CF工業控股 (CF) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 CF Industries financial results conference call. My name is Regina, and I will be your operator for today.

At this time all participants are in listen only mode. Later we will conduct a question-and-answer session. (Operator Instructions). Today's event is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Terry Huch, Senior Director of Investor Relations and Corporate Communications. You may begin, sir.

Thank you, Regina. Good morning everyone and thanks for joining us on this conference call for CF Industries Holdings, Inc. I am Terry Huch, Senior Director of Investor Relations and Corporate Communications, and with me are Steve Wilson, our Chairman and Chief Executive Officer; Rich Hoker, our Vice President and Corporate Controller; Bert Frost, our Vice President of Sales and Marketing; and Tony Will, our Vice President of Manufacturing and Distribution.

CF Industries Holdings, Inc. reported its first-quarter of 2011 results yesterday afternoon, as did Terra Nitrogen Company, LP. On this call we will review the CF Industries' results in detail and discuss our outlook, referring to several of the slides that are posted on our website.

At the end of the call we will host a question-and-answer session. As you review the news releases posted on the Investor Relations section of our website at CFIndustries.com, and as you listen to this conference call, please recognize that they contain forward-looking statements as defined by federal securities laws.

All statements in the release and on this call, other than those relating to historical information or current conditions, are considered forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements.

These risks and uncertainties include those spelled out in the Safe Harbor statement included in yesterday's news release and the slides accompanying this call. Consider all forward-looking statements in light of those and other risks and uncertainties and do not place undue reliance on any forward-looking statements.

Now let me introduce our Chairman and CEO, Steve Wilson.

Thanks, Terry, and thank you all for joining us this morning. Last night CF Industries reported record first-quarter net earnings of $280 million(Sic-see press release) or $3.91 per diluted share, compared to a loss of $4 million or $0.09 per share in last year's first quarter.

The record absolute earnings, of course, benefited from the acquisition of Terra a few days after the end of the first quarter of last year. However, the fact that earnings per share exceeded the previous record by 41% illustrates both the strength of the current market and the way the Terra transaction is creating value for our shareholders.

We set our previous first-quarter EPS record in 2008 when we were experiencing an unprecedented commodities bubble. Compared to that period, we now have higher grain prices, much lower feedstock costs, and what we believe to be more sustainable fertilizer prices.

We also have a more efficient and nimble system than we had in 2008 or in any time in our history, because of the increased scale and operational synergies unleashed by the integration of CF Industries and Terra. The flexibility we gained by putting the two systems together continues to prove its value, especially when the market faces product mix, timing and logistical challenges as it does now.

In addition to the operational benefits of the acquisition, shareholders have enjoyed an improvement in capital structure as well. In April of last year we exchanged some shares of CF Industries for shares of Terra, and later issued more shares in a follow-on offering to retire some of the acquisition debt.

We also took on a prudent amount of financial leverage in the transaction, which has given our EPS a boost. We continue to believe that a leverage ratio of 1 to 1.5 times EBITDA provides the opportunity to earn high returns on equity with low financial risk.

Operating cash flow of $671 million was the highest for any quarter in the Company's history. A $316 million increase in customer deposits related to forward sales was a major contributor.

The seasonal first-quarter increase in customer deposits was larger than normal this year because of high forward prices. The revenues and profits associated with these contracts will be recorded in future quarters when we deliver the products to our customers. For that reason we don't think of all of that cash as being available currently for general corporate purposes.

The forward contracts on our books at quarter end were placed in periods when we were able to lock in high margins, so they will contribute strongly to earnings in upcoming quarters. I will have more to say about expected future cash flow in the outlook portion of today's call.

For now I would like to focus on the market conditions and internal factors that enabled us to deliver such great results in the first quarter. The key drivers continued to be low grain stocks and the farm economics that they support. Grain prices are high, giving farmers every incentive to plan as many acres of corn and other crops as possible.

In the first quarter of 2011 those planning intentions translated into strong demand and shipments. CF Industries shipped 3.3 million tons of nitrogen and phosphate products in the first quarter, up from 1.7 million tons in the first quarter of 2010. In this comparison and throughout this call references to results in the first quarter of 2010 do not include Terra's results.

We were very pleased to be able to sell 3.3 million tons of our products, while also replenishing inventories in preparation for the spring season. That was possible because our plants ran extremely well, setting a number of production records.

As importantly, favorable world supply and demand conditions for both nitrogen and phosphate supported robust price levels, although urea was a notable exception for part of the quarter. As a result, we achieved sales of $1.2 billion, 134% higher than sales in the first quarter of 2010.

