CF Industries Holdings, Inc. (CF) Earnings

Management highlights

- Safety and Operational Performance * Delivered outstanding safety performance, with a trailing 12-month incident rate of 0.16 incidents per 200,000 hours worked, well below industry averages * Achieved nearly 98% utilization of available ammonia capacity in the first half, enabling the company to meet customer demand across North American retail, wholesale, and cooperative channels * Leveraged operational flexibility to prioritize urea and DEF production over UAN in the first half amid market shifts, capturing higher margin value * The Yazoo City complex has been offline for repairs, with procurement timeline delays for critical electrical gear pushing the targeted restart to the first half of 2027 (from the prior target of late 2026). Post-restart, the site will be reconfigured to produce ammonium nitrate solution, ammonia, and DEF, with improved operational and logistics flexibility and no ammonium nitrate production. - Strategic Projects * Bluepoint low carbon ammonia project has received all required construction permits, all long-lead items have been ordered, and module fabrication is scheduled to begin in late 2026, with construction starting in August 2026 * The company is conducting a feed study for a DEF upgrade project at the Courtright facility, which has not yet been approved and is not included in current mid-cycle projections. If approved, the project would convert the site's excess low-margin ammonia to DEF to serve high-demand East Coast markets. - Capital Allocation and Shareholder Returns * Returned nearly $1.3 billion of free cash flow to shareholders in the trailing 12 months, including $958 million in share repurchases (10.6 million shares) and $314 million in dividend payments * The board approved a 20% increase to the quarterly dividend, raising it to $0.60 per share. Since the start of 2021, shares outstanding have decreased 29%, and the total dividend has doubled. * Capital expenditure guidance for full-year 2026 remains at approximately $1.3 billion, with CF Industries' portion at approximately $950 million. Capital spending will accelerate as Bluepoint construction gets underway. - Market Context * Global nitrogen supply-demand balance remains tight, further strained by the Iran conflict. Higher global capital costs have structurally raised the incentive price required for new nitrogen capacity, increasing CF Industries' baseline mid-cycle earnings power. The company's low-cost, low-risk North American asset base is the core foundation of its profitability. * Global supply growth remains constrained relative to demand due to rising capital costs, permanent capacity closures, and slow new capacity addition, with a large share of global capacity exposed to geopolitical uncertainty. Management expects structural market tightening to continue through the end of the decade, as under-construction capacity is insufficient to meet historical demand growth.

Guidance

- Mid-cycle baseline EBITDA guidance was raised to approximately $2.9 billion, with baseline mid-cycle free cash flow raised to $1.7 billion. This baseline does not include any geopolitical premium from constrained supply, higher freight, or higher insurance costs. - By 2030, existing in-flight strategic initiatives (Bluepoint, decarbonization projects, and other margin-enhancing projects) are expected to raise mid-cycle EBITDA to approximately $3.3 billion. $300 million of the incremental $400 million EBITDA increase comes from Bluepoint, with $100 million from additional carbon capture benefits at the Donaldsonville and Yazoo City facilities. Unapproved projects such as the Courtright DEF upgrade are not included in this guidance. - Full-year 2026 capital expenditure guidance is maintained at approximately $1.3 billion, with CF Industries' share at approximately $950 million. Costs for the Bluepoint project are partially mitigated via fixed-price contracts, with roughly 50% of total Bluepoint capital expenditure fixed to lock in costs. - Management expects the global nitrogen market to remain tight through 2027, with ongoing structural tightening continuing through the end of the decade. - The company expects strong demand and solid performance in the second half of 2026, supported by a substantial UAN order book extending into November and a strong expected fall ammonia season.

Segment performance

CF Industries reports aggregate results for the first half and second quarter of 2026, with segment breakdowns not provided in the transcript. Aggregate results are: first half 2026 net earnings attributable to common stockholders of $1.3 billion ($8.71 per diluted share), EBITDA and adjusted EBITDA of $2.2 billion; second quarter 2026 net earnings attributable to common stockholders of $727 million ($4.73 per diluted share), EBITDA and adjusted EBITDA of $1.2 billion. Trailing 12-month net cash from operations was approximately $3 billion, and trailing 12-month free cash flow was approximately $1.8 billion. Approximately 10% of first half ammonia sales were low carbon ammonia, which earned an average premium of more than $20 per ton. CF Industries delivered its second highest first half diesel exhaust fluid (DEF) volumes on record, the company's highest margin product.

