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Why Did CF Industries’ Sales Fall 27% in 3Q16?

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Nov. 3 2016, Published 7:19 a.m. ET

Sales growth

In 3Q16, CF Industries’ (CF) total sales continued to show weakness. Its net sales fell 27% to $680 million—compared to $928 million in 3Q15. However, the quarterly sales also missed analysts’ estimate of ~$790 million.

CF Industries only produces and distributes nitrogen fertilizers. There are different types of fertilizers within that category that the company offers to its customers. CF Industries’ Nitrogen segment combines sales from its Ammonia, Urea, UAN, AN, and Other segments. Keep in mind that the third quarter is usually slow for CF Industries.

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Sales by segments

UAN (urea ammonium nitrate) is the biggest segment by sales for CF Industries. It contributed 31% to the company’s 3Q16 sales. In 3Q16, the UAN segment saw the steepest fall year-over-year. It fell by as much as 39% to $212 million from $349 million in 3Q15.

Granular urea, which contributed 25% to the company’s 3Q16 sales, fell 36% to $167 million from $260 million in 3Q15. Similarly, the ammonia segment, which contributed 21% to the company’s 3Q16 sales, fell 15% to $145 million from $170 million in 3Q15.

The AN (ammonium nitrate) segment contributed 15% to CF Industries’ earnings this quarter. It was the only segment with positive sales growth. It grew 54% to $103 million from $67 million in 3Q15. The Other segment fell 33% to $53 million from 79 million in 3Q15.

Why did sales fall?

Prices are the main reason for the steep fall in CF Industries’ sales. If you track our weekly series on the price update, you’re aware of the recent movements in fertilizer prices (IYM). They fell steeply over the year. Companies such as PotashCorp (POT), Mosaic (MOS), and Terra Nitrogen (TNH) were all impacted by falling prices. Read Trick or Treat? Fertilizer Stocks Show Weakness before Earnings for the latest price update.

In the next part, we’ll discuss CF Industries’ shipments.

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