In the nitrogen segment sales of $926 million were up 183% on volume of 2.8 million tons, which also more than doubled. All 7 of our nitrogen complexes in North America operated at full ammonia capacity in the quarter, and 8 of our 13 ammonia plants set production records in at least one of the months.

We also set UAN production records at some of our plants, including a record in January at the original UAN plant at Woodward, Oklahoma. This was very helpful when we needed that additional product to satisfy customer commitments before the new plants started shipping UAN.

Global ammonia prices were very resilient during the quarter due to industrial demand growth and high phosphate production rates. Toward the end of the quarter we even saw a plant in Eastern Europe shut down upgrading facilities in order to ship more ammonia, which is a rare occurrence.

Gas limitations in Trinidad also played a role in keeping the ammonia market tight, although our operation at Point Lisas was largely unaffected.

Urea markets, on the other hand, were sloppy in the latter part of the quarter due to high global production rates, greater-than-expected exports from China in December and January, and delayed purchases by India. Prices at the Gulf fell by about $80 per ton during the quarter, before finding a floor and rebounding sharply in April when demand revitalized following purchases by India.

We sold 1.5 million tons of UAN in the first quarter, and produced a record 1.6 million tons thanks to the startup of the Woodward expansion and high on-stream factors at other plants. Industry shipments were strong, but the supply/demand balance remained tight due to low inventories and high demand.

The price of UAN per unit of nitrogen currently reflects a large premium to both urea and ammonia, and we believe market conditions continue to support that premium.

We also performed well in ammonium nitrate during the first quarter, achieving the highest production since the Terra acquisition. The nitrogen segment gross margin of $443 million was more than quadruple the results in the first quarter of 2010.

In addition to the strong volumes and pricing I have discussed, nitrogen profitability benefited from low natural gas prices. Our average gas cost of $4.32 per million BTUs was 16% lower than our costs in the first quarter of 2010. The behavior of natural gas prices over the last nine months illustrates the significance of the change in the supply environment.

We had the second hottest summer, followed by the fourth coldest winter in the last 25 years. While this led to above normal draws on natural gas storage, it had little effect on prices because of high production.

Phosphate segment sales were also very good. Like the nitrogen segment, the phosphate segment achieved very high production in the quarter. Our plant in Plant City, Florida, achieved record production for any month and tied its previous record for production in a quarter, as measured in tons of P205.

This was a critical success factor because we entered the first quarter with very low inventories of both DAP and MAP. The great production we achieved allow us to position inventories for domestic and international sales in the second quarter.

So we were very pleased with our first-quarter results in both segments. Our operating functions, supply chain, manufacturing, distribution and sales all performed well and collaborated with each other very successfully.

Our earnings press release highlighted a number of notable safety milestones achieved at CF Industries facilities in the first quarter. I want to take a moment to thank and congratulate the men and women at these locations who truly have internalized our culture of safe operation. Safety must be a way of life in order to operate a facility for a generation and more without experiencing a lost time accident, as many of our facilities have done.

Now I would like to turn the call over to Rich for a few more comments on our financial performance.

Thanks, Steve, and good morning everyone. In the first quarter of 2011 CF Industries had net earning such available to common stockholders of $282 million or $3.91 per diluted share, compared to a loss of $4 million or $0.09 per diluted share in the first quarter of 2010.

The first-quarter results included a $33 million pretax gain on the sale of four dry product warehouses, $20 million of accelerated amortization of loan costs, $2 million in restructuring and integration costs, and a non-cash mark-to-market gain on natural gas derivatives of less than $1 million.

First-quarter 2010 results included $136 million in business combination costs, and a few other items as detailed on slide 8 and in the press release. The impact of all of these items on EPS can be found in the press release.

The Company generated $585 million of EBITDA in the first quarter, with strong contributions from both segments. The nitrogen segment achieved a gross margin percent of 48%, which you can see on slide 5.

We sold 410,000 tons of ammonia at an average realized price of $494 per ton compared to an average price of $321 per ton in the first quarter of last year. Sequentially the average price was up $42 per ton, which is notable considering that the fourth-quarter mix had a very high proportion of agricultural ammonia and the first-quarter mix had a very low ag component.

We sold over 600,000 tons of granular urea during the first quarter, about equal to our volume in the first quarter of 2010. Our average realized price of $371 per ton was 21% higher than last year.

Before this quarter we included urea liquor in the volume and average price of urea sold. On our segment summary we now have moved urea liquor into the other nitrogen category.

We sold approximately 1.5 million tons of UAN in the first quarter. Average UAN price realizations were up 35% compared to the first quarter of 2010 to $277 per ton. Ammonium nitrate sales of 244,000 tons were completed at an average price of $251 per ton.

