Fertilizer groups, in particular North American nitrogen producers, are enjoying "an extended period" of prosperity, CF Industries said, as it unveiled a dividend hike, a $1.5bn share buyback and forecast-beating results.
Shares in the US-based nitrogen group looked set to buck the crunch in financial markets, rising 5.6% in after-hours trading, after it unveiled earnings for the April-to-June period of $487.4m, or $6.75 per share, compared with $105.1m a year before.
Excluding natural gas hedges, the group earned $6.87 a share, well above market expectations of $5.94 a share.
And CF further cheered investors by saying it was in a sweet spot, with high crop prices boosting demand while soft natural gas prices kept a lid on costs, which would allow it to ramp up returns to shareholders.
‘Outlook very positive’
"The fertilizer industry, in general, and the North American nitrogen fertilizer industry, in particular, are in an extended period of strong cash flow," CF said, highlighting its advantage in energy costs.
Many foreign rivals in nitrogen, whose manufacture is an energy-intensive process, use more expensive power sources, such as coal.
"The outlook for North American crop nutrient producers remains very positive."
The company, which said it had undertaken a "comprehensive" review of its own and industry prospects, revealed a quadrupling in its quarterly dividend, to $0.40 a share, a $1.5bn stock buying to take place by the end of 2013.
Even so, CF said it would have enough cash left to invest about $1.0-1.5bn over the next four years in capital projects – and still save some firepower for acquisitions.
The group, which has extended some credit maturities from 2011 to 2016, said it had maintained "sufficient financial capacity to take advantage of potential opportunities to acquire existing nitrogen or phosphate assets or to pursue green field projects in North America or elsewhere".
‘Severe logistical challenges’
The company credited its last big acquisition, of US rival Terra Industries in April last year, for the improved performance in the latest quarter, with the infrastructure gained through the deal enabling it to serve better US farmers amid a wet spring which threw sowings plans into disarray, besides causing downtime at a CF nitrogen plant in Iowa.
"Our employees made full use of our expanded production and distribution system to respond to dynamic market conditions, overcome severe logistical challenges and deliver on our customer commitments," Steve Wilson, the CF chairman and chief executive, said.
While nitrogen volumes were dented by the late sowing season, the group, which controls about two-thirds of ammonia supplies in America’s Corn Belt, said that higher prices had more than made up for the declines.
Group revenues rose 38% to $1.80bn.