CF Industries Holdings Inc Q2 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Andrew Wong - RBC Capital Markets - Analyst : It sounds like you're receiving more interest in low carbon ammonia from the agriculture side of things, which I think is a bit of a shift from about a year ago when we were all kind of talking about more interest on the industrial side of things. So can you talk about that shift and what that might mean for pricing of low-carbon ammonia? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 3:00PM, CF.N - Q2 2024 CF Industries Holdings Inc Earnings Call

Question: Andrew Wong - RBC Capital Markets - Analyst : Okay. That's great. And then maybe building on top of that, then we talked a lot about the potential for more in ammonia supply in the potential for oversupply. But given for seeing building demand trends around different industrial applications and maybe on the egg side as well, like is it possible that in a scenario where maybe that the demand for low-carbon ammonia to be strong enough to maybe just taking the overall market just because of how long it takes to build some of these plants? And obviously, we know that doesn't always go smoothly.

Question: Andrew Wong - RBC Capital Markets - Analyst : Strategic.

Question: Josh Spector - UBS Investment Bank - Analyst : Yeah, hi, good morning. I just want to follow-up on comment, Tony, you made towards the ending Greg talked about it with the value of transactions that are out there. And I guess the extent you're willing to kind of opine a little bit here, I mean, the OCI transaction, obviously, there's hydrogen FEED and some other shared economic model facility by, let's call it, $2,100 a ton nitrogen that the coke acquisition that was done was nearly close in the $4,000 ton. So wondering if you could talk about those two different dynamics and what you would view as the right value for your assets, given that quite a wide range that's been provided by the market lately.

Question: Josh Spector - UBS Investment Bank - Analyst : That's really helpful and appreciated it. Definitely a different way to look at it. I want to follow up and just a little bit more longer term on the blue ammonia offtake or will your decision on FIE for the greenfield facility? Because I think you've been helpful about thinking about the milestones needed within Japan, Korea, et cetera. To kind of say when they're comfortable knowing what they're willing to pay in terms of contract for difference to really enable some of those contracts. So is there any update you can provide on the time line there beyond your FEED study that will be required for decisions to be made? Thank you. Christopher Bohn - CF Industries Holdings Inc - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director Yeah, so many published yesterday, I would say the closest thing to the time line that we have right now, so they put out some of the requirements for the carbon intensity and then it's in public comment period right now for the next 30 to 60 days. So if you think about it, it's really public comment is this good for Japan and total bringing in low-carbon ammonia and co-firing. It with coal, once said period is gone through a Mehdi is the Ministry of Economic and trade for Japan. They're the ones that are going to be making a recommendation to the government for the contract for difference. Just to be specific on that. So once they have that time line applications and submissions will go into, that will be like the end of October, November for our projects with our partners, Mehdi, then we'll have probably three to four months to choose which projects both from a hydrogen side and a low-carbon ammonia side that they would give the contract for difference for. So we're looking now at a more, I would say, more clarity on call it mid Q1 for that to be determined. But as Tony mentioned, I think the one thing that we're seeing is a little bit more interest around from other industrials globally on this low carbon front, both from an agricultural but also from industrial applications as well. So a lot of activity that we're feeling pretty good about with our project. But again, all this is based on waiting for the FEED study to be completed by the end of the year.

Question: Steve Byrne - BofA Securities - Analyst : Yeah, thank you. Bert, you were talking about the strong ammonia applications last fall. I would like to drill into your brain on what your expectations are for this coming fall. You got the outlook for gross margins looks tighter. You know, you got the soybeans corn ratio. Looks like there might be a shift back to soybeans. Do you have a view on whether ON the strength of the fall season or could the uncertainty lead to kind of shifts more towards the next spring?

Question: Steve Byrne - BofA Securities - Analyst : Very good. And Chris, I wanted to just drill into the FEED study is a little bit with you. You have the FEED study further for a new SMR plants, which you know that technology well, and you're working on one with an ATR you need, but you know, of carbon capture control technology add on to the SMR. Is it fair to assume that what you're looking for there might have something like a 75% control, just so that the overall carbon capture is roughly the same as the ATR approach? And are you looking at a variety of technologies and maybe even something that would be more modest and control, maybe lower CapEx? If Japan authorities don't require 90% to 95% to qualify as blue?