As shown on slide 7, we achieved a 33% gross margin on phosphate sales in the first quarter, reflecting firm prices and strong production. Compared to the first quarter of last year our domestic sales volumes for DAP and MAP were up slightly, but total volume of 440,000 tons was 8% lower, due in part to lower beginning inventory.

We realized average prices of $562 per ton for DAP and $569 per ton for MAP, up more than 50% from the year-ago quarter.

Our effective tax rate was 32.9% in the first quarter, or 36.7% after backing noncontrolling interest out of the denominator. This rate is consistent with our expectations for the year.

Strong cash flow allowed us to repay the remaining $346 million balance outstanding under our bank term loan during the first quarter. Interest expense of $52 million in the quarter included the $20 million of accelerated amortization I mentioned earlier, which arose as a result of retiring this loan. With this action, we have completed the debt reduction we set out to do after the acquisition of Terra.

Net debt declined by $362 million during the first quarter to about $1.2 billion. Our cash balance at the end of the quarter was $1.1 billion, not including the $104 million in auction rate securities. About $750 million of our cash balance is being held as customer advances for future delivery of our products.

Now let me turn it back to Steve.

Thanks, Rich. Obviously, we are very pleased with the results we delivered in the first quarter. We continue to be bullish about the second quarter and the rest of the year. Planting intentions are very high, and we have the products on hand to support [farmers'] needs for plant nutrients.

Wet conditions have delayed planting in many areas. This causes three types of concerns in our business -- ultimate planted acreage, product mix, and transportation. It is still too early to know whether late planning ultimately will reduce the number of acres of corn planted compared to intentions; however, the economic incentive for farmers to plant corn never has been greater than it is this year. We continue to believe that 92 million acres of corn is achievable.

The next area of concern over a wet spring is what changes it might drive in nutrient application. In areas in which planting is late and field conditions are still moist, some farmers are likely to go straight to planning as soon as conditions become acceptable rather than take the time to apply ammonia.

In these cases the growers will plan to return to the field later to apply UAN, urea or ammonia as side dress. The net result of this change would be a decrease in total ammonia applied and an increase in the demand for urea, and especially for UAN. We have been producing UAN flat out to position ourselves to take advantage of this potential opportunity.

Getting UAN and urea into the areas where they're needed also has been completed by the high water levels on the river system. In this respect we have a number of important advantages, including a large interconnected network, in-market plants and terminals, and a team that has spent the last year focusing on how to optimize plant sourcing for customer orders. Because of these strengths our customers can rely on us to meet their needs even when conditions are difficult.

The current set of logistical challenges presents a great opportunity for our team to demonstrate its ability to execute in a nimble and effective fashion. I'm confident that they are doing just that.

Transportation and fieldwork limitations in the spring also may constrain domestic demand for phosphates. Still, we are in a comfortable position for the second quarter, having found several opportunities to export to South and Central America at attractive netbacks. We expect world phosphate prices to remain strong due to growing demand and delays in new projects.

As we look into the second half of the year two factors continue to bolster our confidence in both nitrogen and phosphate markets. First, we believe strongly that the economic incentive to plant corn in North America will persist. And second, conservative fertilizer stocking practices will keep our customers coming back in the summer and fall.

We have already booked a meaningful amount of forward business for those periods, and the prices we have achieved support our optimism. We also feel good about the natural gas environment. We see no reason to expect anything but relatively stable, attractive natural gas costs in North America, and a persistent cost advantage compared to European and most Chinese producers.

Given the underpinnings of our business, including high demand for grain and ongoing favorable natural gas cost relationships, we believe that the Company is in a sustained period of strong earnings and cash flow. We believe that this has resulted in a fundamental shift in the cyclical nature of our performance, leading to the likelihood of our producing both higher lows and higher highs in our financial results.

We know that investors are very interested in our intended uses of the cash that we are generating in this favorable environment. Over the next several months the management team and the Board will continue to study our opportunities to increase shareholder value through investment in growth projects or otherwise.

Given the industry conditions in North America, we are likely to find some very compelling growth projects here. It is also important to note that the amount of cash we expect to generate in upcoming periods should be enough to support multiple capital priorities, which could include returning more cash to shareholders.

A final note on the Terra integration. Although we will continue to seek all opportunities to optimize our business, I consider the basic operational integration of a CF Industries and Terra to be complete.

We exceeded our synergy targets. We operate with a single face to our customers and suppliers, and we work as a unified team. I'm very proud of the work our team did on this operational integration. The remaining piece of the integration process is our ERP system implementation, which is off to good start and should be completed sometime next year.

With that let's open the call to your questions. Regina, please explain the Q&A procedure.

(Operator Instructions). Vincent Andrews, Morgan Stanley.

