LSB Industries (LXU) Q2 Profit Drops 69%

LSB Industries (LXU -0.40%), a chemical manufacturer focused on ammonia and related nitrogen products for agricultural and industrial customers, released its results for the second quarter on July 29, 2025. Revenue (GAAP) climbed to $151.3 million, up from $140.1 million a year earlier, the figure missed GAAP estimates of $158.5 million. Earnings per share (GAAP) came in at $0.04, well below the $0.14 GAAP consensus estimate, and net income declined sharply relative to the previous year. Profit margins compressed as higher natural gas prices erased much of the benefit from increased sales and improved product mix. Overall, the quarter brought solid sales progress but raised concerns about the company's near-term profitability, given the level of cost pressure seen during the period.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

The Business and Strategic Focus

LSB Industries produces ammonia, urea ammonium nitrate, ammonium nitrate, and nitric acid for both the agricultural and industrial markets in North America. Its core products serve as fertilizers for crop producers and as inputs for industries such as mining and chemicals. The company's operations include strategically located manufacturing facilities that benefit from access to low-cost natural gas and key logistics channels.

Recently, LSB Industries has focused on growing its mix of higher-value, upgraded nitrogen products, reducing reliance on commodity ammonia sales. It is also expanding its low-carbon product offerings to capture demand for sustainable chemicals. Diversifying revenue between agricultural and industrial customers and optimizing supply contracts to pass through raw material costs are top priorities. These are seen as key elements for delivering stable earnings in cycles of market volatility.

Quarterly Performance: Revenue Up, Margins Compressed

LSB Industries grew overall sales volumes by 6% year over year. Ammonia production and reliability improvements supported more upgrading of ammonia into urea ammonium nitrate (UAN) and ammonium nitrate (AN) solutions, both commanding higher margins. UAN, a liquid fertilizer, posted a 22% rise in GAAP revenue to $52.3 million as volumes climbed 10% and netback prices increased 14% to $308 per short ton for UAN. The company highlighted "stronger selling prices for UAN" and healthy demand especially in agriculture, as corn planting increased and inventories remained tight.

The industrial business also performed well, with ammonium nitrate and nitric acid revenues up 6% to $61.7 million (GAAP). These nitric acid and AN products are essential for mining and infrastructure projects, and the mining segment benefited from especially strong copper demand. However, the average netback price for these products dipped 3% to $328 per short ton as market pricing softened somewhat. Ammonia revenue (GAAP) was down 6% to $26.8 million because more ammonia was "upgraded" into premium products rather than sold as raw material, with volume declining 9% to 66,069 short tons. The average price of ammonia held nearly flat at $369 per ton.

Despite sales and product mix gains, materially higher natural gas prices had a major negative impact on profitability. The average cost of natural gas used in production soared 76% to $3.37 per million British thermal units (MMBtu), and the average in cost of goods sold was up 106% to $3.50 per MMBtu. As natural gas is the primary raw material for ammonia production, this cost surge largely offset the benefit from improved pricing and product mix. Gross profit (GAAP) fell 15% to $23.2 million compared to a year ago. Net income (GAAP) declined 69% to $3.0 million compared to a year ago, highlighting how input costs squeezed margins across the board.

The company also strengthened its balance sheet, including a $32.4 million repurchase of senior secured notes. Cash, cash equivalents, and short-term investments stood at $124.9 million, supporting future project execution. Operational safety remained a highlight, with no recordable injuries reported for the second consecutive quarter (Q1 and Q2 2025).

Strategic Initiatives: Low Carbon Push and Industrial Growth

The company's strategic focus on low and no carbon product transition is moving forward. Its El Dorado Carbon Capture and Sequestration (CCS) project, aimed at reducing emissions and producing low-carbon ammonia, stayed on track for a late 2026 start. According to management, "The main gating item continues to be the approval of our Class VI permit application by the EPA," and data collection with its partner, Lapis Carbon Solutions, continues in support of regulatory review. The project is expected to eventually allow the company to capture and sequester between 400,000 and 500,000 metric tons of carbon dioxide per year once operational, with management expecting this by the end of 2026 and reduce Scope 1 emissions by 25%. That would support new production of 305,000 to 380,000 metric tons per year of low carbon ammonia, with operations expected to begin by the end of 2026.—ammonia manufactured with a lower environmental footprint, suitable for customers seeking to reduce their own emissions.

LSB Industries continues to diversify its revenue basis by growing its relationships with industrial customers. Approximately 30% of volumes were under cost-plus contracts at the end of Q1 2025, and this is targeted to reach 35% by the end of 2025. These contracts allow the company to pass through raw material cost changes directly to customers, reducing exposure to commodity price swings in natural gas and supporting more predictable margins. Segment growth was notable in mining applications, with nitric acid and ammonium nitrate in high demand from copper and gold producers, and the company continues to examine further expansions in both nitric acid and ammonia upgrading capacity at its existing facilities.

The company's long-term advantage in raw material costs comes from its U.S.-based facilities, which generally enjoy lower natural gas prices compared to global competitors. The company expects that this trend will ease somewhat heading into the next quarter. No specific issues related to the logistics or location of the company's manufacturing assets were reported, but management emphasized continuing investment in plant reliability and safety to maintain these inherent advantages.

Dividend policy remained unchanged in line with recent periods; LXU does not currently pay a dividend.

Outlook and Investor Watchpoints

Looking ahead, management expects that natural gas cost pressures will moderate in the third quarter, which could relieve some of the margin compression experienced in recent quarters. Demand remains strong on both the agricultural and industrial sides, with particular strength seen in UAN fertilizer and nitric acid for mining applications. The company also expects that further expansion of cost-plus contracts will help dampen future earnings volatility. The El Dorado CCS project timeline remains unchanged, dependent on EPA regulatory approval, and is projected to begin operations by the end of 2026, providing a pathway for substantial emission reductions and growth in low-carbon ammonia output.

Management did not issue formal revenue or earnings guidance for the coming quarters or for fiscal 2025. Key watchpoints include stabilization of natural gas input costs, execution on the low-carbon project, and progress toward a higher share of industrial customer sales under cost-plus arrangements. Any significant changes in demand for agricultural or industrial products, as well as regulation or permitting timelines for CCS, may also affect future results.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.