Risks & headwinds

- Geopolitical uncertainty in the Middle East, specifically the conflict with Iran, continues to constrain global nitrogen supply and push up logistics, freight, and insurance costs. While management expects a portion of these cost increases to be structural, residual uncertainty around future supply disruptions remains. - High LNG prices continue to pressure production economics for marginal global nitrogen producers, leading to ongoing curtailments and permanent shutdowns that contribute to market tightness, but also create broader margin volatility. - Project execution risks: Procurement timelines for long-lead items (such as electrical gear) have extended, leading to delays for the Yazoo City restart and could potentially impact the Bluepoint construction schedule. Labor cost inflation in the U.S. Gulf Coast is partially mitigated by modular construction overseas, but some residual cost risk remains. - The company's share price continues to trade at a discount to management's estimate of its intrinsic value, driven by market overemphasis on short-term geopolitical volatility rather than long-term structural fundamentals, which has created a valuation disconnect that management is addressing via aggressive share repurchases. - Unexpected demand deferrals during periods of price volatility can create near-term inventory and pricing pressure, even if deferred demand is expected to recover in subsequent periods.

Analyst Q&A

• Q: What portion of the mid-cycle incentive urea price increase from $355 to $385 per short ton comes from capital cost inflation versus structural geopolitical changes? /

  A: Of the $30 per ton increase, approximately $10 per ton comes from structural, long-lasting cost changes related to geopolitical events (higher persistent freight and insurance costs), with the remaining $20 from higher capital construction costs. The cost gap between building new capacity in the U.S. versus other regions has narrowed significantly in recent years, which is the primary driver of the higher incentive price. The new $385 price is based on a 1.3-1.4 million ton capacity project with $2.6-2.8 billion in capital expenditure and a required 10-12% return. Unvetted projects like the Courtright DEF upgrade are not included in the current projections, while carbon capture benefits at Donaldsonville have already been shifted into the current $2.9 billion baseline.

• Q: After Q2 2026 buyer demand deferrals for nitrogen, what is the outlook for the second half of 2026? /

  A: Q2 demand was soft as customers deferred purchases following the Iran conflict-driven price spike, with only a small expected decline in full-year North American consumption. The company's UAN fill program has already secured a strong order book extending into Q4, with an average program price of ~$300 per ton, and uptake for fall ammonia has been very strong. Management is bullish on the second half and expects demand to hold up well through 2027, as low channel inventories have driven strong post-deferral participation.

• Q: Why is the Yazoo City site being reconfigured to produce ammonium nitrate solution instead of adding urea capacity, which has had superior margins? /

  A: A full-scale new world-scale urea plant at Yazoo City would require very high capital expenditure that is not economically justified for that specific site. The reconfigured layout leverages the site's existing assets to produce high-value products (ammonium nitrate solution, ammonia, DEF) where the company already has existing demand, while adding operational and logistics flexibility through improved loadouts and multi-mode transportation access. Yazoo City is the company's only ammonium nitrate solution plant, so the configuration fits its overall asset network strategy.

• Q: What is driving the perceived valuation disconnect, and how will management close it? /

  A: Management believes the disconnect stems from investors still viewing CF Industries as the over-levered company it was 10 years ago, rather than its current form: production is up nearly 40%, share count is down almost 30%, the balance sheet is much stronger, and SG&A and working capital are the lowest in the broader chemicals and basic materials sector. Investors also underestimate the company's unique asset portfolio: low natural gas costs, flexible multi-product production, unmatched distribution and export capabilities, and exposure to growing low carbon demand, which creates a unique value proposition not reflected in peer group comparisons. Management will continue to close the gap by delivering consistent operational performance, executing high-return projects, and aggressively repurchasing undervalued shares.