Steve, could you maybe give a little more detail on 2Q? And as urea prices dipped during the quarter, how are you guys thinking about that? It sounds like one decision you made was to make as much UAN as possible because prices were staying strong. But from a forward order perspective how is your team thinking about the prices going down and where they will trough, and how you're running your book from that perspective?

Well, you're right. We have been focusing on max UAN production. I think our approach to urea prices has been a disciplined one. And, Bert, I would ask you to elaborate, if you would like.

I think your question is forward, but also about what happened in March and April, if I understand it correctly. We are pleased with our book that we took on urea and the other products going forward.

I think relative to your question will market continue at the same pace that we had in April and May, it is very positive right now. The world markets do support today the pricing that we are currently experiencing. And we do see positive things coming out of India, and restrictions out of China will play positively for us out of NOLA and Medicine Hat for urea.

So does that imply we should continue to see sequential improvement in urea prices going into Q2 in Europe (multiple speakers)?

We don't comment on our book specifically. The market today is expressing that urea is over the first quarter. But, again, we can't give the forward on what will happen.

I would remind you that our focus is always on what the margin is in our book. We are very pleased with where our margin level is across all our products.

Will we see margins improved sequentially?

We are in a great position.

The second one I just wanted to ask you, Steve, what are your thoughts -- there is an interesting valuation dispersion between the nitrogen MLPs that are out there and what your equity is trading. Do you have any thoughts around that or any further thoughts on what you might be able to do with the P&H MLP that you -- or the GPS?

Well, we are obviously pleased with the valuation. We view Verdigris as a very important facility in our portfolio. The structure of that is the structure that we inherited. We are comfortable with where it is, and we think it is an interesting indication of the value of nitrogen assets.

I guess I will just make a last comment and then I will pass it on. It just seems to be the market is -- as you think about what to do with your capital it seems like the market is saying it will reward your CF underlying equity valuation. There is a little bit more [assurity] of return of capital. That is just a thought. Thanks again. Congratulations on your results.

Michael Picken, Cleveland Research.

I just wanted to start out by giving an update on potential CFO search, when you think that might be completed. Then, secondly, how that might impact the potential to map maybe a share repurchase program or some more decisions on capital allocation?

Well, our process is continuing. We have met a lot of excellent candidates, and when we reach the conclusion we will be making an announcement.

With respect to uses of cash, we will continue to study all of our alternatives for investing and otherwise deploying cash. And when those decisions mature, we will be announcing them.

Okay, I guess just sort of following up on that, would you expect that you would have a CFO in place before any decision on something like a buyback would be announced or would that be something that the Board would go ahead this summer and start to look at and evaluate?

I would just say they're not directly related. Obviously, conceptually they are and functionally they are, but they're not joined at the hip.

Okay, great. Then one question that is a little bit more market oriented. I just wanted to get your thought process in terms of China, and with the higher coal costs over there, their cost of production have obviously gone up. I am just wondering if you can give us your best estimate of what the breakeven levels are and what your expectations are in terms of Chinese urea exports for 2011? Thanks.

I think there are two factors at work in China that probably both work to the North American producers' long-term advantage, or at least short-term advantage, I should say.

First is a high -- the high input cost. The higher coal cost is putting pressure on their fertilizer production. And the second factor is the adoption of this new sliding scale export tax, which effectively puts a pretty low ceiling on the netbacks available to Chinese producers by exporting, and is apparently intended to keep Chinese urea production inside China. One is a short to intermediate term vector, the other is a long-term factor, and I think they work to our benefit.

Edlain Rodriguez, Gleacher & Company.

Steve, a quick question for you. You have talked about more opportunities for growth projects. Can you elaborate on that a little bit? You have completed the UAN expansion. Like what next are you thinking of, and does that include or considering like a greenfield ammonia facility?

We have obviously a portfolio of ammonia -- of nitrogen complexes in North America, 7 of them. As we put our very talented new technical team together, they are looking at our configuration from a physical standpoint. What opportunities do we have for efficiency gains? What opportunities do we have for the bottlenecks? What opportunities might we have to upgrade some more of our ammonia into upgrading projects?

All of those things are under study. And we certainly are in an environment where those kinds of projects ought to have very good returns. Historically those inside the fence projects have generated very high returns for us, and we expect that some opportunities there will be consistent with that past experience.

Greenfield production in North America is an interesting concept. There was an announcement by Dow recently that they are going to exploit the improved natural gas situation in the US by making some investment.

In our case it is an intriguing proposition. On the other hand, the regulatory climate in Washington is not conducive to that at the moment. There is uncertainty at best and probably an unfavorable environment at worst.

For us almost always, in fact, probably always, the cheapest incremental capacity comes from debottleneck. So those are the things that will probably rise to the top of the list.

