CVR Partners LP (NYSE: NYSE:UAN), a producer of nitrogen fertilizer products, has announced its financial results for the first quarter of 2024. The company reported net sales of $128 million, net income of $13 million, and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $40 million. A first quarter distribution of $1.92 per common unit was also declared. Despite a planned outage leading to 90% ammonia plant utilization, CVR Partners achieved a combined ammonia production of 193,000 gross tons and UAN production of 305,000 tons. The company noted a decrease in prices for ammonia and UAN compared to the previous year, with higher ammonia sales volumes and lower UAN sales volumes. Looking ahead, CVR Partners anticipates strong demand for nitrogen fertilizer for the remainder of the spring planting season and is exploring alternative feedstock options and brownfield development projects to increase capacity.
Key Takeaways
- CVR Partners reported Q1 2024 financial results with $128 million in net sales, $13 million in net income, and $40 million in EBITDA.
- The company declared a distribution of $1.92 per common unit for the first quarter.
- Ammonia plant utilization was at 90% due to a planned outage, with 193,000 gross tons of ammonia produced.
- UAN production stood at 305,000 tons, with sales averaging $267 per ton.
- Ammonia sales volumes increased, while UAN sales volumes decreased compared to Q1 2023.
- Prices for ammonia and UAN declined year-over-year.
- CVR Partners is optimistic about demand for the remainder of the spring planting season and is considering alternative feedstock options and capacity expansion projects.
Company Outlook
- Strong demand for nitrogen fertilizer expected to continue through the spring planting season.
- Alternative feedstock options at the Coffeyville facility are under evaluation.
- Brownfield development projects for capacity increases to start in the second half of the year.
- Reserves for future investment activities and turnarounds are in place.
Bearish Highlights
- Decline in ammonia and UAN prices compared to the previous year.
- Lower UAN sales volumes and decreased freight revenue due to less rail shipping and lower UAN volume.
Bullish Highlights
- Higher ammonia sales volumes despite a planned outage.
- Strong truck movement from Coffeyville and anticipated increase in freight revenue in Q2.
- Positive outlook on demand and strategic plans for capacity growth.
Misses
- Freight revenue decreased to $6.2 million in the quarter, down from $10.9 million year-over-year.
Q&A Highlights
- The company is extending purchases over several months to align with production schedules.
- Detailed engineering plans for alternative feedstock options are in progress, with Board permission sought later this year.
- Reserves have been started for future turnarounds in Coffeyville and East Dubuque.
- Management expects strength in the Southern Plains to continue into the second quarter.
InvestingPro Insights
CVR Partners LP (NYSE: UAN) has recently shared its financial results for Q1 2024, revealing a mixed performance with a notable distribution payment to its shareholders. Here are some insights from InvestingPro that may be of interest to investors:
InvestingPro Data shows the company's Market Cap stands at $856.46 million, with a P/E Ratio of 10.08 for the last twelve months as of Q1 2024. The Dividend Yield as of the most recent data is quite substantial at 8.34%, reflecting the company's commitment to return value to its shareholders. Additionally, the 1 Year Price Total Return is at 8.33%, indicating a steady return for investors over the past year.
Two InvestingPro Tips highlight the company’s financial discipline and shareholder value:
1. CVR Partners has raised its dividend for three consecutive years, demonstrating a commitment to providing consistent returns to its shareholders.
2. The valuation implies a strong free cash flow yield, suggesting that the company is generating healthy cash flows relative to its share price.
These tips are particularly relevant as they underscore the company's performance and investor-centric approach amidst the financial figures outlined in the article. The strong dividend yield and history of increasing dividends align with the company's declaration of a $1.92 per common unit distribution for Q1 2024, reinforcing its attractiveness to income-focused investors.
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Full transcript - CVR Partners LP (UAN) Q1 2024:
Operator: Greetings, and welcome to the CVR Partners First Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP&A and Investor Relations. Thank you, sir. You may begin.
Richard Roberts: Thank you, Christine. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2024 first quarter results, let me remind you that this conference call may contain forward-looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including a reconciliation of the most directly comparable GAAP financial measures are included in our 2024 first quarter earnings release that we filed with the SEC for the period. Let me also remind you that we are a variable distribution MLP. We will review our previously established reserves, current cash usage, evaluate future anticipated cash needs and may reserve amounts for other future cash needs as determined by our general partner's Board. As a result, our distributions, if any, will vary from quarter-to-quarter due to several factors, including, but not limited to, operating performance, fluctuations in the prices received for finished products, capital expenditures and cash reserves be necessary or appropriate by the Board of Directors of our general partner. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark?
