CVR Energy: Attractive Despite a Mixed Q2

CVR Energy's second-quarter 2025 results tell a tale of two businesses. While its petroleum and renewables segments struggled—posting combined losses of $148 million—the nitrogen fertilizer segment delivered a standout performance, reporting $67 million in EBITDA and $39 million in net income. These figures, up 24% and 49% year-over-year, respectively, underscore the segment's resilience in a high-inflation, resource-constrained world. For investors, the question is whether CVR's fertilizer strength can offset broader challenges and position the company as a compelling long-term play in energy and agriculture.

Fertilizer: The Engine of Resilience

CVR's nitrogen fertilizer segment thrived in Q2 2025 by leveraging two key advantages: pricing power and operational flexibility. Average realized gate prices for ammonia and urea ammonium nitrate (UAN) surged 14% and 18% year-over-year to $593 and $317 per ton, respectively. These gains were driven by sustained global demand for nitrogen-based fertilizers, which remain critical for crop yields in a world grappling with population growth and climate-driven agricultural volatility.

Production volumes dipped slightly to 197,000 tons of ammonia in Q2 2025, down from 221,000 tons in Q2 2024, but the company offset this by upgrading more ammonia into higher-margin UAN. This strategic shift reflects CVR's ability to adapt to market dynamics, prioritizing value over volume. The segment's EBITDA margin of 39.6% (calculated as $67 million EBITDA on $169 million in sales) highlights its operational efficiency, outperforming industry peers in a sector where margins are often squeezed by input costs.

Operational Turnaround and Strategic Positioning

CVR's fertilizer business has undergone a subtle but meaningful operational turnaround. The company has optimized its production mix, with 321,000 tons of UAN generated in Q2 2025—just 4.5% below the 337,000 tons produced in Q2 2024—despite lower ammonia availability. This demonstrates the segment's ability to maintain output flexibility, a critical trait in an industry where supply chain disruptions and energy price shocks are frequent.

The company's capital discipline further strengthens its appeal. CVR prepaid $90 million of its term loan in Q2 and Q3 2025, reducing leverage and freeing up liquidity for strategic investments. With $596 million in cash and $1.9 billion in total debt as of June 2025, the balance sheet remains manageable, particularly given the fertilizer segment's robust cash flow. This financial flexibility is a boon in a high-inflation environment, where companies with strong cash generation can outmaneuver peers reliant on volatile capital markets.

The Bigger Picture: Agriculture as a Hedge Against Inflation

CVR's fertilizer segment is not just a profit center—it's a strategic asset in a world where energy and agriculture are increasingly intertwined. Nitrogen fertilizers are energy-intensive to produce, and CVR's vertically integrated model (with access to feedstock and production facilities) gives it a cost advantage over competitors. As energy prices remain elevated, this integration becomes a competitive moat.

Moreover, the global agricultural sector is under pressure. The UN projects a 70% increase in food demand by 2050, while climate change threatens crop yields. Fertilizers, particularly nitrogen-based ones, will remain indispensable for meeting these needs. CVR's position as a leading U.S. nitrogen producer (it controls ~10% of the domestic market) ensures it is well-placed to benefit from this structural demand.

Risks and Mitigants

CVR is not without risks. Its petroleum segment, which accounts for a significant portion of its revenue, remains vulnerable to refining margins and RFS obligations. The renewables segment, while growing, is still unprofitable and faces regulatory headwinds. However, these weaknesses are offset by the fertilizer business's strength.

The leadership transition—Mark Pytosh set to become CEO in early 2026—adds a layer of stability. Pytosh's experience in both refining and midstream operations, along with his track record at CVR Partners, suggests a strategic continuity focused on operational discipline and value creation.

Investment Case: A Long-Term Play in Energy and Agriculture

CVR Energy's mixed Q2 results mask a compelling long-term story. The fertilizer segment's pricing power, operational efficiency, and alignment with global agricultural trends make it a standout in a resource-constrained world. While the company's broader energy operations remain challenged, the fertilizer business provides a stable cash flow engine and a hedge against inflation.

For investors with a multi-year horizon, CVR offers an attractive risk-reward profile. At a forward EBITDA multiple of 7x (based on Q2 2025 results), the fertilizer segment is undervalued relative to its peers, which trade at an average of 10x. With inflationary pressures likely to persist and agricultural demand on the rise, CVR's dual exposure to energy and agriculture positions it as a rare combination: a defensive play with growth potential.

In a world where resource scarcity and inflation dominate, CVR Energy's fertilizer segment is not just a lifeline—it's a long-term investment thesis worth considering.