Okay, that makes sense. Another quick question on ammonia prices for Q1 were somewhat lower than expected, I guess because of the mix with small industrial sales. Can you remind us again what the mix was like in Q1 and what does it typically look like in Q2?

Well, we have a significant portion of our business as industrial business. We are in the process of -- as kind of an immigration process some of that business has moved or will move to ag. And the rest of the industrial business is being reviewed and recast where we have opportunities to do so, changing the pricing approach and so forth.

So we will continue to tweak that. I will tell you that the pricing that we're getting in the ag part of our business is consistent with the kind of prices that you have seen published over the last number of months.

Okay, thank you.

Mark Gulley, Soleil Securities.

I just wanted to elaborate a little bit on the response to the last question. We have had a one or two quarter lag in ammonia prices, at least on the ag side, [your] realized price versus published prices. So, Steve, are you implying you have kind of caught up then with respect to that lag effect?

I will add one thought to what I just said a minute ago, and that I will ask Bert to elaborate. In the first quarter we had a -- it is relatively low ag ammonia quarter. So in comparison, for example, to Q2 a much lower ag component in the mix. So it will be a higher component in the second quarter. Bert, you want to add to that, or was that your point?

That is a key point, and also there are different structures of industrial contracts, whether they be Tampa-based or gas-based and that does have an impact.

Secondly on DAP, where your sales limited -- to what extent were your sales limited by inventory constraints on DAP in the first quarter? And have you built enough inventory now to really satisfy your portion of market demand going forward?

Bert.

We came into the quarter with lower inventory, but as mentioned in the release, we produced at a very high rate during the quarter, and so some of that will be reflected going forward. But DAP is a pretty consistent -- I would say the phosphates are pretty consistent quarter to quarter with our sales, whether that be domestic or exported that volume doesn't move too much.

Then, lastly, in your standard slide deck you give some spreads that are very helpful, for example, Midwest corn belt ammonia versus Tampa. Can you maybe give us an idea of the spread between industrial and ag ammonia to help us understand how that mix effect could improve?

Bert.

Well, I imagine you have to look at, I think for your -- what you read in the publications relative to Tampa, Tampa-based pricing and how that has worked through on the industrial side, and then ag is also reflected in the publications, and I think those spreads will be fairly consistent.

Thank you.

Lindsay Drucker Mann, Goldman Sachs.

Just quickly on the 92 million acres that you are expecting will ultimately get planted, I am just curious if you still feel good even though we had some pretty soggy conditions in the Dakotas -- if those acres are the ones that are -- you feel so good that those will get in the ground, or if you think we will see some planting elsewhere, with more switching from say soybeans to corn making up some of that potential deficit?

Well, I think it is pretty clear that the economics are there to support 92 million acres of corn. The achievability of the 92 million acres is somewhat diminished given the current conditions. But we have had a pretty good change in the weather in the last week or so. And our anecdotes coming back from the field suggests there is a lot of activity out there -- planting as we speak. So the jury is still out on that. Bert, you want to add to that?

I think you're right. What we are seeing in the Dakotas relative to the flooding and the news that is generating -- you have to remember that a lot of that acreage is close to the river. The Dakotas are a large -- both the states are very large and plant quite a bit. And you're right, some of the incremental corn acreage will be coming in the Dakotas. This will be a 90 day maturity or something close to that.

We are seeing the ammonia go out. And so the economic incentive -- I don't want to lose that thought -- to plant corn is unprecedented. And to move to beans even in a trend yield of 1.60 to 1.64, it is still a very attractive to plant corn and the window is still wide.

The other thing I would add is that our farmers' ability to plant corn quickly is amazing. We can do about 5% of the crop a day. Is that right, Bert?

I think that is achievable.

Something like that. So it doesn't take -- in any given region it doesn't take more than a week to 10 days to get most of the crop in the ground.

Great. And then [on] Edlain's question about investment opportunities, you talked about some of the potential buckets domestically. Do you envision any growth opportunities outside of the US or North America?

Well, certainly we look at opportunities that come along. And we are not averse to developing our own opportunities when we see the right set of circumstances. What drives the potential appeal of an offshore greenfield investment would be access to a reliable low-cost source of raw materials, a stable political and economic climate friendly to foreign investment, access to deep water to move the product into the markets and, of course, reasonable proximity to ultimate markets. Those are the things that would drive our decisions. That set of circumstances is what first drove us to look at Peru.

Okay, thanks.

Dave Silver, Bank of America Merrill Lynch.

I had a couple -- I'm going to go on a couple of different areas. First thing would be a production or operational question. So I was struck by the fact that you said numerous plants of yours for ammonia had record or near record production all at the same time this quarter.

I am just wondering, from your perspective internally, I think that is more than a coincidence, right? Is that another -- what would the word be -- synergy or a benefit of the Terra combination? In other words, best practices, shifting from plant to plant.

