Lsb Industries (NYSE:LXU) reported a robust increase in second-quarter adjusted EBITDA, climbing approximately 40% year over year to $53 million, despite navigating significant planned turnaround activities at its El Dorado and Pryor facilities. This performance, up from $38 million in the prior-year period, was primarily driven by stronger product pricing and strategic product-mix optimization, which effectively counteracted lower production volumes resulting from the maintenance work. Chief Financial Officer Cheryl Maguire noted that these planned turnarounds reduced quarterly adjusted EBITDA by an estimated $35 million to $40 million, with the majority of the impact attributed to the El Dorado site. Even with these substantial operational interruptions, the company generated $200 million of adjusted EBITDA on a trailing 12-month basis as of June 30th, according to Maguire.
Operational Resilience and Enhanced Capacity
The successful execution of extensive maintenance and upgrade projects underscored LSB Industries’ operational capabilities. Chairman and Chief Executive Officer Mark Behrman confirmed the completion of a comprehensive turnaround at the El Dorado ammonia plant and its associated site infrastructure, stating it was delivered on time, within budget, and without any recordable injuries. Behrman highlighted the immediate benefits, noting that the El Dorado plant has since achieved some of its highest daily production rates since its inception in 2016. While the plant’s nameplate capacity stands at approximately 1,150 tons per day, it had typically operated between 1,250 and 1,300 tons per day in recent years. Following the turnaround, production has surged to about 1,375 tons per day, even under summer conditions, with potential to reach 1,400 tons per day in cooler weather.
LSB also strategically accelerated much of its planned third-quarter turnaround work at Pryor into the second quarter. This decision, as explained by Behrman, shifted some anticipated production and earnings impacts forward, thereby reducing expected downtime in the third quarter. Pryor restarted late in the week preceding the earnings call and was in the process of ramping up to full production. For the Pryor facility, management anticipates the turnaround’s primary benefits will manifest in enhanced reliability and production consistency rather than significantly higher daily output rates. Behrman added that increased output should contribute to lower costs on a per-ton basis, though inflationary pressures could partially offset these savings.
Favorable Market Dynamics Bolster Pricing
Market conditions played a crucial role in supporting LSB’s pricing power during the quarter. Chief Commercial Officer Damien Renwick pointed to disruptions in shipping through the Strait of Hormuz and broader Middle East conflict, which are creating uncertainty across global fertilizer and industrial chemical markets. Renwick emphasized the strategic importance of the Strait, which accounts for approximately 20% of global seaborne ammonia trade, 30% of global urea trade, and 45% of global sulfur trade.
Industrial demand for ammonium nitrate (AN) remained robust, fueled by sustained investment in the mining sector and producer outages. In response, LSB strategically adjusted its production mix in the second quarter to maximize AN sales, including supplying customers affected by supply disruptions, while capitalizing on elevated spot pricing. The company also benefited from favorable agricultural demand conditions. Renwick noted that ammonia prices, despite a recent decline in Tampa pricing, continued to trade above historical averages, while UAN prices had stabilized after the customary July summer price reset. LSB reported strong uptake in its ammonia and UAN summer-fill programs through June and July, maintaining flexibility in its order book for fall prepay and winter-fill programs. Maguire provided specific pricing data, stating that Tampa ammonia settled at $635 per metric ton for August, with New Orleans-area UAN trading near $300 per ton. Natural gas costs averaged approximately $3.20 per MMBtu in the third quarter up to the call date. Management further indicated that elevated European natural gas prices, with TTF gas recently exceeding $19 and $20 per MMBtu, and limited global nitrogen supply could continue to support pricing, pushing European ammonia production costs to nearly $700 per metric ton.
Strategic Investments and Financial Outlook
LSB Industries maintained a strong financial position, ending the second quarter with approximately $220 million in cash and a net leverage ratio of 1.1 times, as reported by CFO Cheryl Maguire. The company generated $59 million of operating cash flow and approximately $32 million of free cash flow after accounting for $27 million in sustaining capital expenditures. Strategic growth projects saw an investment of about $13 million, including roughly $11 million allocated to the El Dorado carbon capture and sequestration (CCS) project.
In May, LSB announced its agreement to assume full ownership of the El Dorado CCS project from Lapis Carbon Solutions. Behrman explained that the investment would be staged based on development, permitting, and construction milestones, thereby limiting the company’s upfront capital exposure. The CCS project is slated to begin operations in the first quarter of 2027, with management projecting it to generate $25 million to $30 million of annual earnings and cash flow after CCS operating costs once fully operational. Behrman clarified that the CCS equipment is expected to require routine scheduled maintenance rather than major turnaround events, typically only being offline when the associated ammonia plant is not producing carbon dioxide.
Furthermore, LSB is advancing a feasibility study for a potential ammonia expansion at El Dorado. The company expects to complete a front-end engineering and design study and make a final investment decision in the second quarter of 2027. If approved, this expansion project would be targeted for completion alongside El Dorado’s planned 2029 turnaround. The total estimated cost for the expansion is between $135 million and $150 million, with a net cost of $105 million to $120 million after an anticipated USDA grant. This expansion is projected to add approximately 100,000 tons of annual ammonia capacity and generate roughly $20 million in incremental annual EBITDA, depending on ammonia pricing. Behrman indicated that the company expects to fund this project with cash from its balance sheet, noting that the quoted cost includes infrastructure to support the expansion while LSB evaluates optimal marketing strategies for the additional ammonia volumes to achieve the strongest possible margins.
For the remainder of 2026, LSB Industries anticipates higher operating rates following the completion of major turnaround work and remains on track to meet or exceed its annual production targets. Management also reiterated its previously outlined path to achieving an additional $35 million of annual EBITDA through production targets, process improvements, and cost optimization, with a substantial portion expected by the end of 2026 and the balance by the end of 2027, signaling continued strategic execution and financial growth.
