Executive Summary / Key Takeaways

• CF Industries is strategically leveraging its low-cost North American production base and operational excellence to capitalize on a tightening global nitrogen market, driven by robust agricultural demand and constrained supply from high-cost regions and China.
• The company is actively transforming its business through significant investments in carbon capture and sequestration (CCS) and low-carbon ammonia production, positioning itself as a leader in the emerging clean energy market and creating opportunities for carbon arbitrage.
• Strong financial performance in Q1 2025, marked by significant increases in net earnings and gross margin driven by higher volumes and favorable pricing, underscores the company's ability to execute against constructive market dynamics.
• Management is committed to substantial shareholder returns, evidenced by aggressive share repurchases ($1.5 billion in 2024, $434 million in Q1 2025) and a new $2 billion authorization, alongside disciplined capital deployment in high-return growth projects like the Blue Point joint venture.
• Key catalysts include the expected start-up of CCS at Donaldsonville in H2 2025 (generating 45Q tax credits), progress on the Blue Point low-carbon ammonia facility (FID targeted early 2025, production expected 2029), and continued favorable energy spreads benefiting North American production.

The Foundation: A Nitrogen Powerhouse Adapting for a Clean Energy Future

At its core, CF Industries is a global leader in nitrogen production, providing essential nutrients to feed the world and increasingly, clean energy solutions for a sustainable future. The company's mission is centered on providing clean energy to feed and fuel the world sustainably, underpinned by its vast ammonia production network – the world's largest. This network, spanning manufacturing complexes across the United States, Canada, and the United Kingdom, coupled with an extensive North American distribution system and global logistics capabilities, forms the backbone of its operations.

The company's history reflects a strategic evolution focused on disciplined growth and enhancing per-share value. Over the past 15 years, CF has significantly expanded its production capacity while aggressively reducing its outstanding share count. Key milestones include capacity expansions between 2012 and 2016 and strategic acquisitions like the Waggaman ammonia facility in December 2023. This approach of adding capacity in a disciplined way while reducing the share count has been a winning formula, driving superior total shareholder returns compared to peers.

CF's strategy today is to leverage these unique capabilities to accelerate the world's transition to clean energy. This involves decarbonizing its existing ammonia production through technologies like carbon capture and sequestration (CCS) and pursuing new low-carbon ammonia capacity. These initiatives aim to enable low-carbon hydrogen and nitrogen products for traditional agricultural and industrial uses, as well as emerging applications in energy, such as power generation and marine shipping.

Technological Edge: Lowering Carbon, Enhancing Value

CF's operational strength is rooted in its efficient manufacturing processes, primarily utilizing the Haber-Bosch process to produce ammonia from natural gas. The company's North American facilities benefit from access to low-cost natural gas, a significant competitive advantage as natural gas is the principal raw material and a major cost component, representing approximately 37% of production costs in Q1 2025.

The company is at the forefront of integrating decarbonization technologies into its network. A key technological differentiator is the implementation of Carbon Capture and Sequestration (CCS). At the Donaldsonville complex, the CCS project involves constructing a CO2 dehydration and compression unit to capture process CO2. This technology is expected to capture approximately 60% of the CO2 generated by the existing ammonia production process. The estimated total cost for the Donaldsonville CCS unit is $200 million, with sequestration expected to commence in the second half of 2025.

Looking ahead, the planned Blue Point joint venture facility will utilize Autothermal Reforming (ATR) technology combined with CCS. This advanced technology is designed to capture greater than 95% of the CO2 generated from ammonia production, significantly exceeding the capture rate of CCS on existing Steam Methane Reforming (SMR) plants. Management highlights that ATR technology offers approximately 10% more production capacity and 50% greater carbon capture compared to a comparable conventional SMR. On a comparable capital basis (considering an SMR with flue gas capture), the ATR provides more tonnage at variable cost, enhancing the return profile.

These technological advancements are crucial for the company's strategy. They are expected to qualify for tax credits under Section 45Q of the Internal Revenue Code, which provides a credit per metric ton of CO2 sequestered. The Donaldsonville CCS project alone is expected to sequester up to 2 million metric tons of CO2 annually, generating incremental cash flow (estimated at roughly $100 million annually). Furthermore, these low-carbon products are anticipated to command a premium in the marketplace and benefit from regulations like Europe's Carbon Border Adjustment Mechanism (CBAM), which could provide a significant margin advantage (potentially $150/metric ton by 2034) when competing against conventional, higher-carbon products.