Then a longer-term view on the same question. Your plants are certainly serviceable and well-maintained, but this is a lot of old iron that you working here. I'm just -- when you talk about debottlenecking as a use for -- it looks like a tremendous amount of discretionary capital that you're hinting might be available, how much debottlenecking can be done in 30- or 40-year-old systems like this?

I will just make a general comment and then I will turn it over to Tony Will. While the original hardware is 30 to 40 years old, when you look at our plants in general they don't look that old, because we have maintained them well, and we will continue to do that in the future. And, frankly, we sort of rebuild them piece by piece. In terms of the short-term more technical things, Tony, go ahead.

Thanks, Steve. I would attribute the really strong operating results here in the first quarter to a couple of things. One of which, David, as you mentioned, is a real focus on preventative maintenance and ensuring high uptime and on-stream availability.

And the second one is we did not have a significant number of planned maintenance outages or turnarounds in the first quarter. So those things aligned up to really provide us an outstanding quarter of operation.

Relative to debottlenecking opportunities, if you look at a number of our plants the vintage on the ammonia side, they were out-of-the-box or 1,100 ton a day plants. As you see in our capacity charts, we are operating those at 1,700 to 1,800 tons a day. And certainly there continue to be opportunities to make additional improvements and modifications to those. So I think you are only limited by the quality of your engineering capability, and we really have world-class folks on the process side.

So just to follow up on that. During this round of conference calls I have had the chance to ask one nitrogen producer that is the world's largest in another nutrient, and they are eschewing greenfields for North America, but they are restarting an idle facility. And then another major nitrogen producer has said without a twenty-year fixed-price gas contract they won't move forward.

So as you talk about the very robust demand outlook, US being a huge net importer structurally of nitrogen, and your cash position improving as it is, what would be the major stumbling block to maybe moving beyond the debottlenecking and trying to make a bigger investment in North America?

Well, I think to my thinking there is a single major stumbling block, and that is the specter of draconian carbon regulation. Every ammonia plant produces CO2. It is part of the chemical process. And in an environment -- no pun intended, in an environment in which we don't know what ultimate CO2 regulation will be, and some of the outcomes could be particularly punitive, it would not be thoughtful to commit substantial amounts of money into new production, because it could end up being extremely expensive to operate. Tony?

David, the other thing that I would say is, as Steve indicated, we maintain a very robust list of capacity debottlenecks and expansion opportunities within our existing plants. Those tons tend to be far less expensive than greenfield or new construction. We have a lot of those projects potentially in front of us. So we would want to go through and exhaust the cheapest available tons before we went after more expensive ones.

I would like to switch over to maybe a question about use of free cash flow or the strategies here. I think broadly speaking -- I mean, if you look at consensus estimates, they have done nothing but rise for your Company since the beginning of the year. Yet even with today's big pop your stock has basically been treading water. In other words, the market is compressing the multiple it is paying for your earnings.

I am just wondering, with a very healthy balance sheet, with a positive outlook, what would be the hindrance here, if not going out immediately on an aggressive share buyback program, what would hold you up from at least authorizing such a program and at least sending a signal?

I'll just reiterate what I said earlier, and that is that we as a management team and our Board will consider a broad range of investment opportunities and other ways to deploy cash. And included among -- in that list will be sending cash to shareholders in one form or another. So it is a full menu, and we will be looking at all of those things.

I would like to ask one other question, I guess, on marketing, if that is okay. Your quote from earlier in the call in your prepared remarks, Steve, regarding operational integration. You said the basic operational integration is complete. And you were able to put it -- in the past you have put numbers around that in terms of the targeted synergies.

And each quarter -- so now I'm going to switch over to the marketing and the potential for synergies here. But each quarter we always try to poke and hint around that what the price gap is between the business mix or the marketing contacts you inherited and where you hope to be down the line.

So I'm wondering if you could just share with us if you have a timeline? In other words, it is about 18 months for operational integration, but do you have a timeline for when you think you will be through redoing or updating the marketing mix that you inherited or the combination that you had upon the Terra acquisition closing?

Then, also, is there a targeted marketing synergy or revenue synergy total or range that you think is ultimately achievable?

My overall comment that I made about the integration process included reference to that aspect of our business. We are operating as a single marketing unit. We are out there every day working to optimize -- or excuse me, maximize our margins in our business on a day-to-day basis as well as a long-term basis.

Does that mean that everything is completely up to date? No, the one exception is some of this industrial business that has been on a contract basis that as those contracts expire they either get renewed or terminated, depending on discussions. But in the grand scheme of things that is a relatively small part of our whole portfolio.

