uploads/// Dividends Paid Share Buybacks and Free Cash Flows

Where Is CF Industries Putting Its Cash to Use?


Sep. 29 2015, Updated 10:05 a.m. ET

CF’s cash management

How a company utilizes its cash often tells us about its outlook in terms of expansion and growth. In this part of the series, we’ll look at CF Industries’s (CF) free cash flow, which is calculated as operating cash flow less capital expenditures. When a company sees investment opportunities, it usually holds on to its cash for capital expenditures as opposed to returning it to shareholders, which can be done through dividends or share buybacks.

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  • According to the chart above, lower free cash flows and low cash balance may be the two reasons that the company has gradually decreased its share repurchase.
  • Free cash flows declined primarily as a result of an increase in capital expenditures, but the company anticipates higher cash flows from the OCI deal.
  • Bear in mind that over the same period, CF’s operating cash flows also declined. VanEck Vectors Agribusiness (MOO) maintains 3.7% of its holdings in CF Industries, 4.3% in Agrium (AGU), 5.8% in PotashCorp (POT), and 4.3% in Mosaic (MOS).

  • The company’s recent investment in expansion projects include capacity expansion projects at Donaldsonville in Louisiana for urea, ammonia, and UAN and at Port Neal in Iowa for urea and ammonia.
  • Both projects are anticipated to come online in the later half of 2015 and in 2016.
  • It may seem counterintuitive that the company is adding capacity despite the market facing oversupply, but as we saw earlier, CF is a low-cost producer and has experienced higher margins in recent years, prompting the company to expand its capacity.

These capital expansion projects are partly funded by debt. So where does the company’s leverage stand? We’ll discuss this in the next part of the series.


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