CF Industries Holdings, Inc. (CF) Q2 2026 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to CF Industries First Half and Second Quarter of 2020. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the * key We will facilitate a question-and-answer session toward the end of the presentation. I would now like to turn the presentation over to the host for today, Mr. Martin A. Jarosick with CF Investor Relations. Sir, please proceed.

Good morning, and thanks for joining the CF Industries earnings conference call. With me today are Christopher D. Bohn, President and CEO Bert A. Frost, Executive Vice President and Chief Commercial Officer and Andrew T. Scribner, executive vice president and chief financial officer. CF Industries reported its results for the first half and second quarter of 2020 yesterday afternoon. On this call, we will 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 your performance may be found in our filings with the SEC, which are available on our website. Also, you will find reconciliations between GAAP and non GAAP measures in the press release and presentation posted on our website.

Now let me introduce Christopher D. Bohn.

Thanks, Martin. Good morning, everyone. Yesterday afternoon, we posted results for the first half of 2020, in which we generated adjusted EBITDA of $2.2 billion These results reflect the CF Industries team's strong operational performance and a tight global nitrogen supply demand balance. Which was further strained by the conflict with Iran. Most importantly, our teams continue to embrace our do it right culture to deliver outstanding safety performance. We closed the quarter with trailing 12 month incident rate of 0.16 incidents per 200 thousand hours worked. Well below industry's averages. That focus on safety directly supported high asset utilization in the first half. We operated our available ammonia capacity at nearly 98%. Enabling us to meet demand from our domestic retail wholesale and cooperative customers who supply North American farmers. In addition to our strong operating performance, we are making steady progress on our strategic initiatives. At Blue Point, we have received all necessary permits to begin construction. Nearly all long lead items are ordered. And module fabrication is set to begin later this year. Within our existing network, we expect our Yazoo City complex to resume operations in the 2020. After completing work to improve the site's long term sustainability and operational flexibility. We also continue to be disciplined as we evaluate high return projects across our network. To unlock further value. As you saw in our presentation, we have raised our mid cycle EBITDA and free cash flow expectations. In a moment, Andrew will address more of this, but I want to address the broader market context first. Right now, we believe the market views a disproportionate amount of our EBITDA and free cash flow growth primarily through the lens of short term geopolitical friction in The Middle East. That view misses a fundamental structural shift in our industry, that has been occurring over the years and exposed through the recent global nitrogen supply chain dislocation. required. Higher global capital costs have structurally raised the incentive price For new global nitrogen capacity. Lifting CF Industries' baseline mid cycle earnings power while reinforcing the value of our existing manufacturing and distribution network. This is before we factor in any geopolitical premium. To be clear, our low cost low risk North American asset base and not geopolitical risk is the foundation of our profitability. Our ability to operate at high utilization rates during disruptions enhances our stable mid cycle return profile above and beyond the strong free cash flow generation already embedded in our outlook. This, in turn, augments our ability to invest in high return projects and return capital to shareholders. With that, I will turn it over to Bert to discuss the global nitrogen market. Bert?

Thanks, Christopher. The first half of 2020 saw a rapidly changing global nitrogen market dynamics. Global prices rose significantly as an already tight supply demand balance was further constrained by supply disruptions from the conflict with Iran. In regions where application seasons occur in the second half of the year, many customers deferred purchases. In North America, agricultural demand remained strong, through most of the first half of 2020. Led by ammonia and urea. Our team created significant value by leveraging our operational flexibility to prioritize urea production over UAN. It also enabled us to deliver our second highest DEF volumes in the first half our highest margin product. In June, however, our customers slowed purchases of the nitrogen channel drew inventories down to a very low level. Those low inventory levels and positions ultimately drove strong participation in our UAN and ammonia fill programs in July. As a result, we built a substantial UAN order book that extends into November and expect a strong fall ammonia season. Looking at the broader market, global nitrogen fundamentals remain tight. Even before factoring in geopolitical conflicts. Rising capital costs, permanent closures, and the limited pace of newer capacity additions have kept supply growth constrained relative to demand. Additionally, a meaningful portion of global nitrogen capacity remains exposed to geopolitical uncertainty. And this exposure has further tightened the global nitrogen supply demand balance. We believe this will continue to affect supply availability, delivery confidence, and pricing due to higher logistics and insurance costs. Additionally, high LNG prices continue to pressure production economics for marginal nitrogen and are likely to limit operating rates. We do expect China to export urea volumes similar to last year. Those exports are necessary to meet global demand. But they are not enough to materially loosen market fundamentals. On the demand side, we expect purchasing activity to recover in deferred regions such as Brazil and India. We also expect North American demand to remain firm through the upcoming application seasons. Taken together, expect the global nitrogen market to remain tight into 2027. Looking further ahead, we see continued structural tightening through the end of the decade as nitrogen capacity currently under construction falls short of historical demand growth. Finally, our low carbon sales program continues to gain momentum. Approximately 10% of our ammonia sales volumes in the first half were low carbon that earned an average premium of more than $20 per ton. With that, I will turn it over to Andrew.

