Rentech Nitrogen Partners: An Early Earnings Look

Earnings season is winding down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Rentech Nitrogen Partners (NYSE: RNF  ) is about to release its quarterly earnings. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Nitrogen-based fertilizers have been all the rage lately, as low natural-gas prices have made them much more cost-efficient than competing products. Rentech Nitrogen is one of the big up-and-coming players in the industry. Let's take an early look at what's been happening with Rentech Nitrogen Partners over the past quarter and what we're likely to see in its quarterly report on Tuesday.

Stats on Rentech Nitrogen Partners

Analyst EPS Estimate

$0.58

Change From Year-Ago EPS

93%

Revenue Estimate

$70.6 million

Change From Year-Ago Revenue

12%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Rentech Nitrogen Partners make its earnings grow?
Analysts have slashed their calls on Rentech Nitrogen over the past few months, with earnings-per-share estimates for 2012's fourth quarter falling $0.28 and full-year 2013 calls dropping $0.24. Yet those negative calls haven't held the stock back from posting a modest 4% rise since mid-December.

The drop in analyst calls came directly as a result of Rentech Nitrogen's announcement three months ago, in which the company trimmed its earnings estimates for full-year 2012. Citing $5.1 million in lost income and costs from unscheduled maintenance and downtime at its East Dubuque facility, as well as $6.5 million in costs related to an acquisition, Rentech Nitrogen reduced its calls on both EBITDA and distributable cash per share, which is a very important metric for investors given Rentech Nitrogen's status as a master limited partnership.

Yet overall, Rentech Nitrogen is still benefiting from the cost advantage that cheap natural gas gives nitrogen-fertilizer producers. Terra Nitrogen (NYSE: TNH  ) has maintained healthy distribution yields of more than 6% based largely on low input costs, but it can't compare to Rentech Nitrogen's 8% yield. Although rival CVR Partners (NYSE: UAN  ) may benefit when natural-gas prices increase, since it has its own supply of input fuel to rely on in addition to sporting a solid 7.4% distribution yield.

Eventually, a threat may come from potash producers. Both PotashCorp (NYSE: POT  ) and Mosaic (NYSE: MOS  ) have struggled from adverse conditions in the potash-fertilizer market, but recent deals with Chinese buyers could help reduce a long-standing potash glut and make those companies more competitive.

In its quarterly report, look for more guidance on how Rentech Nitrogen is positioning itself to handle natural-gas prices that have already doubled from their low mid-2012 levels. Although few expect gas to rise much further, it's still a long-term concern that the MLP needs to address in order to keep investor confidence high.

Rentech Nitrogen is enjoying a good environment for its products right now, but as the global leader in potash production, PotashCorp has a long history of boosting its growth over time in light of favorable demographic trends. Click here now to access The Motley Fool's premium research report, which covers the specifics of the industry and details several other key reasons why PotashCorp presents such a compelling investment opportunity today.

Click here to add Rentech Nitrogen Partners to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

In a previous version of this article, CVR Partner’s distribution yield was incorrectly stated. The Motley Fool regrets the error.


Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On March 16, 2013, at 3:14 PM, 00dog wrote:

    Your research on UAN was unfortunately lacking! I am long UAN and have been since the IPO for many reasons but I will list several key points below:

    1. UAN is an MLP therefore they pay out around 90% of their profits, the last quarter they had several factors that reduced their productivity, for instance a shut-down to add an additional 50% UAN production for this year. The current guidance is around $2.15-2.45 per share, last year's was $1.81. Your assumption that the feedstock affected their dividend yield was incorrect.

    2. They won a court decision on property taxes which will save them millions starting this year

    3. their location is Coffeyville, KN, in the farm belt, adjacent to Union Pacific tracks with easy access to highway transport as well, so their cost of transport is one of the lowest in the industry. They are literally surrounded by their customers, hence another advantage.

    4. you did get the feedstock issue correct (in part), but you implied that it was somehow affecting their dividend? Everyone uses NG for their feedstock except UAN. You imply NG prices aren't going anywhere anytime soon. Better get to your DD, because NG production is the lowest it has been since the fracking rev. began and the forecast demand will be increasing indefinitely as our government is finally getting behind NG as an alternative to gasoline. Japan is replacing nearly all their nuclear power plants with NG plants. nearly all of OUR plans for coal-fired plants have been halted. Many have already been replaced with plans for NG-powered plants.

    5. General partners...never hear ANY reference to that when someone is analyzing RNF and UAN in the same article. RNF has a general partner RNT, bio-fuel manufacturer, that hasn't made a profit since 2009, and in 2011 it lost twice what it made in 2009. RNF is RNT's cash cow and without it there wouldn't be much to RNT.

