On Dec 10, we issued an updated research report on fertilizer company CVR Partners UAN.
CVR Partners swung to a loss in third-quarter 2015, hit by a major plant turnaround, outages and costs related to its planned purchase of Rentech Nitrogen Partners RNF. Both revenues and adjusted loss missed Zacks Consensus Estimates.
CVR Partners is exposed to pricing pressure stemming from lower nitrogen fertilizer prices. It is seeing lower prices for urea ammonium nitrate (UAN), as reflected by a roughly 11% decline in the third quarter. Urea prices have been under pressure due to higher supply from Chinese producers.
CVR Partners is also facing intense pricing competition from other fertilizer producers. Lower cost of natural gas, which is used as primary feedstock by most of its competitors, unfavorably impacts CVR Partners’ competitive position vis-à-vis other nitrogen fertilizer makers.
The company’s operations are also subject to the risks of production outages due to plant shutdowns. It witnessed a major three-week plant turnaround during the third quarter, involving expenses of roughly $7 million. This downtime is expected to impact CVR Partners’ full-year 2015 distribution. Additionally, the company has a major plant turnaround for Coffeyville, scheduled for the second half of 2017. A prolonged plant shutdown, if any, could have an adverse impact on its results of operations and financial condition.
Nevertheless, CVR Partners remains focused on ramping up its UAN production capacity and is progressing well with its capacity expansion projects. The company is upgrading substantially all of the ammonia it makes to higher margin UAN. It also benefits from transportation cost advantage given the close proximity of its production facility to the U.S. Corn Belt.
CVR Partners is making a good progress with its capacity expansion projects at Donaldsonville, LA, and Port Neal, IA, scheduled for production in 2016. These projects are anticipated to increase the company’s nitrogen nutrient capacity by more than 25%.
Moreover, the proposed acquisition of Rentech Nitrogen offers a compelling opportunity as the merger will create one of the biggest UAN producers in North America. CVR Partners anticipates the deal to be double-digit accretive to distributable cash per unit before synergies.
The merged entity is expected to realize synergies of at least $12 million, partly through savings in selling, general & administrative costs, and logistics and procurement improvements. CVR Partners’ production of ammonia is also anticipated to rise by around 75 tons per day in second-half 2016 on the back of incremental hydrogen supply from a plant that is currently under construction.
CVR Partners is a Zacks Rank #3 (Hold) stock.
Stocks to Consider
Better-ranked companies in the basic materials space include Celanese Corporation CE and Innospec Inc. IOSP with both holding a Zacks Rank #2 (Buy).
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