Thanks, Bert, and good morning, everyone. The first half of 2020 company reported net earnings attributable to common stockholders of $1.3 billion or $8.71 per diluted share. EBITDA and adjusted EBITDA were both $2.2 billion For the second quarter of 2020, the company reported net earnings attributable to common stockholders of $727 million or $4.73 per diluted share. EBITDA and adjusted EBITDA were both $1.2 billion We continue to efficiently convert EBITDA into free cash flow. Our trailing 12-month net cash from operations was approximately $3 billion and free cash flow was approximately $1.8 billion As you can see on Slide 10, our EBITDA to free cash conversion is consistently high. Producing predictable and stable free cash flow. Over the last 12 months, we have returned nearly $1.3 billion of free cash flow to shareholders. This includes repurchasing 10.6 million shares for $958 million and $314 million in dividend payments. In July, the board increased our quarterly dividend by 20% to $0.60 per share. As we have reduced the number of shares outstanding over time, we are able to reward the remaining shareholders with a higher dividend. For context, since the start of 2021, shares outstanding have decreased 29% And over that time, our dividend has doubled. Looking ahead, we continue to project approximately $1.3 billion of capital expenditures in 2026, of which CF Industries portion is approximately $950 million With construction at Blue Point expected to begin in August, the pace of capital expenditures will accelerate. We continue to focus on mitigating our cost exposure through fixed fee contracts. As we have advanced BluePoint activities and evaluated additional projects, it has become clear that the cost of building new nitrogen capacity in regions with low cost natural gas has increased. Narrowing the construction cost advantage those regions have historically enjoyed. As you can see on Slide 9, these higher costs mean that the urea price required to bring new capacity online has gone up as well. Based on our analysis, this supports a baseline mid cycle EBITDA for CF Industries of approximately $2.9 billion and free cash flow of $1.7 billion You can also see that decarbonization, BluePoint, and other margin enhancing projects provide upside to our baseline. By 2030, we expect these strategic initiatives that are in flight raise our mid cycle EBITDA to approximately $3.3 billion And as Christopher noted, this is before any geopolitical premium for higher freight and insurance cost and constrained global supply. These near term dynamics provide fuel for growth and a greater ability return capital to shareholders. That, I will hand it back to Christopher before we open the Q and Thanks, Andrew.

I want to thank CF Industries employees for their commitment and dedication during the first half of 2020. The team continues to deliver safety and operational excellence. While skillfully navigating our ever changing global marketplace. As you can see on Slide 12, CF Industries has a long track record of driving value for long term shareholders by increasing production capacity and decreasing the number of shares outstanding. This is increased investor participation in our underlying assets by more than 40% since 2020. We expect to build on this track record in the near and long term. We have a premium grade asset base proven operational capabilities, financial strength and substantial high return strategic opportunities The global nitrogen fertilizer supply demand balance remains tight. And rising capital costs across the globe have structurally elevated our baseline mid cycle earnings. Against that backdrop, we believe CF Industries stands apart as our mid cycle EBITDA expectations continue to strengthen our free cash flow generation remains highly predictable and durable, we are well positioned to continue to create value for long term shareholders. With that, operator, we will open the call to questions.

We will now begin the question-and-answer session. To ask a question, you may press * then 1 on your touch tone phone. The first question comes from Ben Isaacson of Scotiabank. Go ahead please.

Thank you very much and good morning. My question is on your new mid cycle price of $410 a short ton. For CF. Can you talk about how much of that change is related to capital cost inflation versus how much is related to any structural or sticky changes that you see as a result of the conflict in The Middle East? Thank you.

Yeah. Thanks, Benjamin. Maybe for starters, I would just take a step back and just say as I look back at our performance since the beginning of 2020, we have averaged over and above that $1.7 billion free cash flow that we have as the mid cycle by quite some amount. So it is not as if the empirical data and how we have performed and really how we have set up the company by increasing our production capacity and also lowering our fixed charges to get our free cash flow conversion where it is has not been successful. And sometimes we do not always feel like that is being recognized. But we have been performing at that. What I would say is construction costs the gap between The US and the rest of the world, has closed. You are seeing labor, procurement timing, different things with being able to use module yards where that difference between a US project and a global project has changed drastically, I think. And then, to your point, there are certain costs associated with this geopolitical event that are going to remain structural. So if you look at freight, for instance, freight we have basically from The Middle East to The Gulf now is about $70 where a year ago it was $35 Do we expect that to snap back to $35 and not have any type of structural piece to that. Probably not. But is that $5 to $10 there? Is there a few dollars in insurance cost? Different vessel configurations, and a risk premium based on where those assets and really the supply offtake is happening. I think as we look at it really from a NOLA price we are saying we have moved from 355 milliuria on a short ton to 385. Of that $30, there is probably $10 that may be associated with you know, structural changes that do not go away as a result of these geopolitical events. Then the remaining amount probably exists due to higher capital cost and really a closing of that gap between U. S. Construction and outside The U. S. Yeah.

And maybe let me add a little color. Hi, Benjamin. This is Andrew as well. You know, as you look at that price going from $3.55 to $3.85, the underlying assumptions we have is this is for a call it, 1.3 to 1.4 million ton capacity site. With a CapEx estimate of about 2.6 to $2.8 billion. If we assume 3.50 natural gas and a 10% to 12% financial return, that is how you get to the $3.85 price. You then use our economics and it gets to our EBITDA of $2.9 billion 1 piece that I want to call out of what is in there and what is not in there is, you know, we also gave some color context around $400 million over time by 2030 that will get you to $3.3 billion. Out of that $400 million, $300 million of that is BluePoint. And $100 million is additional, carbon capture benefits we will get out of D'ville and Yazoo City. The way to think about that, what is not in there, and I will do this illustratively, you likely saw that we are pursuing a FEED study for DEF. Because that has not been officially greenlit yet, that is not in that $400 million. If we get to that point through an investment decision, it will go in there. Likewise, in that 2.9 billion as we are starting to realize the benefits at D'ville on carbon capture, that is actually should shifted left into that 2.9. it is really a function of the capital cost. And as Christopher mentioned, there is probably some context around a little bit of geopolitical premium there, but it is really capital costs and sort of the realizing the benefits on carbon capture. So hopefully that helps.

that is great. Thank you.

