results. Chris.

Thanks, Tony. CF Industries' manufacturing network has operated well throughout the year with a 97% ammonia utilization rate for the first nine months of 2025. As is typical for the third quarter, we had significant maintenance activity, which reduced production volumes compared to the first two quarters. We continue to expect to produce approximately 10 million tons of gross ammonia for the full year. We also have made significant progress on strategic initiatives that are now generating EBITDA and free cash flow growth for the company. In August, we were able to fully utilize expanded diesel exhaust fluid rail load-out capabilities at our Donaldsonville complex for the first time. This enabled us to capture incremental high-margin DEF sales and led to a monthly record for DEF shipments from the site.

Also, at Donaldsonville, the carbon dioxide dehydration and compression unit, which was commissioned in July, continues to run well. We are generating 45Q tax credits and moved to full rate safely through the quarter. Finally, in October, we completed a nitric acid plant abatement project at our Verdigris, Oklahoma, facility. This project is expected to reduce carbon dioxide equivalent emissions at the site by over 600,000 metric tons on an annual basis, which we are monetizing through the sale of carbon credits. By the end of the decade, we expect the returns generated by our CCS projects, along with the Verdigris abatement project, will add a consistent incremental $150 million to $200 million to our free cash flow. Longer term, we remain excited about the compelling growth opportunity that the Bluepoint project offers us.

Particularly given the sales team's success in selling low carbon ammonia from Donaldsonville for a premium. Detailed engineering activities and the regulatory permitting process are progressing well, with capital expenditures for 2025 expected to be within the range we projected earlier this year. We expect site construction to begin in 2026. With that, let me turn it over to Bert to discuss the global nitrogen market and the growing interest in low carbon ammonia. Bert?

Thanks, Chris. The global nitrogen supply-demand balance remained tight in the third quarter of 2025. Demand, led by North America, India, and Brazil, was robust. Additionally, product availability remained constrained due to low global inventories and outages during both the third quarter and earlier in 2025. China's re-entry into the urea export market provided tons the world needed but did not substantially alter these dynamics. Looking ahead, we expect the global nitrogen supply-demand balance to remain constructive. We believe supply availability will continue to be constrained. Global inventories are low, including in North America. Additionally, major planned and unplanned outages are occurring now while geopolitical issues and natural gas availability, particularly in Trinidad, remain a challenge. The startup of new capacity also continues to be delayed. At the same time, we expect global demand to remain strong.

India is likely to tender for urea in the near term, especially given the result of their most recent tender. Nitrogen demand in Brazil and Europe has picked up recently, and in North America, economics favor corn planting over soybeans next spring based on the December 2026 corn contract, which is currently priced at approximately $4.70 per bushel. Farmer economics across the globe remain a key focus as crop prices have not kept pace with the price of inputs, equipment, rent, and other costs. That said, we believe nitrogen offers clear value for farmers relative to other nutrients for its immediate impact on yields. Given where crop prices are today, we expect farmers to focus on optimizing yield, which should support healthy nitrogen applications. We believe that the strong uptake of our UAN Fill program and our robust Fall Ammonia program. The order book supports it.

Supports that outlook. We are also preparing for the implementation of the European Union's Carbon Border Adjustment Mechanism, or CBAM, which takes effect in less than two months. While there remains some uncertainty about the final structure of these regulations, we feel very confident about our competitive position. Thanks to our Donaldsonville CCS project, we have the largest certified low carbon ammonia volume in the world. Over the last few years, our team has put in a great deal of time to build relationships with customers, including those who will be affected by CBAM. This has enabled us to sell certified low carbon ammonia at a premium to conventional ammonia today as customers begin to adapt their supply chains. Based on our conversation with customers, we also believe CBAM will drive significant demand for other low carbon nitrogen products such as UAN. We see this as a tremendous opportunity for CF Industries on top of our already high-performing nitrogen business. We look forward to working with customers to build out a low carbon ammonia and nitrogen derivatives supply chain. With that, I'll turn it over to Greg.