    CVR Energy, UAN's GP, is making money hand over fist, so much so, Carl Icahn bought 81% of the shares and induced the board to create another MLP, CVRR, which IPO'ed this year and has been a roaring success.

    6. you didn't even cover one of the most fascinating aspects of RNF and UAN , diesel exhaust fluid (DEF)! This may become a big source of income for both as the demand is supposed to increase by 15 times in the next 3 years. They are both increasing production capacity, yet once again, RNF lags behind UAN.

    The feedstock issue is being treating as if its UAN's liability by many analysts; however, ironically it is one of its greatest strengths. When NG prices rise UAN will be the one player with an ace while the others will be facing shrinking margins and falling share prices. Please fact check everything I said and come back and write another article!

  • Report this Comment On March 16, 2013, at 4:29 PM, KGaider wrote:

    Well the first comment took all the words out of my mouth. You know what this writer did he made the mistake of doing 4X the last 19.2 cent div ( that was a one off due to maintenance ).....$.768 cents / $25 = 3%...and didn't bother to research properly on UAN / CVRR = CVI.

    Only extra comments I have are that UAN gets its feedstock from its CVI / CVRR partners so I'm sure costs of feedstock are not an issues.

    Also the continuous claim of Nat Gas going up being an issue is BOGUS. If you do PROPER research you'll find that ALL the companies hedged their Nat Gas at well below $4 for fairly long time frames SO Nat Gas going up means the companies get pretty nice mark to market gains attached to their earnings.

    To add to the DEF comment - RNF also has a pretty nice long term locked in deal with Yara of Norway.

    The MF writer's comment about Potash Corp growth makes no sense since this company has had to slash its production the last 2 years due to too many players jumping on the potash bandwagon and prices continually dropping for the product. Also this fertilizer only needs to be applied every 2 years whereas nitrogen must be applied each year. Also China and India only signed 6 month contracts this year with Cantopex = MOS/POT - not the usual full year one like in the past. Also VALE has backed out of its Brazil potash project. Also MOS/POT are the ones hurt by rising Nat Gas as they need to get ammonia for processing and last year MOS had to get very expensive ammonia from Russia - they probably will have to again - as ammonia supplies in North America are still tight and with some ammonia companies having to do maintenance shutdowns this year I think MOS and POT are going to be out of luck on getting cheaper ammonia again for at least another year.

  • Report this Comment On March 17, 2013, at 9:00 PM, TMFGalagan wrote:

    @00Dog, KGaider - I think you misunderstood my point about CVR Partners. I agree that it has a long-term advantage, but the benefits of that advantage aren't as clear right now because its competitors are seeing favorable conditions in the nat-gas market. Once those go away, I agree that CVR Partners will look more attractive.

    Regarding hedging, obviously hedges can keep the impact of price rises at bay for a while, but not forever.

    best,

    dan (TMF Galagan)

  • Report this Comment On March 17, 2013, at 11:13 PM, KGaider wrote:

    Dan...my main critique is the error you made on the UAN yield - it is not and never has been 3% - multiplying the Q4 19.2 cents by 4 is wrong. The 2012 distribution was 1.81 and the 2013 distribution range is 2.15 to 2.45. Even if we used the high stock price of $30 .... 1.81 / 30 = 6.03% for 2012 and 7.17% to 8.17% for 2013 ...so please correct this 3% yield calculation error because you highlighted this as a disadvantage which in fact does not exist. Go read :

    http://money.msn.com/business-news/article.aspx?feed=PR&...

    Excerp : Announces Completion of UAN Plant Expansion

    Provides 2013 Distribution Guidance of $2.15 to $2.45 per Common Unit

    2012 full year to $1.81 per common unit, which exceeded the company's most recent distribution guidance of $1.70 to $1.80 per common unit.

    The 2012 Q4 19.2 cents was a one off due to the maintenance - it was a temporary lowered div for Q4 2012 ONLY.

    SO if anyone got UAN at 24.46 ( close on Mar 15th ) for 2013 yield would be in the range 2.15/24.46 to 2.45/24.46 = 8.8% to 10.0% ... a far cry from your 3%

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Related Tickers

12/19/2014 4:00 PM
RNF $9.32 Down -0.14 -1.48%
RENTECH NITROGEN P… CAPS Rating: ****
MOS $46.01 Up +0.80 +1.77%
The Mosaic Company CAPS Rating: ****
POT $35.77 Up +0.50 +1.42%
PotashCorp CAPS Rating: ****
TNH $98.00 Up +2.85 +3.00%
Terra Nitrogen Com… CAPS Rating: *****
UAN $9.30 Up +0.33 +3.68%
CVR Partners, LP CAPS Rating: ****

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