LSB Industries Inc (LXU) Q1 2025 Earnings Call Highlights: Navigating Challenges with Strategic ...

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Thu, May 1, 2025, 1:13 AM 5 min read

Sales Volumes: Improved 4% quarter over quarter, driven by ammonium nitrate and UAM.
Adjusted EBITDA: Decreased from $33 million in Q1 2024 to $29 million in Q1 2025.
Natural Gas Costs: Materially higher, impacting financial performance.
Cost Plus Contracts: Increased to approximately 30% of sales volumes, expected to grow to 35% by year-end.
Cash Balance and Leverage Ratio: Remain strong and in line with target levels.
Ammonia Production Outlook: Increased by approximately 30,000 tonnes for 2025.
Turnaround Expense: Lowered by approximately $15 million for the full year.
UAN Pricing: NOLA UAN price at $350 per tonne, 73% higher than the low price of 2024.
Urea Pricing: NOLA prices above $500 per tonne due to various market factors.
Tampa Ammonia Price: Declined but remains attractive due to global supply-demand balance.

Warning! GuruFocus has detected 2 Warning Signs with LXU.

Release Date: April 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

LSB Industries Inc (NYSE:LXU) reported a 4% increase in overall sales volumes, driven by improvements in ammonium nitrate and UAM sales.
The company achieved zero recordable injuries across the organization, highlighting a strong commitment to safety.
LSB Industries Inc (NYSE:LXU) is making progress with its decarbonization project at the El Dorado facility, achieving pre-certification status under the Fertilizer Institute's Verified Ammonia Carbon Intensity Program.
The company is benefiting from strong demand and pricing for its industrial products, including ammonium nitrates and nitric acid.
LSB Industries Inc (NYSE:LXU) has increased its cost-plus contracts to approximately 30% of sales volumes, providing stability against natural gas price volatility.

Negative Points

US tariffs have created uncertainty for planned spending and potential capital projects, impacting business decisions.
Higher natural gas costs have offset the benefits of improved sales volumes and higher pricing for ammonia and AN.
The company has delayed its Houston Ship Channel project due to tariff-related price increases and slower-than-expected demand for low carbon ammonia.
LSB Industries Inc (NYSE:LXU) has experienced delays in equipment delivery, leading to the postponement of a planned turnaround at the El Dorado site.
The company faces pricing pressure from suppliers due to potential tariff implications on imported parts, components, and equipment.

Q & A Highlights

Q: As we head into May, we're seeing strong derivative pricing for UAN, but ammonia prices are weakening. How should we think about LSB's realized pricing in the second quarter? A: Damien Renwick, Executive Vice President, Chief Commercial Officer: We're seeing good price increases for our UAN products and are well-positioned to capitalize on that. We have deliberately not fully sold out through the end of the second quarter to take advantage of the pricing, which will reflect in our results.

Q: With the pause on the Houston Ship Channel project, what are your updated capital allocation priorities? A: Mark Behrman, President, Chief Executive Officer, Director: We have no committed capital projects currently. Our focus remains on improving the reliability and EH&S of our facilities, with an annual capital spend of $60 million to $65 million. Beyond that, we'll consider investments in other projects, stock buybacks, and debt reduction.

Q: How do you view the potential impact of deregulation by the administration on your operations? A: Mark Behrman, President, Chief Executive Officer, Director: The impact is expected to be minimal, except for the EPA, where we've seen increased activity and conversations, which is encouraging for our low carbon ammonia project at El Dorado.

Q: Can you provide more color on the potential pent-up demand for UAN at the retailer and producer level? A: Damien Renwick, Executive Vice President, Chief Commercial Officer: The demand is driven by higher forecasted corn acres, with the USDA projecting over 95 million acres. Additionally, insufficient imports have strained logistics, impacting pricing.

Q: What are the potential upgrade capacity projects you are considering, and what might they look like from a capex perspective? A: Mark Behrman, President, Chief Executive Officer, Director: While exploring expansion capabilities, it's too early to discuss costs. We aim to expand urea production at Pryor and ammonia production at El Dorado, which could lead to increased nitric acid or AN solution capacity.

Q: Is there potential for revisiting the Houston Channel project in the future, and what might need to change for that? A: Mark Behrman, President, Chief Executive Officer, Director: We believe there will be new demand for low carbon ammonia over time. However, current uncertainty in capital costs and buyer willingness to transact at supportive costs are barriers. We remain open to revisiting the project if economics improve.

Q: Are there any risks of delays in the carbon project at El Dorado due to equipment needs? A: Damien Renwick, Executive Vice President, Chief Commercial Officer: No, we are comfortable with the timeline for the carbon project, as our partner Lapis is on track with equipment orders and delivery schedules.

Q: With the shift towards cost-plus pricing on contracts, what is your target for this pricing model, and how will it impact margins? A: Mark Behrman, President, Chief Executive Officer, Director: We aim for a 50/50 mix between cost-plus and other contracts, with potential fluctuations between 40% and 60%. This model provides stability and downside protection, with margins expected to be similar over time.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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