Thanks, Bert. For the first nine months of 2025, the company reported net earnings attributable to common stockholders of approximately $1.1 billion, or $6.39 per diluted share. EBITDA and adjusted EBITDA were both approximately $2.1 billion. For the third quarter of 2025, reported net earnings attributable to common stockholders of $353 million, or $2.19 per diluted share. EBITDA and adjusted EBITDA were both approximately $670 million. On a trailing 12-month basis, net cash from operations was $2.6 billion, and free cash flow was $1.7 billion. We continue to be efficient converters of EBITDA to free cash flow. Our free cash flow to adjusted EBITDA conversion rate for this time period was 65%. As you saw in the press release, we updated our projection for capital expenditures on our existing network to approximately $575 million for 2025. This reflects additional maintenance we were able to complete efficiently during planned outages.

As well as the timing of strategic investments that Chris mentioned this morning, and he spoke about at our investor day in June. We returned $445 million to shareholders in the third quarter of 2025. And approximately $1.3 billion for the first nine months. In October, we completed our 2022 share repurchase authorization, having repurchased 37.6 million shares, which represents 19% of the outstanding shares at the start of the program. Our share repurchase program continues to create strong value for long-term shareholders. Net earnings increased approximately 18% compared to the first nine months of 2024, while earnings per share were approximately 31% higher, reflecting our significantly lower share count. The same positive impact can be seen in our shareholders' participation in our production capacity and the free cash flow it generates.

We are now executing the $2 billion share repurchase program authorized in 2025, with over $1.8 billion of cash on hand at the end of the third quarter. We are well positioned to continue returning substantial capital to our shareholders while also investing in growth through Bluepoint and other strategic projects. With that, Tony will provide some closing remarks before we open it up, call to Q&A.

Thanks, Greg. For me, this is earnings conference call number 48, and my very last one as CEO of CF Industries. Over the past 12 years, traditionally at this point in the call is when I have thanked the entire CF Industries team for their hard work and contributions to our success. I'm eternally grateful to the entire team. Today may be more so than usual, and I am particularly aware of what an amazing team we have here. Indeed, thank you all, said perhaps a bit more heartfelt than the past 47x. I'm exceptionally proud of the company and the organization I'm leading. The highly ethical way in which we conduct ourselves, our unwavering commitment to employee safety, and our absolute focus on value creation.

In addition to the entire CF team, I also want to thank our board of directors who have always been supportive of me, providing insight and guidance through the years, and importantly, always aligned with me on the objective of value creation. I also want to particularly thank the CF senior leadership team, with whom it has been a truly great pleasure to work alongside. I can honestly say this is the best group one could possibly hope for. I not only respect them as individuals along with their business acumen, but I also thoroughly enjoy their company and our camaraderie. Finally, I want to thank and congratulate Chris Bohn on being named CEO.

Chris has been a consistent thought partner and devil's advocate working with me as we navigated foundational decisions like the Terra acquisition, the sale of our phosphate business, the capacity expansion projects, our strategic repositioning of the company, the Waggaman acquisition, and most recently our Bluepoint joint venture. Chris has been hugely successful in leadership roles across the company, including heading FP&A, supply chain, manufacturing, CFO, and his current role as COO. Chris has my complete faith and confidence that he will successfully lead the company to new heights. Again, thank you and congrats. It has been some kind of a thrilling ride for me as CEO, an incredible honor, and a very great privilege. We've accomplished many things over the years. As they say, success has many parents, and indeed all of our successes were team efforts, and I'm delighted to say that the team remains in place. Therefore, I am steadfastly confident that the company's best years are in front of it. With that, operator, we will now open the call to your questions.

Before Q&A, I want to take a moment to acknowledge Tony's retirement and his contributions to CF over his 18-year tenure. Tony's influence and impact on CF cannot be overstated. From his time leading manufacturing, where he generated and championed the do-it-right phrase, which is a core statement of CF's values and culture, to his relentless pursuit of personal and process safety. CF has improved through his leadership. Tony's leadership, which can be best described as biased towards action, has been exemplified through the growth the company has experienced under his guidance. Through the CHS transaction, Donaldsonville build and Port Neal expansion projects, Waggaman acquisition, to the recent announcement of the Bluepoint joint venture, increasing CF ammonia production and free cash flow generating assets by 45% during his time as CEO and over 200% since he started at CF as a member of the senior leadership team.

His safety-first mentality, keen decision-making, and focus on disciplined investments and execution is what has positioned CF where we are today. Tremendous safety performance, industry-leading asset utilization, and superior capital allocation. Over the years, he's not only been a great mentor, but also a great friend. I look forward to building on what Tony has established and wish him the best in his next act. Thank you, Tony.

Thank you.