Mark Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining us for today's first quarter earnings call. The summarized financial highlights for the first quarter of 2024 include net sales of $128 million, net income of $13 million, EBITDA of $40 million, and the Board of Directors declared a first quarter distribution of $1.92 per common unit, which will be paid on May 20 to unitholders of record at the close of the market on May 13. For the first quarter of 2024, our facilities achieved a consolidated ammonia plant utilization of 90%, which was impacted by a 14-day planned outage at our Coffeyville facility in the quarter. Combined ammonia production for the first quarter of 2024 was 193,000 gross tons, of which 60,000 net tons were available for sale and UAN production was 305,000 tons. During the quarter, we sold approximately 284,000 tons of UAN at an average price of $267 per ton and approximately 70,000 tons of ammonia at an average price of $528 per ton. Relative to the first quarter of 2023, ammonia sales volumes were higher as a result of favorable weather allowing farmers to apply ammonia earlier in the year while UAN sales volumes were lower, primarily due to lower production volumes in the quarter. Prices for the first quarter declined from the first quarter of last year with ammonia prices falling 41% and UAN prices falling 42%. Nitrogen fertilizer pricing for the first quarter remained fairly steady with fourth quarter 2023 pricing and demand for ammonia was strong, driven by favorable weather conditions. Inventory levels across the system remained fairly tight, particularly for UAN, and we remain optimistic at our fertilizer demand for the remainder of the spring planting season which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results.
Dane Neumann: Thank you, Mark. For the first quarter of 2024, we reported net sales of $128 million and operating income of $20 million. Net income for the quarter was $13 million or $1.19 per common unit and EBITDA was $40 million. Relative to the first quarter of 2023, the decline in EBITDA was primarily due to lower market prices for ammonia and UAN. Direct operating expenses for the first quarter of 2024 were $56 million. Excluding inventory impacts, direct operating expenses decreased by approximately $6 million relative to the first quarter of 2023 primarily due to lower natural gas and electricity costs. During the first quarter of 2024, we spent $5 million on capital projects, which was primarily maintenance capital. We estimate total capital spending for 2024 to be approximately $46 million to $49 million, of which $33 million to $35 million is expected to be maintenance capital. We anticipate a significant portion of the profit and growth capital spending planned for 2024 will be funded through cash reserves taken in 2023 and 2024. We ended the quarter with total liquidity of $108 million, which consisted of $65 million in cash and availability under the ABL facility of $43 million. Within our cash balance of $65 million, we had $13 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of $40 million and had net cash needs of $20 million for interest costs, maintenance CapEx and other reserves. As a result, there was $20 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $1.92 per common unit. Looking ahead to the second quarter of 2024, we estimate our ammonia utilization rate to be between 95% and 100%. We expect direct operating expenses, excluding inventory impacts, to be between $50 million and $55 million and total capital spending to be between $15 million and $20 million. With that, I'll turn the call back over to Mark.