Competitive Landscape: Navigating Global Dynamics from a Position of Strength

CF Industries operates within a highly competitive global market for nitrogen products, where prices are influenced by global supply and demand dynamics, energy costs, and trade policies. Key publicly traded direct competitors include Nutrien Ltd. (NTR), The Mosaic Company (MOS), and LSB Industries, Inc. (LXU).

CF's competitive positioning is primarily defined by its cost leadership, particularly in North America, due to favorable natural gas access and operational efficiency. This translates into superior profitability metrics compared to some peers. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, CF's strong performance in its core nitrogen segments suggests a significant presence.

Compared to Nutrien (NTR), the world's largest fertilizer producer with a diversified portfolio (potash, phosphate, nitrogen), CF maintains a more focused nitrogen operation. While NTR benefits from greater scale and a broader distribution network, CF often achieves higher operating margins (CF TTM operating margin ~23% vs. NTR TTM operating margin ~14%) and better capital efficiency (CF TTM ROIC ~11-14% vs. NTR TTM ROIC ~8-10%) within its nitrogen focus. CF's technological investments in CCS and low-carbon ammonia aim to create new competitive advantages in emerging markets.

Against The Mosaic Company (MOS), a major phosphate and potash producer with a growing nitrogen presence, CF demonstrates stronger profitability (CF TTM operating margin ~23% vs. MOS TTM operating margin ~6%) and return on equity (CF TTM ROE ~15-17% vs. MOS TTM ROE ~2%). CF's operational efficiency and technological edge in nitrogen processes provide a buffer, although MOS's cost structure in certain segments and vertical integration can make it price-competitive.

LSB Industries (LXU), a smaller U.S.-based nitrogen producer, faces challenges with limited scale and higher operational costs compared to CF. CF significantly outperforms LXU across key financial metrics, including revenue growth (CF TTM revenue growth ~4-6% vs. LXU TTM revenue growth ~2-4%), margins (CF TTM gross margin ~36% vs. LXU TTM gross margin ~9%), and cash flow generation. CF's technological advantages and economies of scale position it to potentially capture market share from smaller domestic players.

The competitive landscape is also shaped by global factors. Supply constraints from regions like Europe (due to high energy costs and plant curtailments) and China (due to export restrictions) are tightening the market, benefiting low-cost producers like CF. Geopolitical factors and trade policies, including U.S. tariffs (though Russian imports often enter tariff-free, creating a "perversion" in trade policy) and potential EU tariffs on Russian product, add layers of complexity but can also create opportunities for producers with flexible logistics and strategically located assets like CF.

CF's extensive North American distribution network and multi-modal logistics capabilities (truck, rail, pipe, barge, vessel) provide a significant competitive advantage, enabling the company to efficiently move product to market and capitalize on regional price differentials, making it more agile than competitors reliant on fewer transport options.

Performance Reflecting Strategy and Market Strength

CF Industries demonstrated strong financial and operational performance in the first quarter of 2025, reflecting both its operational excellence and constructive market conditions. Net sales increased by $193 million, or 13%, to $1.66 billion compared to $1.47 billion in Q1 2024. This growth was driven by an 11% increase in sales volume and a 2% increase in average selling prices.

Gross margin saw a significant increase of $163 million, or 40%, rising to $572 million in Q1 2025 from $409 million in the prior-year period. This expansion was primarily due to higher sales volume and average selling prices, coupled with lower maintenance costs compared to Q1 2024 (which was impacted by a winter storm). These positive factors more than offset the headwind from higher natural gas costs, which increased cost of sales by $40 million.

Net earnings attributable to common stockholders rose substantially by $118 million, or 61%, to $312 million in Q1 2025 ($1.85 per diluted share), up from $194 million ($1.03 per diluted share) in Q1 2024. This increase was fueled by the strong gross margin performance and lower weighted-average common shares outstanding due to share repurchases.

Operational performance remained robust. The production network operated at a 100% ammonia utilization rate for the second consecutive quarter in Q1 2025. Total sales volume was 5.0 million product tons, up from 4.5 million tons in Q1 2024. The Waggaman facility, acquired in late 2023, has been operating approximately 10% above nameplate capacity and is noted as the most efficient plant in the network.