So we feel great about where we are in all aspects of the integration, including the ERP installation, even though it is at an early stage.

Thanks very much.

Tim Tiberio, Chardan Capital Markets.

Congratulations on the quarter. My question is one of your international peers mentioned that DEF shipments in the first quarter were very strong. Can you perhaps give us some color on how you're looking at that market and how it is developing in the second quarter and what the potential could be in 2011?

We have seen a very rapid growth in the DEF business, consistent with our original view of the evolution of the market. Our shipments in the first quarter were roughly 6 times what they were a year ago. We see the growth in the market tracking along with the number of truck builds. And the number of new truck builds is consistent with the outlook that we had last year when we first looked inside the hood at the DEF business.

Okay, thanks. Just one last question. I noticed that your customer advances are significantly up year-over-year. Could you perhaps give us any color on how that is weighted towards ammonia versus UAN?

We are very pleased with the size of our order book. The amount of customer advances is a function of -- obviously, of the amount of forward business that we have. We are comfortable with the mix of business and the margins included in that, but we don't break it down by product.

Okay, thanks for your time.

Horst Hueniken, Stifel Nicolaus.

Just following on along the working capital, you are slightly positioned differently now. I wondering whether the working capital changes we should expect in the second and third quarters would be different from the normal seasonal pattern that we've seen in the past, given your different positioning now?

I don't think so. The first quarter generally is a quarter in which we position ourselves to deliver a large volume of product to our customers, and that is what we did in the first quarter. What you'll see is we will deplete inventory in the second quarter. We will turn customer deposits into operating cash flow. And our goal, of course, is to come out of the spring season with a reasonable level of inventory going into the field season, as well as we can get it.

Okay, that will help my modeling. Thank you. What about turnaround schedules for the second and third quarter? I am just trying to get a sense of how much activity there will be and what the impact might be on your bottom line.

We operate so many facilities based on the front-end, 13 ammonia plants that we almost always have some facility either in turnaround or about to be in turnaround. And so for us to put out a schedule would be a continuous process, and I'm not sure would help you that much.

Okay, fair enough. The last one, and just related to the market, one of the odd things we saw is Russia providing the Ukraine with discounted gas. I am sure you saw that. I am trying to assess what that might -- what impact that might have on Tampa pricing, if any. Do you have a view on that?

I will let Bert handle that question.

I think your point on the gas prices in the Ukraine or Russia has been a little bit opaque. And as we watch that -- we pay attention to each of the markets, but I think the relevance of [USV] in some of those markets today to where they were in the past are not as pronounced.

And its impact on NOLA for one, we don't bring in prilled urea to NOLA. And so we watch the markets we are watching usually in the Arab Gulf and the larger producing blocks, let's say -- and add China into that mix -- where those products can and will go -- freight rates, and then put that in, and what we think this market can bear, and what is driving those markets, so relative to where pricing is today, it is solid. And there seems to be a shortage of supply currently around the world, and that is supporting higher prices, which are now over $400 on a metric ton basis out of the Arab Gulf.

Thank you, that is helpful.

Mark Connelly, CLSA.

Just two questions. Steve, in the past, to paraphrase, you have described your forward sales program as -- if we like the margins we will take the business and lock it in. Is that still an accurate description?

Absolutely.

So no change in the way you're doing that. Perfect. So that the second question, I am struck by your comment about higher highs and higher lows, which hopefully means higher multiples. I know I have asked this before, but when natural gas prices were below $4, I asked you how you think about locking in low-cost gas. Is your view that you can develop more sustainable earnings with the platform you've got now and the environment you've got now? Is that likely to change your view on your willingness or interest in hedging gas costs?

Well, what we try to do -- actually your second question is very much related to your first question. We manage our margins. We try to take risk out of our business by locking in margin when we see attractive margins -- both the relationship between fertilizer prices and gas costs that we focus on.

We watch the gas market every day. If we see gas prices that we like, and we have to really liked them, we would be willing to lock in some portion of our gas needs that isn't related to contracted nitrogen sales.

But in the past that has been a relatively small amount. It would take a very attractive gas cost for us to go further out. You have to remember that we have basically seen a contango in the gas market. So the current month's price or the next month's price is not usually available to us a year or so out. Tony, you want to add to that?

The only thing I would add to that is that with the supply response that comes online now, given shale gas, it is very different than it used to be in the past. So even though this past year we had very cold winter and previously a very hot summer, high gas usage, what you see as a supply response that is able to meet those demand peaks and keep pricing relatively stable in North America.

So part of, I think, embedded in Steve's comment about higher highs and higher lows is a structural change in the gas environment that we faced in North America. And if there is relative stability in the underlying gas price and the contango, the need or desire to take on unhedged positions into the future is not -- it's really not there.