Mark Pytosh: Thanks, Dan. In summary, we are pleased with our first quarter results. Taking into account the planned outage in Coffeyville, we had good production from our facilities and experienced solid early demand for ammonia for spring pre-plant application due to favorable weather conditions. We believe market conditions are steady, and we expect to see strong demand continuing for nitrogen fertilizer for the spring 2024 planting season. In addition to the early spring movement of fertilizer in March, we have seen improved planting conditions in the Southern Plains with more moisture, which has led to higher demand for nitrogen fertilizer in Kansas, Oklahoma and Texas. Overall, grain market conditions have been volatile, but comparable to fourth quarter levels as the USDA is forecasting 90 million acres of corn will be planted in the spring of 2024, a 5% decrease compared to 95 million acres in 2023. Planned soybean acres are estimated to be $86.5 million in 2024, up 3% from 2023 levels of $84 million. Yield estimates for corn are increasing from 177 to 181 bushels per acre, and soybean yield estimates are increasing from 51 to 52 bushels per acre. The USDA is now projecting grain inventory carryout levels to be approximately 17% for corn and 10% for soybeans, resulting in inventories near the 10-year averages. Grain prices are comparable to last quarter prices with July corn at $4.50 per bushel and soybeans at nearly $11.90 per bushel. These grain prices, coupled with current fertilizer prices support attractive farmer economics, which should bode well for nitrogen fertilizer demand for the remainder of spring 2024. We believe that the length of this upward demand cycle will, in large part, be driven by grain prices staying at elevated levels, and we see fundamentals for grains remaining steady. Geopolitical risks remain high and represent a wildcard for the nitrogen fertilizer industry with meaningful fertilizer production capacity residing in countries across the Middle East North Africa and Russia. We are closely monitoring developments in the Middle East that could impact energy and fertilizer markets, and we expect the remainder of 2024 will be another period of higher than historical volatility in the business. Natural gas prices in Europe have remained flat since our last earnings call in the $7 to $9 per MMBtu range due to lower industrial demand and a warmer-than-expected winter. While the cost to produce nitrogen fertilizer in Europe has remained lower than in 2023, it is still at the high end of the global cost curve, particularly compared to the U.S. with natural gas prices at below $2 per MMBtu since December of 2023. We do not believe that the structural natural gas market issues in Europe have been resolved and will likely remain in effect over the next 2 years. At our Coffeyville facility, we are working on detailed engineering studies on the potential to utilize natural gas as an alternative feedstock to pet coke and expect to have them completed later this year. If this project is approved by the Board and successfully implemented, it could give us the ability to choose the optimal feedstock mix and be the only nitrogen fertilizer plant in the U.S. with that flexibility. We also continue to evaluate brownfield development projects at both of the production facilities that could be attractive targeted capacity increases to our existing footprint. The Board elected to continue reserving capital that we expect to spend over the next 2 to 3 years, and we'll be focused on improving reliability and redundancy at the 2 plants that could provide better production rates and lower downtime in the future. We expect to begin spending capital on these projects in the second half of 2024. The union strike that began at our East Dubuque facility in October ended in late February and hourly workers began returning to operate the plant in early March. We wanted to thank our East Dubuque supervisory team and personnel from other CVR facilities for their excellent efforts in keeping the facility operating safely and reliably for 139 days during the strike. On March 18, CVR Energy (NYSE:CVI), our parent company filed an 8-K stating that, among other things, it was evaluating potential strategic transactions, including potential options with respect to CVR Partners. At this time, there's nothing for us to report about CVR Energy's plans, if any. The first quarter continued to demonstrate the benefits of focusing on reliability and performance. In the quarter, we executed on all of the critical elements of our business plan, which include safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors and communities. Prudently managing cost being judicious with capital, maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint. In closing, I would like to thank our employees for the excellent execution achieving 90% ammonia utilization for the quarter while safely completing the 14-day outage at Coffeyville. Solid operating performance and delivery on our marketing and logistics plants resulted in a distribution of $1.92 per common unit for the first quarter. With that, we are ready to answer any questions, Christine.
Operator: [Operator Instructions] Our first question comes from the line of Rob McGuire with Granite Research. Please proceed with your question.
Robert McGuire: So over the last few quarters, purchases have extended out a couple of months or at least a few months. Can you just talk about if that dynamic has changed at all?
Mark Pytosh: No. We -- actually, I think we've kind of settled into that pattern now and the customers are kind of -- I think I described in previous calls, ratable buying, but it's more ratable. And if you look at our -- Dane gave some numbers on our prepaid orders, the dollar amount has been a lot lower, not just because of price, but the volume of prepay is lower but the cash purchasing in season is higher. And so it's more ratable buying, which fits our production schedule quite well and kind of stretches out the buying activity. Like in the quarter, it would be over the whole quarter as opposed to purchasing 1 out of the 3 months.
Robert McGuire: I appreciate that. And then I wonder if you could just expand a little from your opening comments about the alternative feedstock potential at Coffeyville, more in terms of what cost and timing might be? And then separately, the brownfield expansion, if you could talk about maybe cost and timing there as well.