Question: Chris Parkinson - Wolfe Research LLC - Analyst : Thank you, let's switch it up a little bit, when I'm thinking about the second half of 2024 and into 2025. Can you just update us on your current views of both, let's say, the production rates in both India and China as well as our import trends in India and export trends or lack thereof in China? Just what is your latest thought process based on the developments over the last few months? Thank you.

Question: Chris Parkinson - Wolfe Research LLC - Analyst : Just a quick follow-up. You know overtime you've traditionally converted, correct me if I'm wrong about 70 and if you adjust for attaching a few years ago probably you know close to 80% of you know evidence for cash flow. Can you just help us you know especially given your remarks about some transactions in the space, can you give us how the market should be thinking about? You know buyback activity versus potential CapEx outflows in terms of the cadence not only in '24? But also when you know CapEx could even rise in the future. So just help us think about the balance of capital allocation over the next 18 months or so just given that conversion rate. Thank you so much. Christopher Bohn - CF Industries Holdings Inc - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director All right. I'll start with the CapEx part, Chris, you know our CapEx that we have and is right now in the range of $550 million is, you know, having followed our company long enough that Q3 is when we do a lot of our planned maintenance. So we'll see probably a little heavier spend in Q3 here along with some of the production being a little bit lower, but with the full year still being at gross REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 3:00PM, CF.N - Q2 2024 CF Industries Holdings Inc Earnings Call ammonia production of 9.8 million tons, we talked about as we get into an FID and say it's a positive FID to move forward with a new plant. The spending really occurs over five years. And it's almost like a step distribution a little bit with the beginning spending were relatively thin and then getting into years back half of the second year, third and fourth-tier heavier and then the tail back on the 50. So a bit a bit longer of a spend trajectory than the actual construction of the plant itself is how we plan that out based on whatever our share component of that will be. I'll let Greg talk about maybe share repurchases.

Question: Chris Parkinson - Wolfe Research LLC - Analyst : Thank you.

Question: Adam Samuelson - Goldman Sachs Group Inc - Analyst : Yeah, thank you and good morning, everyone. So Bert in your prepared remarks, you alluded to potential changes in buyer marketing patterns over the balance of the year. And just wanted to clarify that a lot of the global pieces that you are just dancing in response to Chris's question or was there shifts you're seeing amongst US domestic customers in the fertilizer space? And if so, if you just elaborate a little bit on what is changing in terms of how people are buying fertilizer for the second half of the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 3:00PM, CF.N - Q2 2024 CF Industries Holdings Inc Earnings Call

Question: Adam Samuelson - Goldman Sachs Group Inc - Analyst : That's helpful. And if I guess I ask a follow up. I believe you had the supply agreement for ammonia at Mosaic firm most of the last decade. We believe that you exercise your right to terminate that supply agreement beginning in January. And just how we think about it's a non-trivial amount of your own ammonia volumes that we think about that. Are you thinking of marketing that next year? Are you working to renegotiate the terms of that agreement? Thanks.

Question: Adam Samuelson - Goldman Sachs Group Inc - Analyst : That's very helpful color. I'll pass it on. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 3:00PM, CF.N - Q2 2024 CF Industries Holdings Inc Earnings Call

