Photo Credit: Flickr/Bob Nichols | U.S Department of Agriculture.

Last quarter, surging natural gas prices was one factor that sliced 31% off fertilizer producer CF Industries Holdings' (NYSE:CF) bottom line. However, the company still earned more money than most analysts expected, which is one reason its shares surged following that fourth-quarter earnings report.

A closer look at the numbers
CF Industries reported a fourth-quarter profit of $325.8 million, or $5.71 per share. That was quite a change from the $470.7 million, or $7.40 per share, it earned in the year ago period. Still, those earnings were much more than the $4.49 per share that most analysts expected CF Industries to earn last quarter.

Part of the reason for the drop was rising natural gas prices. On the quarter, the company took a charge of $54 million, or $0.60 per share, on natural gas derivatives, which it used to hedge against price volatility.

The other issue it faced was an overall weak fertilizer market. The company saw a decrease in its average selling prices, though its volume was higher. That same trend was felt by Terra Nitrogen Company, L.P. (NYSE: TNH) as well, as the company noted similar pricing issues in its fourth-quarter report. Specifically, Terra Nitrogen noted a decrease in ammonia and urea ammonium nitrate solution prices as being the two biggest culprits in its lower earnings this quarter. The good news, however, for both companies is that the nitrogen-based fertilizer market appears to be turning.

The other big item on the quarter for CF Industries was the previously announced sale of its phosphate business to Mosaic Company (NYSE:MOS) for $1.4 billion. It was a great deal for CF Industries. Not only did the Mosaic deal turn it into a really pure play on nitrogen, the company also scored a long-term ammonia supply deal with Mosaic, which helps to lock in some solid future returns.

Why investors are cheering
What investors liked most about CF Industries' report was the company's very positive outlook for the future. The company noted that global nitrogen prices have significantly improved, and because of this it sees robust demand through the first half of this year.

On top of that, the company sees its costs remaining in check, despite rising natural gas prices. In fact, CF Industries noted that it sees the long-term price of natural gas in North America staying in a range of $3-$5 per MMBtu. Because of that structural cost advantage, the company is really confident that it can sustain its solid cash flows. This is why the company has increasingly been returning its cash flows to investors, as evidenced by its growing its dividend by 150% and buying back 12% of its outstanding shares last year.

Investor takeaway
While natural gas prices spiked in the quarter, the long-term trend suggests fairly low prices. Add to that a recovery in the nitrogen based fertilizer market and investors have reason to cheer. Add it up and these factors should continue to fuel earnings and dividend growth for nitrogen producers like Terra Nitrogen and CF Industries. That's great news for income-seeking investors.

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