Okay, that's super. Thank you.

Don Carson, Susquehanna Financial.

I will tried to be briefer than one of your previous questioners. A couple of questions. On the forward order book, what is it today? How much has it grown since the end of March? And exactly how far forward does it go? I mean, are farmers wanting to lock in product for next fall so they can then hedge their 2012 corn price?

Bert.

Well, as you know, we don't really communicate what our forward book is. We are very pleased with what we have booked and the prices associated -- or I should say margins associated per the previous comment.

Farmers have attractive economics. I keep wanting to go back to this. The price of corn -- the price of corn, that is one that they are able to book, whether that be September or December on a historical basis and a spot basis are excellent. So we have had farmers come to us or come to our customers and book their fall needs, but we are -- as we will continue to say quarter by quarter, we always have products available to sell and we like our book.

Then switching to greenfield, Steve, you mentioned a lot of concerns about carbon caps, but certainly in the ethylene industry we have seen a slew of announcements from people, other than Dow, and even on new capacity, and they don't seem to be worried about permitting. So is there something specific to ammonia that causes you to be more conservative?

Then, just finally, is Peru dead or are you still looking at that?

With respect to greenfield production, it isn't so much the permitting, it is what the EPA may do with respect to regulating CO2 as coming out of the ammonia plant, or where in the chain CO2 might be regulated. Would it be regulated at the ammonia plant level; would it be regulated even at the farm level as it is released from urea? It is an unknown. And unlike some other commodities, the carbon intensity of what we do is extremely high.

With respect to Peru, the general situation hasn't changed in the last quarter, but perhaps, there has been a bit more uncertainty injected in the situation. They had an election in Peru. There are now two candidates in the running for the final election. The outcome of this election could result in a political environment that is less conducive to investment in projects like ours. But that is not clear at this point, I think the two candidates are neck and neck currently.

The other development that occurred is there has actually now been an announcement that the expansion of the pipeline over the Andes bringing gas to the coast has been delayed. So those factors are working in the same general direction, and that is we don't feel it is desirable at this point to be spending a lot of effort or money on that project.

Okay, so not dead, but on the respirator.

You said that; I didn't.

Thank you.

Brent Rystrom, Feltl.

Just a quick comment that would preference my question. I farm in North Dakota. And any 3% of the eastern part of North Dakota that is where corn grows has still got wetness from the flood. So that is not going to be an issue. We have got 10 days of dry weather coming here. 9 of the next 10 are going to be dry; they're going to be planted.

The issue that I see is that -- and this could be an opportunity for you -- is with the late planting I would assume, from our perspective, we think you have to really heavily fertilize to make up for the lack of days. Is that a fair assessment?

I am not a farmer. You are the expert. I will turn that question to Bert.

I think your thinking is logical. We are, obviously, out f working and traveling and contacting the people that feed us that information by state and sometimes by county. What we are seeing is people will be getting in the fields. It is opening up. The window is wide. And this is actually a very good time to be planting corn for the next probably couple of weeks.

But they will go directly to planting, bypassing that first application of ammonia. And so, we see people preparing for side dressing of ammonia. But UAN is available. We are positioning from our system through barge and railcar delivery and FOB plant sales of our remaining tons to sell. And we are seeing a lot of interest in that. So I think that is what will take place is -- and we're preparing for a higher application of N.

So this may seem like a odd transition, but in a weird way, from your perspective, the likelihood that we could face some yield issues this year on higher acres is going to drive business this year, but it could very potentially tighten the carry out in 2012 and make next year even more important from a corn perspective.

This is obviously possible that scenario could unfold, but you never know. You never know what the weather is going to be like in the summertime, how intense the heat will be and so forth and so on, but certainly that is scenario is a possible one.

Thank you.

Elaine Yip, Credit Suisse.

Most of my questions have been asked and answered, but on your phosphate business can you remind us as to the life of your reserves and whether you're looking for additional rock elsewhere?

Yes, I will ask Tony to answer that question, but I'm very glad you asked a question about phosphate.

We have 14 years of fully permitted reserves right now, and we have another contiguous tract of land with approximately 9 years of reserves on it that we are in the process of permitting. We have begun that process about two years ago. And it is a time intensive issue, but we feel comfortable with where we're at and the progress that we're making on that.

Okay, great. Thank you very much.

Ladies and gentlemen, this concludes the question-and-answer portion of today's call. I would like to turn the call back over to management for closing remarks.

Okay, we would like to thank everyone who participated on the call today. And if any of you need more information about CF Industries or our results, please contact me, Terry Huch. Thank you.

Ladies and gentlemen, thank you so much for your participation in today's teleconference. This concludes the presentation. And you may now disconnect. Have a great day.