Cash flow generation remains a core strength. Net cash provided by operating activities was $586 million in Q1 2025, a notable increase from $445 million in Q1 2024, primarily driven by higher net earnings and favorable changes in working capital, particularly customer advances ($241 million at Mar 31, 2025 vs $118 million at Dec 31, 2024). The trailing twelve-month free cash flow stood at approximately $1.6 billion as of Q1 2025, demonstrating an efficient conversion rate of 63% from adjusted EBITDA.

Outlook and Strategic Growth Initiatives

Management maintains a constructive outlook for the global nitrogen market, expecting conditions to remain favorable into the second half of 2025 and the supply-demand balance to tighten through the end of the decade. This view is supported by expectations for robust planted corn acres in North America (USDA 95 million acres for 2025, with CF anticipating potentially higher based on demand), continued strong global demand (especially in Brazil and India), and ongoing supply limitations from high-cost producers and China.

Key strategic initiatives are set to drive future growth and enhance the company's competitive position:

• Decarbonizing Existing Assets: The Donaldsonville CCS project is in advanced stages of commissioning, with sequestration and 45Q tax credit generation expected to begin in the second half of 2025. The Yazoo City CCS project is also advancing, with sequestration expected to commence in 2028. These projects leverage existing infrastructure to produce low-carbon products and generate valuable tax credits.
• Blue Point Joint Venture: The formation of the Blue Point Number One, LLC joint venture with JERA and Mitsui marks a significant step towards building new low-carbon ammonia capacity. The venture plans to construct a 1.4 million metric ton per year ATR ammonia facility with CCS at the Blue Point complex in Louisiana. Pre-construction activities begin in 2025, construction is expected to start in 2026, and production is targeted for 2029. The estimated cost for the facility is approximately $4 billion, with CF holding a 40% ownership stake (potentially increasing up to 55% if JERA exercises a conditional option). CF will also invest an additional $550 million in scalable infrastructure at the complex. This project is expected to qualify for 45Q tax credits and position CF to supply emerging low-carbon ammonia markets globally.
• Capital Allocation: CF is committed to a balanced approach of investing in high-return projects and returning capital to shareholders. Consolidated capital expenditures for 2025 are anticipated to be in the range of $800 million to $900 million, including approximately $500 million for existing operations and $300 million to $400 million for the Blue Point JV construction (CF's funded portion of the JV CapEx is expected to be $120 million to $160 million, plus $25 million for scalable infrastructure). The company plans to complete its current share repurchase authorization ($630 million remaining at the start of Q2 2025) by the end of 2025 and has authorized a new $2 billion program through 2029, signaling confidence in future cash generation.

Risks and Considerations

While the outlook is constructive, several risks could impact CF's performance. The cyclical nature of the fertilizer business exposes the company to volatility in global nitrogen prices, which can fluctuate based on supply, demand, and energy costs. Natural gas prices, particularly in North America, remain a significant and volatile cost component.

Geopolitical events and changes in trade policies, including the unpredictable nature of tariffs and potential retaliatory measures, could disrupt trade flows and impact market dynamics. Operational risks, such as potential production outages due to severe weather (as experienced in Q1 2024) or unexpected maintenance, could affect production volumes and costs.

Execution risk is associated with the large-scale Blue Point joint venture, including potential delays, cost overruns, and the successful integration of new technologies like ATR and CCS. The development and growth of the market for low-carbon ammonia also carry uncertainty regarding the pace of adoption and the premium customers will be willing to pay.

Conclusion

CF Industries is well-positioned to leverage its strengths in a favorable nitrogen market environment. The company's low-cost production base in North America, coupled with its extensive logistics network, provides a significant competitive advantage against higher-cost global producers. The strong financial results in Q1 2025 underscore the immediate benefits of this positioning.

Looking ahead, CF's strategic pivot towards low-carbon nitrogen products through significant investments in CCS and the Blue Point joint venture represents a compelling growth opportunity. These initiatives not only address the growing demand for sustainable solutions but also create potential for enhanced margins and new market access, further solidifying CF's competitive moat. The company's commitment to returning substantial capital to shareholders, alongside disciplined investment in these high-return projects, reinforces the investment thesis centered on driving per-share value growth. While exposed to inherent commodity and geopolitical risks, CF's operational excellence, strategic vision, and financial discipline provide a solid foundation for navigating future market dynamics and capitalizing on the evolving landscape of global nitrogen and clean energy.