The next question comes from Joel Jackson of BMO Capital Markets. Go ahead, please.

Hi. Good morning. It seems like looking at yourself and your peers' results, ignoring some of the lower volumes in Yazoo City, there is a bit of a buyer's holiday in nitrogen in Q2, and we all know what happened with commodity prices, nitrogen prices. Across the quarter. Urea, the war started and prices came down. Wonder if you could talk about that. What does that set up for the second half of the year coming out of the last I do not know, 5, 6 months of volatility?

Yeah. Interesting. View, Joel, and I think that did happen in different places around the world as prices escalated especially in April and May, you definitely had a pullback in South America, Central and South America, where, the necessity to purchase, it is really to put into inventory because applications are further in later in the year. Specific to the big applications in Brazil. But you also had pullbacks from Australia, from Southeast Asia, And the Northern Hemisphere was completing the application season. We did see some movement in North America, as I mentioned in my comments, with movements amongst products with additional urea. So we pivoted in produced more urea as well as DEF, and that limited a little bit to what our UAN availability was. But I think overall, prices did impact some places where you could defer demand, and we saw that happen. And we see a little bit, I would say, as the data's coming in, with a possible small cut in consumption in North America. But not as big as relative to the other nutrients. Then the second half, we are bullish on the second half. When you look at what we have put together with our UAN fill program, the team did a great job of working with our customers, organizing that, and getting it executed well. And the average price on that is probably close to $300. And our program extends into Q4. And so good solid demand, good movement. We are already seeing that. And then I mentioned in my prepared remarks about the fall ammonia season with a very good uptake for that, and we are just now positioning product in our terminals to serve that demand in November. And so when we look at the, you know, where we are in the ag cycle, we are with the pricing, and the customer uptake, on the retail wholesale side for us, which we know has been pushed down into the farmer We see good positive traction through 2027.

The next question comes from Lucas Charles Beaumont of UBS. Go ahead, please.

Thanks. Good morning. Yes, I just wanted to sort of follow-up on the outlook there. I mean, I guess, given the soft demand here in the second quarter, like a more compressed kind of time frame for deliveries in the second half, we have got this still impacted global supply issues and, like, now increasing cost curve support as well from European gas. So I guess just how do you see the setup there for pricing as we move into the fall and the spring? Know, is there a point here where the market's going to rapidly tighten and expose low inventory levels as demand picks up? And I guess when do you think that would sort of be timing wise? And is that setting us up for, like, much higher in season US premiums again coming up? Thanks.

Good morning, Lucas. And I think this is Bert. Regarding the soft Q2 demand and the deferrals that I mentioned in the Southern Hemisphere, we do believe that is going to catch up. And you are seeing that in India with the most recent tender. We anticipate India to be an import demand of 9 to 10 million tons, which is over what they were last year. We are seeing positive movement in South America. And some--we expect to see some grain movements, some grain pricing movements, will incentivize additional consumption. But you are right. The compressed deliveries, it is just going to be a poor lineup for some of these folks. But the values have come back down to attractive levels. And there is, I think, lower pricing will incentivize demand. And so but you are right. The EU gas structure is at a disadvantage with $18 to $20 gas at a differential to the world makes European operations constrained that we believe in. So probably a higher level of imports there. And so with where we are in the ag cycle with pricing for the feed grains and the consumption of nitrogen, were constructive for the back half of this year as well as 2027. And I do think there will be some tight pricing to come When you look at we still lost 5 million tons from The Middle East or from those countries that were unable to get LNG. We are seeing a little bit of movement out of China for exports to replace some of that, but probably in the 5 to 6 million ton range, so kind of a net zero. And then with those places that are constrained with LNG or cannot afford, you will see probably some production cutbacks. So balance on balance, see a tight market through next year.

And I think, you know, Bert talked about just what is happening in Europe as we see those prices come down but not the feedstock cost of that come down, you will probably see more constraints on that as we have seen over the years where we are seeing curtailments and shutdowns occur. But on top of that is probably the 1 area we do not know is really what happens in the Gulf area. As Bert mentioned, that is a significant amount of volume that still needs to supply the world here. If you are seeing curtailments, in Europe and still some on-and-off-again stuff in the Gulf area. that is really what is going to determine pricing from that. Volume wise, as he mentioned, I think we feel very strong about what we are seeing. Great.

Thanks. And then it is just on Yazoo City. So I mean, the repairs have sort of been pushed back a little bit into the first half of 27. So I was just wondering kind of what the sort of swing factors there are in terms of sort of hitting the timeline entering the year sort of on the business interruption insurance sort of there in terms of, like, the income and cost coverage? And just are you looking to do anything different at the site sort of with the rebuild that could sort of deliver benefits to you after it is finished? Thanks.

Yeah. I will take this. This is Christopher. I will take some of the first parts of that question and then turn the insurance discussion over to Andrew here. But I think the biggest part is we have gotten more information When we put out that we thought it would be late 2026, that was preliminary information on what needed to be done with the particular site and what the procurement timelines would be. As we have seen with a lot of projects globally here, you are seeing procurement timelines extend some and that was primarily for electrical gear and that is why we have moved it into the first half of next year from a timing standpoint. Just as we have gained more information and better insight into that. Related to the site itself, we are changing how that site's going to be configured. We will no longer be pulling ammonium nitrate down there. We will be doing ammonium nitrate solution along with ammonia and DEF down there. And really what we are building out in that particular location is probably increased flexibility both from an operational and a logistics standpoint where we will have a broader customer base that we can start to supply throughout the years here. So I think we are excited about what the opportunities and what we are changing at that particular site. To make it a more sustainable site long term. So I will turn it over to Andrew now to talk through some of the insurance side of it.