Mark Pytosh: Sure. So on the feedstock optionality, we -- one, we've -- I think we've proven ourselves technically that it can be done. So there's no technical hurdles there. It's more the mechanical and operational issues about how we operate the plant. So we're comfortable technically that we can make that happen. And I don't have -- we're not finished with all the detailed in generics. I don't have the capital plan. It won't be -- I would not call it a material capital investment for us to get that done. We have most of the infrastructure in place. It would really be about building infrastructure to get gas from the pipeline to the facility. And again, that's not a huge capital number. So we're -- I think where we're going from here is we're confirming out the detailed engineering plans, the infrastructure, and then we would ask permission from the Board to proceed forward. And we should be in a position to do that later this year. And the one thing I would add to that, Rob, is what we're excited about is we now obviously, natural gas is more favorable than pet coke, but there have been plenty of years where it was reversed. And if we had another geopolitical event and a big spike in natural gas prices, we could switch back or switch to whole pet coke. So we really like the optionality that it will give us, depending on really any market if gas is more favorable, we will favor gas or if pet coke is more favorable, we'll favor pet coke. So we're excited about giving ourselves that optionality to tap into the lowest cost feedstock in the marketplace.
Robert McGuire: And then with regards to the brownfield expansion, the timing and costs...
Mark Pytosh: So we have several projects, again, in and of them -- each one is not. I would not consider it very material. But we have a select number of projects we've been reserving for that we will start to implement in the second half of this year. We've completed a lot of work the engineering work and the execution plans. And so we'll start those projects in the second half. And it's really around reliability and redundancy. We're not intending to add new units to the plant. We're simply trying to tap into, I would either call it unused capacity or reduce issues that cause downtime, which effectively would raise the production capacity at each of the 2 facilities. So we're really looking to take advantage of increasing capacity without writing a large check to do that at this point.
Robert McGuire: And then could you kind of give us a little further breakdown of the $10.7 million of current reserves for investing activities in the quarter? Were there any specific projects or plans behind that? And it kind of ties into my last 2 questions.
Dane Neumann: Yes, Rob, I'll take that one. So the reserves we're putting in place are just really ratable reserves we started in '23 through '24, and we -- subject to Board approval would continue to make those reserves. And it's really associated with the spend around these projects as we anticipate them to come up over the next few years. I think reserves were heavier in '23, we've kind of settled into a ratable basis. And then once we start spending, we'll start consuming that reserve down.
Mark Pytosh: Yes. The other part of that reserve to is we do reserve dollars for future turnarounds. So we're -- we have a turnaround plan for Coffeyville in the fall of '25 and East Dubuque and fall '26. So we're already reserving dollars for those turnarounds so that when we execute them, we're not drawing from current cash when we execute those turnarounds.
Robert McGuire: And then lastly, freight revenue was $6.2 million in the quarter, and that was down from $10.9 million year-over-year and $10.3 million in the fourth quarter. So could you just talk about the fluctuation of that item beyond volumes?
Mark Pytosh: Sure. That's generally going to follow the UAN shipping number. So you'll see UAN volume was down in the quarter, and that's a rail -- most of that freight revenue is rail. And we just didn't ship as much UAN. So I would expect here in the second quarter if we ship what we produce, that number will grow from first to second quarter. But most of our product needs to be closed by truck and Coffeeville mostly moves by rail. The other thing about Coffeyville in the first quarter, I mentioned that the Southern Plains was stronger. And we actually saw more truck movement out of Coffeyville. I think truck movement at Coffeyville was our best quarter we've ever had. So that would have lowered the freight revenue as well because we move more by truck and by rail more than normal. So there's nothing unusual on that. There's -- we just didn't ship as much rail this quarter.
Robert McGuire: Do you think that strength in the Southern Plains continues into the second quarter?
Mark Pytosh: I think so. I try to stay away from being a professional weather forecaster. But we've had a -- you probably saw there were a series of storms that rolled through Texas, Oklahoma, Kansas this weekend. And unfortunately, there was tornadoes and a lot of damage. But there also was a lot of rain. And while that will slow down some of the planting activity, that rain was hoped for. And so that should lead to a good follow-on top dress, side dress season in Texas and Oklahoma and Kansas. So this year, we've had the most moisture in that part of the country than we've had in 5 years. And so the activity levels have been -- we've seen really good demand more significantly more than the last few years. And we expect that to continue with the storms that have come through here in the last week and extend to continue, I think, most of this week.
Operator: Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.
Mark Pytosh: Well, again, thank you for joining the first quarter call, and we look forward to reviewing our second quarter results this summer. Thank you very much.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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