Question: Ben Theurer - Barclays Bank PLC - Analyst : Yeah, good morning, gentlemen. First of all, congrats on a very strong second quarter. Just wanted to give you a thought around just the cost piece of it gas pricing and obviously what it potentially does in Europe right now from a capacity point of view, you've highlighted that in your prepared remarks it was a offsetting a little bit the price decline clearly during the quarter from an EBITDA perspective and also on the first half basis. So as we see it right now, where do you think the spreads are going to trend out? Just also given the geopolitical tension in the Middle East and have you done any sort of like a contracting, hedging, et cetera, just to lock in those lower costs that are prevailing right now in the North American market? Christopher Bohn - CF Industries Holdings Inc - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director So Ben, I'll just, Chris. I'll start with the European side. So as you mentioned, we continue to see Europe being challenged by the energy costs even before some of the geopolitical events that have happened over the last few days in Ukraine and also in the Middle East. So that's something that we see continuing. And then on top of that, we've done a pretty in-depth analysis of the European assets, and we're seeing pretty large maintenance events that are going to be coming forward for some of these plants. And they have to make the decision whether you make significant capital investments or whether you curtailed or shut down completely. I mean, as we've talked about before, the best example of that is what we've done in the UK, where some of those capital expenditures we're going to be so large, we are better off importing ammonia and then just upgrading it from there. So our expectation is for between now and 2030 that we see even more tightening in the supply market in Europe related to those two factors, both the energy and then just the additional capital cost it's coming. And that really is what we see as an opportunity for us out of Donaldsonville, where we have the export capability and will be the first to have low carbon ammonia and low-carbon products. So we almost see it as a carbon arbitrage opportunity, given that will be the first mover on low carbon to Europe. But I'll let Bert talk about our hedging strategy.

Question: Ben Theurer - Barclays Bank PLC - Analyst : Perfect. And then just following up, but you've talked a little bit about the Vagamon integration, but just wanted to understand where you're at in terms of like efficiency at Vagamon versus your own legacy assets. Was still the potential and done just by from an operating run rate perspective, where are you at right now? And where do you want to be maybe by year end and the first half of '25? Christopher Bohn - CF Industries Holdings Inc - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director Yeah. So what I would say, Ben, is up right now, the plant is currently operating at about 10% above its nameplate capacity. And that's pretty much in lockstep with a lot of legacy plants that we have in the CF network. We haven't really evaluated doing any de bottlenecks there at this particular time. I think our goal is just to have upstream on time to be the plant operating more consistently, which it has been since we took it down. If you recall, in the first quarter, was one of the sites where we've had now each of our team pulled forward some of the work and got in there and accomplished a significant amount of maintenance work during that particular timeframe. And since then, the plant's been operating fantastic. So from that integration standpoint, we feel very comfortable that we're running now is where we'll run for the remaining part of the year. As time goes on, we'll look at other projects that may involve a debottleneck and definitely it will involve the carbon sequestration.

Question: Ben Theurer - Barclays Bank PLC - Analyst : Awesome. Thank you very much for the color, pass it on. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 3:00PM, CF.N - Q2 2024 CF Industries Holdings Inc Earnings Call

Question: Richard Garchitorena - Wells Fargo Securities LLC - Analyst : Good morning, everyone. So I was wondering if you could maybe give us an update in terms of how you're thinking about the market environment for clean ammonia today versus when you started your process to build out the strategy. Obviously, the recent OCI transaction would confirm, I guess value that's out there. And then also just had conflicting views out there in terms of the viability of more green ammonia, then the blue ammonia demand, just some updated thoughts would be great. Christopher Bohn - CF Industries Holdings Inc - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director Well, I'll start one. We're extremely positive We think the transaction I should say is positive for the industry with Woodside because it pretty much, you know, validates not only our clean energy strategy, but the conversations they're having globally, they're seeing the sort of the same type of demand shoots and new centres starting to evolve, whether it be in power generation or in just marine fuel or just in really subclassing or supplanting higher carbon nitrogen today. So very positive on that. I think what we've seen change over the time is what Bert talked about in the beginning is that we are largely industrial focus. And we are seeing the pull happen more from power Gen and marine side and even sustainable aviation fuel. Now what we're seeing is the agricultural side is probably seeing where they fit in into that. And then there's also the demand pull side that's coming more from the CPG's who want to lower carbon product as they're moving forward.