Yeah. Hi, Lucas. So I will give a little bit of color on kinda 3 buckets, accounting, I would say the insurance piece, and a little bit of how to think about capital. From an accounting standpoint, in Q4 of last year, we recorded $25 million in impairment on machinery and equipment. Then you will see or have seen in Q2, we took another further impairment of $23 million for equipment we will no longer be able to use. And so total, that is just shy of $50 million of impairments that we have taken. On the insurance recovery to date, it is been about $75 million. We had $25 million of property damage that we recorded in Q1 and received in Q2. We have had $50 million of business interruption insurance. When you look at it to date, it is been about a 2 to 1 ratio. Longer term, it will probably play out more like a 3 to 1 ratio. That business interruption insurance covers us for about 18 months as you look at that. Now you will note, I just wanna make sure this is clear, we are not including in our capital guidance. An assumption for Yazoo City, and there are 2 fundamental reasons. 1, we expect the insurance recovery to offset that capital build cost. And 2, the timing is dynamic. When you look at the timing of the capital between the back half of this year and first half of next year, it will be dynamic, and the insurance recovery is gonna be dynamic. When you look at that over a longer time frame, they will offset each other, but that is why we are not specifically guiding that right now.

Operator, we are ready for the next question.

Yes. The next question comes from Benjamin Theurer of Barclays. Go ahead, please.

Hi, This is Rahi on for Benjamin Theurer. Maybe on S&D, are you seeing any impacts on the extra Texas capacity this year, like Gulf Coast ammonia, Woodside? Or is this just largely offsetting Trinidad volumes? And maybe long or medium or long term, how do you expect this to affect supply and demand once the impacts on our brand, you know, settle down? Thank you.

Yeah. When you look at the Texas plants, there has been a long lead to their full production, and they are I do not think they are still at full production. And so those tons have been absorbed. They have been moving around the world. They have had some contracts. And now with Yara, purchasing the Gulf Coast, plan, I assume a lot of that product will go to Europe. Offsetting production cutbacks. But you are correct. There have been offsets throughout the world Trinidad is 1 that has taken tonnage off market. And also on the demand side, there is also been some negative impacts with what you have heard from the phosphate producers, with their cutbacks due to limited supply of sulfur and sulfuric acid, that has limited phosphate production, which therefore has limited ability to consume more ammonia. So the market has come off the highs of Q2 and is today balanced in the $600 to $700 range depending on destinations. But we see these 2 plants the Gulf Coast plant and the Woodside plant, both coming up to full production, it will be absorbed into the market.

And I think longer term, we have talked about this, that the global S&D is tightening independent of what was happening in The Gulf during this particular timeframe. If you look at you know, a slate of new projects that are projected to come online, between now and 2029 or 2030. there is just not enough to meet demand. And if there were some sort of resolution in The Gulf, as Bert mentioned, you are gonna have other demand pieces that will grow because you can have sulfur, some more phosphate there. So we still think that there is just a very much a tightening that continues to go on between now and the end the decade. The nitrogen market here. Got it.

And thanks for the color. And just a quick follow-up for Yazoo. Can you just walk us through, the thought process of that you are going to make AN, UAN, etcetera, there? Why not just, you do urea given the margin structure has been superior in the last 10 years? That should be it from us. Thank you.

Yeah. From a urea standpoint, you are right. Urea is really the catalyst as to why we are going to see the global nitrogen market get tighter. So there are upgrade projects that we are looking at, 1 of which is even for DEF, that is a urea project at Courtright. As you look at Yazoo City, the urea plant there would have to be a full blown new urea plant, world scale plant there. And we look at what we have opportunity wise at Bert's commercial team has put together both from an ANS UAN, and DEF that it would not really make sense to put in that type of capital at that particular site.

Also think when you look at how we are configured and structured, asset wise and our distribution of those assets and the modes and how we move the product through rail, truck, barge, vessel, pipeline. Yazoo is a unique asset in that it is our main or only ANS plant. But as we work through this new structure, we are gonna be improving the load outs, improving capabilities, and having different access to different modes. That will give even more flexibility to Yazoo City Makes sense.

Thank you.

The next question comes Kristen Owen of Oppenheimer. Go ahead, please.

Hi. Good morning. Thank you for the question. So wanted to follow-up on capital allocation. This is clearly an and strategy, not an or, just given the strong cash flow you have generated thus far. Raised the dividend, you are increasing the buybacks, and you are coming into peak CapEx period. But the 1 that I actually really wanted to ask about is this FEED study on DEF So can you just give us a little bit of background here on your thinking about the demand and economics for, say, industrial applications, versus over the road applications? I know we have got some EPA changes coming up. So just a little bit of color on the DEF study.

Yeah, so I will let Bert start on the market and what we see, that is interesting to us in the market in the different areas where it is. And then I will speak a little bit more specific to the project itself.

