CVR Partners Is Still Worth a Second Look

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Fertilizer maker CVR Partners (NYS: UAN) reported its first-quarter earnings last night, and investors seemed decidedly lukewarm, as shares were trading slightly lower after hours. The company boosted both top and bottom lines from the year-ago quarter, but optimistic analyst projections turned out to be just a little bit on the high side. CVR doesn't seem to be in any danger of real decline, though, as the limited partnership boosted 2012's dividend guidance by about $0.10 per share.

With many fertilizer stocks flying high lately, it's important to pay close attention to both individual company and industrywide trends if you happen to hold any of several fertilizer competitors. PotashCorp (NYS: POT) recently reported disappointing first-quarter results but projected a huge second quarter, so CVR's results seem to continue that trend -- albeit without a big forward brag. Let's dig into the numbers to find out if CVR (and its peers) will keep moving higher.

Keeping it simple
CVR is a relatively recent entrant to public markets, so there's not as much previous data to go by. However, its earnings release contained some interesting tidbits. The company reported lower fertilizer production levels, but higher earnings per ton, than it saw a year ago:

Metric

Q1 2012 Result

Q1 2011 Result

YoY Change

Ammonia Produced89,300 tons105,300 tons(15.2%)
UAN Produced154,600 tons170,600 tons(9.4%)
Ammonia Sales29,900 tons27,300 tons9.5%
UAN Sales158,300 tons179,300 tons(11.7%)
Ammonia Pricing per Ton$613$5648.7%
UAN Pricing per Ton$313$20751.2%

Source: CVR Partners earnings release.

Ammonia is often upgraded to urea ammonium nitrate, or UAN, hence the discrepancy between its production level and sales. One possible reason for missing estimates was UAN's lower uptime for its production processes -- all three of its operating factors reported lower operating uptime rates than it saw in the year-ago quarter. Despite less uptime, CVR still managed a solid 39% profit margin, compared with 29% in the year-ago quarter.

Where do we go from here?
Investors should be able to enjoy continued high demand for corn, which remains one of the most popular crops in CVR's planting area. Corn prices have been pushing record highs lately, leading farmers to do everything they can to juice yields. As long as those prices (and the attendant fertilizer rates) remain elevated, many nitrogen-based fertilizer companies should benefit. I'd keep my eye on CF Industries (NYS: CF) , set to report earnings on May 3, and its majority-owned subsidiary Terra Nitrogen (NYS: TNH) , another fertilizer master limited partnership with even better profitability than CVR.

Missing EPS targets by a few cents isn't a big deal,and might even present a buying opportunity. If you'd like to be informed of all the latest news out of this booming industry, add CVR Partners to your Watchlist to get daily updates on everything we can dig up.

At the time this article was published Fool contributorAlex Planesholds no financial position in any company mentioned here. Add him onGoogle+or follow him on Twitter,@TMFBiggles for more news and insights. The Motley Fool owns shares of CF Industries Holdings.Motley Fool newsletter serviceshave recommended buying shares of PotashCorp. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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