Question: Richard Garchitorena - Wells Fargo Securities LLC - Analyst : Okay, got it. And they during the quarter, we also moved forward with, Yazoo City at ECS, given how well Waggaman is running a key need, talk about potential moving forward with other projects on CCS maybe in that regard. Christopher Bohn - CF Industries Holdings Inc - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director Yeah, as we've talked about all along. We have a hierarchy of plants that we were hitting that where the most attractive and the soonest to execute. So we could move on those. The first being Donaldsonville, the second being in Medicine Hat, Yahoo city. So we've executed Yazoo city. So we're working on Medicine Hat. Waggaman you know, our initial goal there was just the utilization rate and getting that stable and moving forward with the projects we have in place from a maintenance standpoint. But that definitely is probably the next on the list after our Medicine Hat that we have begin to look at CCS in that particular region.

Question: Edlain Rodriguez - Mizuho securities - Analyst : Thank you and good morning, everyone. Tony is less of a quick question for you. You talk about like the stock being undervalued and those two transactions. Clearly prove the right question is how do you unlock the value like what do you need to do? Or what can you do to make investors see the light?

Question: Richard Garchitorena - Wells Fargo Securities LLC - Analyst : Okay. Thank you. That's all I have. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 3:00PM, CF.N - Q2 2024 CF Industries Holdings Inc Earnings Call

Question: Vincent Andrews - Morgan Stanley - Analyst : Thank you. Can you just start off? I just want to clarify a few things that have come up on the blue project. One would be is FID still intended for later this year? Or did the Medis thing push it into 1Q? And I guess on top of that, it sounds like you're seeing a lot more demand from multiple factions versus previously. So is there any scenario where the scope of the plants increases or is there a second plants or does that incremental interest make you be willing to move forward? Maybe with ahead of many or without take-or-pay contracts, are there any change in sort of the way that you want to have everything postured before making FID? Christopher Bohn - CF Industries Holdings Inc - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director Yeah. So I think the many decision timeframe is one aspect that's in our partnership with Jira. They would feel comfortable moving forward once they know what the contract for differences. However, in saying that what is really the gating item initially right now is completion of the FEED study and our understanding that's going to inform what is the CapEx, what is the volume we believe we can get off of that. And then out of that, what is the return profile file and if that's significantly above our capital cost -- capital, there's other partners that we're also in discussion with that could accelerate that. So I wouldn't say it's 100% pinned to Medi, just be given some of the other activity that we'veseen around that. I think given the the size of the project, there's two ways we look at partnership. One would be in an equity investment and one would be a long-term offtake no differently than what we've done in the past with CHS and is Bert talked about earlier with Mosaic to move to a second plant right away. I think we would need probably really to be ensured that we had partnerships and the cash flow. As Tony said, we're looking at this in a very disciplined way while continuing to capital allocation back to the shareholders, but also grow. And we think right now, our focus is on that first plant at the blue point site.

Question: Vincent Andrews - Morgan Stanley - Analyst : Thanks very much, and I'll leave it there.

Question: Jeff Zekaushas - JP Morgan - Analyst : Thanks so much. I think you sold $47 million of emissions credits. It is that $47 million that benefited EBITDA in the quarter or is the number of larger or smaller?

Question: Jeff Zekaushas - JP Morgan - Analyst : Okay. And looking at the language that you described Donaldsonville and the Mississippi plant, it looks like the Deville carbon dioxide will go into enhanced oil recovery, whereas the Mississippi plant will carbon dioxide that sequestered in new plants that you want to build the new greenfield plant. Does it make a difference to the carbon footprint if you have to go and enhanced oil recovery route versus, say, a sequestration, right? Or how much of a difference does it make?

Question: Jeff Zekaushas - JP Morgan - Analyst : No, I get it that there's a different remuneration and sequestered versus your. But what I was wondering is in terms of the way the carbon footprint is thought of by say, the Japanese, are they going to make a different calculation? Or do you make a different calculation? Christopher Bohn - CF Industries Holdings Inc - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Director I think that's what Tony was trying to explain that circuit customer bases are going to view. You are different than permanent sequestration. So as you look at Asia, it's more permanent sequestration is a requirement. I think as you look here, the US and some REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 3:00PM, CF.N - Q2 2024 CF Industries Holdings Inc Earnings Call of the other regions around the world, you are given his points ready-made, it's still sequestering the CO2 will be acceptable. We look at it both on a strategic basis from that and also on the economic, as he explained, as well.