Yeah. DEF has been an interesting product for us, and that it is just about 15 years old in terms of how long DEF has been an active part of our portfolio. And we produce it at different plants. But the growth from basically zero to today, 2.2 million tons of and this is urea equivalent tons. So in effect, 2 world scale plants of urea are now being consumed in North America, that just did not exist 15 years ago. And when you look at the growth of demand as new power units come into service and the dosing rate has increased from a very low level 15 years ago to a zero before that. But as these power units get replaced an average power unit can last 9 to 11 years. And so that replacement rate is slow, but we see that taking place. And with the additional dosing rate, continuing to increase, for better efficiency on its miles per gallon as well as emissions control, We see this market by the early part of next decade 2030-2031, hitting 3 million tons. Or over. And so a lot of growth opportunity. And, again, where we are positioned asset wise, Courtright makes a lot of sense to serve the East Coast market, which is a heavy demand market. Yeah.

The 1 thing I would add is this is not really our thoughts on the growth of DEF and in isolation. Essentially, we work with OEM engine manufacturers all the way down to the retail side to make certain that we are aligned as to the growth that we see going forward. And I all parties are seeing the same thing there. As Bert mentioned, Courtright provides a unique opportunity for us. Today, Courtright has a net-long position in ammonia, that is a little bit logistically constrained both by what rail line it is on and therefore having a lower ammonia that comes out of that particular plant. And because it is such a low margin ammonia that comes out of that plant, it is providing a better opportunity to put in an upgrade unit there. And the rail line it happens to be on can feed the East Coast, the Mid Atlantic area better than any of our other sites that are producing DEF today. So as we look at this, provided what comes out of the engineering and design study from a capital cost, but we feel that this is gonna be a project that is not only gonna grow into a market, that is an industrial ratable market, very strong for us, but it is additionally something that is gonna be well above our cost of capital just given, the configuration of that site today.

that is super. My follow-up is on your expectations for mix in the back half of the year, just given what you said about the fill programs, what fall application looks like. Obviously, the moved around quite a bit here in Q2, but just how you are thinking about mix of product in the back half of the year would be helpful. Thank you.

Yeah. I would say we are looking at a normal slate. Terms of the economics as we look product by product to where the economic advantage is against our order book, which is a very positive order book, I would anticipate a normal slate for the back half. We are gonna work on our inventory levels, which built up during Q2. I think that was 1 of the issues on the on the write up was that we had a limited volume on UAN, but what we did was move more of that to urea and DEF and Q2. And any inventory we have, we expect to disgorge in the back half of the year. And run at normal rates.

Thank you for the time.

The next question comes from Christopher Parkinson of Wolfe. Go ahead please.

Great. Thanks so much for taking my question. Totally understand the second half outlook in terms of steady demand, a lot of lost tonnage out of Costco as well as some of the Iranian tonnage. To see the market tight for the foreseeable future. But at the same time, I am curious on your interpretation of The U. S. And coastal benchmarks typically trading at a discount. It seems like the international opportunities, especially in the third quarter, should have been a little bit better, should be at least improving in terms of prospective market tightness. So I would love to hear your perspective across both ammonia and downstream in terms of how you see the dynamics playing out just in terms of like the ripple effects from lack of production in the first quarter or 2. Thank you so much.

Yes. When you look at what the tonnage that was lost, urea and ammonia out of The Gulf, as well as tonnage lost due to lack of LNG to those countries or companies that rely on LNG to produce, it is substantial. And so back to how do you backfill that supply? And some of it is through I think, the Chinese tons that everybody's expecting to come out. As well as just solid operating rates. And in terms of trading values and looking into what markets we would move our tons to, you mentioned that we are trading at a discount in NOLA, we are. So you have seen us build an export book on urea that is probably higher than normal. And so when I look at where the, you know, these benchmarks go and where we are in terms of pricing for the world, I think you are gonna see a market that improves and, in terms of, is tight and will tighten. As this demand that is been deferred comes back in to be purchased and moved.

Got it. And just as a quick follow-up to that, I would love to hear your perspective that, you know, in The US alone, and I apologize if I am missing 1, you have seen basically 7 cancer cancellations in terms of low carbon or blue ammonia over the last several quarters and perhaps a project or 2 or technically on lifelines. Christopher, I would like to hear your perspective on just kind of your intermediate longer term outlook. It also seems like the demand side of it is been a little bit more quiet. Versus some positive events back in 2025. I would love to just hear your thoughts in terms of market development, your position, how you are thinking about the overall Blue Point complex and any incremental opportunities you see fit based on the fact that a lot of others have given up. Thank you so much.

Yeah. And I think to start with Christopher, the ones that have given up are participants that were not necessarily, in the market to begin with. Okay? So if we go back a few years ago, I have said this before, there was, like, a 107 green and blue plants announced, of which I think there is 4 in construction. Of which ours is 1 of them. So there is a lot of hype about what clean energy was going to be. Our analysis never showed more than we were thinking maybe 7 of that 107 would be built. So I think we have been more pragmatic in this. As you look at that clean energy market, it is really similar to the DEF market that Bert mentioned. The million tons that will be going both to JERA and Mitsui, our partners, is a million tons of incremental demand that did not exist just a few years ago. And we are continuing to see, you know, some, some growth opportunities in Japan and other pieces of Asia, but it is gonna be at a slower pace than what I think the original hype was on that.

What benefits us is whether we have a low carbon ton or a conventional ton. We produce it the same way. We store it the same way. We transport it the same way. So all those operational efficiencies that we have as an organization to lower our cost per ton on new construction and also the distribution of it. Reside with us and accrue to us that others do not have. I think that is why you are seeing us continue to be bullish on both BluePoint and maybe even a BluePoint 2 is because of those assets and really that ability we have to move that product and to produce that product. Well, I would say low carbon or not, or gray or conventional, however you wanna define it. We are competitive globally. And even with the premium, we are competitive globally, and we are proving that by our contracts that are in place and what we are sending to different places today. That will only grow And I do believe that the low carbon value especially in Europe, is gonna continue to be valued and grow that demand will grow as well. Thank you.

