Terra Nitrogen (TNH) is an exclusive producer of nitrogen fertilizers (MOO) and operates out of North America. Unlike PotashCorp (POT), Agrium (AGU), and Mosaic (MOS), Terra Nitrogen is a limited partnership and an indirectly wholly owned subsidiary of CF Industries (CF). Let’s look at the performance of Terra Nitrogen.
Terra Nitrogen’s performance
Over the recent decade, Terra Nitrogen has risen 55.2% and underperformed the S&P 500 Index’s rise of 69.2% over the same period. The company’s earnings have deteriorated in the recent five years. During that period, the company fell 49.7%, underperforming the S&P 500 Index by nearly 120.0%.
Terra Nitrogen joins the list of nitrogen companies that have been hit by the excess global nitrogen fertilizer supply. Most of the recent excess supply came from China, where some producers have sold nitrogen fertilizers at or even below the cost of production. In the above chart, you can see how stock prices have fallen as earnings have deteriorated over the years.
YTD (year-to-date), Terra Nitrogen has fallen 20.4% compared to the S&P 500’s positive rise of 11.5% YTD. The stock has lagged the S&P Index for the same reasons that CF Industries has.
Limited partnerships pay distributions instead of dividends.
An improvement in nitrogen prices will likely lift the earnings expectations as well as the stock price. Recently, players in the nitrogen industry are undergoing capacity realization. Selling below cost is not sustainable for long, and recent industry updates by CF Industries show that producers are putting their expansion plans on hold. There are expectations for nitrogen price improvements in 2018. However, the market will continue to struggle until that happens.
In the next part, we’ll take a look at American Vanguard (AVD).