The next question comes from Vincent Andrews of Morgan Stanley. Go ahead please.

Thank you, and good morning. Christopher, I wanted to ask you the dividend and maybe separately on another part of capital allocation. Just sort of what your thought process is. Obviously, it is the share count comes down, you can you can pay a higher dividend without spending more money. So is that just the plan going forward, and should we be anticipating maybe getting to more annual dividend increases versus, I think, the last 1 was maybe 2023? And then separately, from an M&A perspective in the US, obviously, there is a limited number of assets but 1 just traded. Do you still have scope from a regulatory perspective where you think if other things became available, you would still look at that, or should we be thinking about volume growth from here being more along the DEF or, as you just mentioned, BluePoint 2?

Yeah. So I will just start with the dividend part and then maybe actually, let me start with the second question first, and then I will go to the dividend and pass it over to Andrew as well. But on the M&A scope, so we did see the Gulf Coast ammonia plant transfer to Yara's in the process of that. We do believe that we still have some room from an M&A scope. I mean, I think if anything, what CF has demonstrated just based on, you know, the prior answer I had given is that assets in our hands produce more production volume. Whether we go back to what we did when we acquired Terra back in the day, the investments we made, our best practice teams, just looking recently at Waggaman where we have increased that consistent production there but by over 30%. So our ability to increase volume within a market I think, is a key to allowing us to continue to do particular assets acquisition. Now as we look at those asset acquisitions we want to be someplace that is not in the third quartile or someplace out that from an operation standpoint could be constrained as time goes on. We like our low cost position. We like the low cost, low risk that North America from a geopolitical standpoint brings. So that is primarily where we are gonna focus going forward, both organic and inorganic there. From the dividend, before I turn it over to Andrew to get into some of the specifics, think 1 of the underlying reasons is just our faith in where we see our mid cycle and our free cash flow generation not just this current year and next year, but over the entire cycle, we just see a stronger. We have been very focused on reducing fixed charges of which dividends are 1 of them. But I think as we are seeing that free cash flow conversion and generation goes up, just makes us more confident in increasing it as time goes on there.

Yeah. And, hi. This is Andrew. You know, the piece that I would share is, you know, our overall strategy on capital allocation has not changed. The hierarchy of driving strategic growth, share repurchases and dividend When you think about the dividend, I think of it as 2 fundamental principles.

1, we wanna be competitive with the marketplace. So, you know, the increase that we did took it from a 1.8% yield to 2.1 compared to the S and P of 1.1%. The second principle, what I would share is we are conscious of what we spend in absolute. And you can look and you can probably see there is a range that we tend to target. Not a hard and fast rule, but it is a range. And that range allows us to fuel growth into the top our pyramid on strategic growth. So those kind of principles will be applied as we look through But it should also be noted as we have said in the past, we believe our shares are still incredibly undervalued. And this whole geopolitical swings that we trade off of rather than the underlying fundamentals that we see going forward. We are going to continue to be aggressive in share repurchases as our number 1 outlay of our capital allocation towards shareholders.

The next question comes from Andrew Wong of RBC Capital Markets. Go ahead, please.

Hey, good morning. Thanks for taking my questions. So just kind of following up on that last thought there, Christopher, and in the presentation too, there is a couple of slides where you highlight the valuation disconnect that you see versus some of your peers. You just talked about maybe why you think that is the case, what is driving that disconnect, and then what can you do at CF to kind of close that gap?

Well, what I would say that we can do to close that gap is continuing just to perform as we do. At the highest level. Like I said, if you look at our free cash flow, over the last 6 years on average, is significantly higher than what we are suggesting the new mid cycle is. So this is not just the 1 year, 2 year type of thing. So for us, it is to continue to move forward and perform as we do from an operational looking for margin enhancement whether that be a DEF project, other utilization or debottlenecks, Whether that is organic and inorganic growth that has return profiles well above our cost of capital. 1 of the reasons why I personally believe we trade in this is I think people are still trading 10 years ago on CF. We have increased our production volume by almost 40%. We have reduced our share count by almost 60%. And yet, people are still thinking we are this over levered company that is doing expansion projects. We are significantly different company today based on what our capital structure is. Our free cash flow conversion, that has not happened by accident. it is come through very methodical. Our SG and A and our working capital are the lowest in the industry. And by the industry, I mean basic materials, I mean chemicals, everything. there is almost this you know, ignoring of that just to say, well, they are a fertilizer company, and we are gonna place them against these 3 or 4 other peers, which I think is a complete mistake. And as long as our shares are undervalued, we will continue to buy our shares back.

I also think there is a misunderstanding of our assets, the leverage points that we have in terms of where our plants are located, the diversity of the products that we make, the modes that we are able to ship, and then the terminals where we are able to distribute as well as export to any country in the world. We have all this flexibility on top of the lowest gas costs in the world are going to be a low cost producer a high valued market with the best farmland in the world. So when you put all those together, it is a unique mix that only we can satisfy and the rest of the world can. None of our operating competitors can do that. that is why we think we should be valued differently.

Yeah. I mean, as you look at I mean, as you can see, we are $500 million into a $2 billion program. And as we try to look at our intrinsic value and what it should be, mean, we are looking at DCF analysis, comps, replacement value. Every calculation that we do suggests that there is an opportunity there, so continue to be opportunistic as we go.

Great. I appreciate all that. And then maybe just 1 on cost. When I look at COGS, like, gas and DNA, it does look like it is trended up a little bit. In the past couple of quarters. Can you just speak to that? Is it mostly just the Yazoo City or anything, like, maybe some extra turnarounds or anything like that? Thanks.

Yeah. Let me give some color on cost in Q2. If you strip out the impact of volume and gas, our fixed costs were up about $75 million And I will do this kind of simply and illustratively, but this will give you the context. So let's call that $70 million for the context that I will share. About $10 million of that was distribution and logistics, and that was probably the smaller piece of the puzzle. Where you saw some mode mix going from barge into rail, and then the rate on rail itself has gone up a bit. The other $60 million is about a 50/50 split between higher purchased ammonia costs flowing through and the rest is fixed cost absorption tied to, Yazoo City being down. So that kind of gives you the 3 pieces that are coming through there from a COGS standpoint. And I would say that purchased ammonia, obviously, we have benefits of that flow through the revenue line, and it is providing a margin. But it does provide higher COGS during that time frame. Additionally, you know, 1 of the turnarounds we started during that time was Ammonia 6. Ammonia 6, obviously, is our it is almost like comparable with 2 plants. So the cost associated with that and the years in which we do Ammonia 6 are always gonna be slightly higher from a turnaround standpoint. Perfect.

Thank you.

The next question comes from Matthew DeYoe of BoA. Go ahead, please.

Good morning, everyone. I just wanted to reconfirm For CapEx on BluePoint, like, what your mix on fixed versus nonfixed EPC work? And-- Oh, go ahead. Yeah. Sure. No. Go for it. Apologize.

Well, what I was gonna say is, essentially, when we when we have looked at the Blue Point project, the 1 thing we tried to do was mitigate our overall cost related to that. We did that a couple different ways. 1 was through our partnerships. Where we partnered with Linda and even Oxy at 1.5 on the CCS unit. But, additionally, even with Mitsui and JERA where they are providing some insight in administrative benefits along with as we go to the module yards in Asia. So I think that is 1 area where we look to lock down on some of those costs. What we have fixed is roughly probably about 50% of the CapEx related to that. And that is in a couple different areas. 1 is in the engineering and the module yards. The other is in some of the lump sum turn keys that we try to do on the infrastructure pieces, whether it be the tank or some of the dock and bridge work and things like that. So we feel pretty confident about how we are managing through this. As I mentioned in, you know, earlier, we have our long lead items for BluePoint purchase. So some of those things that we are seeing with extension of lead times or increases in costs related to those, We started those some of those critical items having contracts in place even pre FID on the project itself.

Just as a quick follow-up, I mean, labor and assembly and build out, I assume that is just, like, impossible to fix now in The Gulf. I mean, the portion that will be labor in The Gulf is gonna be significantly lower than what we saw when we did the expansion projects back from 2012 to 2016. that is because a lot of the work from the modular piece is going to be done overseas. So as a result of that, you are probably gonna have maybe a third of what the labor component was that we compared to what we saw last time. And that does a couple things. 1, that allows you to probably more skilled labor in there because you have a smaller headcount such you are trying to do there, but also just limits the high cost labor that would be in the Gulf Coast right now. Alright. I appreciate it. And if I could, Bert, I was just wondering about the underlying assumptions for 9 million to 10 million tons in India. This year because I do not know, I mean, they obviously ended last year with pretty good balances given all that buy. I am just wondering if that 9, 10 assumes maybe shipments from last year into this year or that is really like a back-half loaded bid period?

If you do it on their fertilizer year, which is April through March, they have the tender for 2.5 million and a second tender for 1.77 million. So total to date is 4.27 million tons. They just announced the tender last week for an additional 1.7 million And so you can do that math. that is roughly 6 million. We expect another tender by the end of this year, but they also tendered twice last year or in their in the calendar year once in January and once in February. And so if you go into their fertilizer year, that would extend into January through March. And they did almost 2.2 million tons. So when you add those all up, that gets you to 9 to 10 million tons expected. And you have to remember, they were they are an LNG importer, and they were running it sub optimally on their domestic operations. We estimate they lost 1.5 to 2 million tons of domestic production. So rolling all that up, and we are still not sure what can come out of the Strait on the forward market. I would say 9 to 10 is a pretty good estimate today.

Thank you.

The next question comes from Maziyar Ahmadi of Rothschild and Company Redburn. Go ahead, please.

I just wanted to ask a follow-up on the midterm mid cycle EBITDA targets. What is the sort of mid to long term market balance is assumed in that. I am just going to give you an example. For example, India is striving to be more self sufficient. Over the medium to long term. In urea, you have a number of projects that are in development that should theoretically come online. By the end of the decade, and that would theoretically remove demand from the global market. Is stuff like that factored in? How should we think about it?

1 is I think if you look at the over overall supply growth over the next 4 to 5 years, India does have a few projects, some of some of which, 1 of which is green. That I think, you have to start to put probabilities on what is the time frame in which that is going to go. But even with all the announced that are happening right now, you are going to have a deficit or extreme tightness in the S&D balance. As we see it going out through 2030. Now in saying that, just because India wants to become self sufficient in other countries as well, does not mean that there is not a capital cost that is incurred in order to drive and build those particular plants themselves. And if you look at it from an economic standpoint, it may make more sense to continue the import, or these particular projects can be delayed. So how we look at the mid cycle is we do build in what we have in flight when we are working with engineering teams. And, usually, you have a very good visibility I would say, out 5 years because that is about the time it takes to build a plant. And then we start to manage that as time goes on and readdressing that.

But today, really, as you look at the next few years, there is some plants there is a plant in Qatar. there is 1 in UAE. there is our plant and then 1 in Nigeria. But outside of that, I would say the others are a little bit at risk, whether that be Russian plants or some of these Indian plants that are talked about to come on before 2030. As well as there is constrained areas around the world that we have identified in previous conferences or calls, but you look at Europe and the gas spread and the age and the inefficiency of some of those plants and their long term viability, as well as what is coming out in terms of LNG constrained areas like Bangladesh some of the Southeast Asian plants. That are also, I think, challenged. On a going forward basis, not every plant, which we saw the Brazilian shutdown, they are talking about revamping. Do not think that is very viable long term with the way gas flows there. And then there is Trinidad that is also limited on gas. So you have new capacity coming in and old capacity, which we believe will not be operable over the long term as well as demand increases over time.

Great. Makes sense. Thank you.

And then I just wanted to Sanity check something regarding 45 q.

So when I look at Q1, there is $19 million of 45Q income. Which if I sort of divide it by the $85 a ton CO2 price, gives me a CO2 capture of slightly more than 200 thousand tons. And as far as we know, Donaldsonville is around 500 thousand tons CO2 per quarter. Is that calculation missing something, or is Donaldsonville still ramping up?

Well, I think there is 2 points there. 1, the revenue through the first half of the year is about $45 million associated with the 45Q, not the number that you suggested. The second part is this year, we do expect the overall CO2 to be lower throughout the Donaldsonville facility primarily because of the turnarounds that took place there. I mentioned earlier Ammonia 6, which is effectively 2 ammonia plants with its production. Went through a turnaround. it is completed that turnaround now, but that turnaround began in June and went through July as well. So as a result of that, you are gonna have lower CO2 that was available in order to sequester during that time frame. But I think the numbers themselves would show through in the other operating income line are correct at $45 million. And the 1 thing I would mention is that we are not taking it to a class 6 as of right now. And so as that is $60 per ton we do believe, just to maybe follow-up on that, that is a class 6 approval will be happening later this year. And then that will move to the $85 a ton. Economically, we are indifferent, because our transfer today is at a zero cost with Exxon, and it will move up. To the contractual rate once the class 6 is in place. Right. that is very helpful. Thank you.

The next question comes from Edlain Rodriguez of Mizuho. Go ahead please.

Thank you. Good morning, everyone. Christopher, in terms of the evaluation, should we then expect to be more aggressive on the buyback in the second half of the year? Because the pace seems to be a little slower, in the first half And more importantly, as you noted, late into the second quarter, we saw global urea prices decline. But what was most surprising to me was that in The US, prices not only declined, but they were below last year's level. And that was despite all the supply disruption we had globally. Like, how do we explain that?

So from the from the share repurchase, I will start with that, and then I will let Bert touch on the urea pace. On the share repurchase, we have significant amount of cash on our balance sheet. We have a program, as Andrew mentioned, is still open with plenty of room there, and we believe that we are trading underneath our intrinsic. So checking all those boxes, we expect to be into the market. Now having said that, when I look at how we are trading off of what happens on a tweet, or basically what Pakistan is saying or something coming out of Oman or whatever. We are trading in the last 6 weeks between $100 and $140. So we are gonna be opportunistic and grab more shares as we see some of that volatility exist, but we are committed to repurchasing shares We have the cash flow to do it over and above what we are seeing from our strategic initiatives. And we will continue to do that.

Yeah. Regarding the Q2 price correction, you basically referred it back to where we were in the lows of Q1 and went up due to the hostilities in The Gulf and then reverted back down. A lot of that, I think, was trading off of rumors of peace and openness to The Gulf. And then we were at the tail end of our season, a lot of trader liquidation taking place. I do not think a lot of physical tons moved at that level. But then we have since corrected back up to $400-$415 level where we are today. And I think that is where we will we will play out. And then as we talked about in earlier calls, earlier questions, the tightness, I think, will be more pronounced as we get to the back half of the year. Okay.

Thank you very much.

The next question comes from David Symonds of BNP Paribas. Go ahead, please.

Yeah. Thank you. Just another 1 on longer term outlook. So China is still adding capacity. The rest of this decade. Is your view that they can start to export more than the 4 to 6 million tonnes you expect this year in the next few years? Or do you think they add capacity to replace older plants at this stage? Thanks.

I think yes and yes. I think they have proven their ability to build new plants, but the amazing thing to me about China is the growth and demand Today, they are running at about we target them at an 82% to 83% operating rate where we run at 98% to 99%. So you have to take their factor in terms of their capacities. They do have some older plants. There have been over time, a replacement of urban plants or inefficient plants and into newer more world scale plants. And so but the growth and demand over the years where there are over 63, 64 million tons of consumption internally, the capability to export is there. But I think what the Chinese government has learned is exporting energy in the form of urea, but you are importing energy and LNG and coal is not a it is not a value creating game. And so what they have determined or what they have over the last several years, have communicated is the urea and the energy basis and the subsidies they have given should be benefiting the farmer, and the Chinese consumer. And that has happened. So the domestic price in China is significantly lower than the global price. And over the last, let's say, year or 2, they have controlled it through these export quotas and allowing certain times levels, and values to be exported, which the global economy needs. So where they will be longer term I think that where they are today in that 4 to 6 million tons probably for this year and the next and will be determined later in the future. But I do not think they have identified urea or ammonium sulfate or any of the fertilizer products as an area to focus the attention and again, keep that for the Chinese consumer and farmer. Got it.

Thanks.

Ladies and gentlemen, that is all the time we have for questions today.