Calumet Inc (CLMT) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2007 Calumet Specialty Products earnings conference call. My name is Mike and I'll be your operator today. At this time, all participants are in a listen-only mode. We will take questions at the conclusion of today's presentation.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's call, Jennifer Straumins, Senior Vice President. Ma'am, please proceed.

Thank you, operator. Good afternoon, and welcome to the Calumet Specialty Products Partners investors call to discuss our first quarter 2007 results. During this call, Calumet Specialty Products Partners will be referred to as the partnership of Calumet and Calumet Lubricants Company. The predecessor to the public entity will be referred to as predecessor.

Bill Grube, our President and CEO, will start the call with a summary discussion of the business, including our internal growth project. Pat Murray, our CFO, will then discuss the partnership's financial results for the quarter. Following the presentation, we will hold the line open for a question-and-answer session.

During the course of this call, we will make various forward-looking statements within the meaning of 21E of the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management, as well as assumptions made by them, and in each case, based on information currently available to them.

Although our management believes that the expectations reflected in such forward-looking statements are reasonable, neither the partnership, its general partner, nor our management can provide any assurances that such expectations will prove to be correct.

Please refer to the partnership's press release that was issued yesterday, as well as its latest filings with the Securities and Exchange Commission, for a list of the factors that may affect our actual results, and would cause them to differ from our forward-looking statements made on this call.

And now, I would like to turn the call over to Bill Grube, the President and CEO of Calumet.

Thank you, Jennifer. Again, we would like to welcome you to the earnings call for Calumet Specialty Products Partners. We are pleased with our record results for the first quarter of 2007. Calumet's operating performance for the quarter allowed us to declare our first quarter distribution of $0.60 per unit. This distribution equates to an annual distribution of $2.40 per unit.

As previously announced, we have begun a major capital improvement project at our Shreveport refinery, which we still expect to be completed in the third quarter of 2007, with production ramping up during the fourth quarter of 2007.

Crude oil capacity is expected to be increased from 42,000 barrels a day to 57,000 barrels each day, which is approximately a 40% increase in capacity. We have spent a total of $100.5 million related to the project with $35.6 million spent in the first quarter of 2007.

We received all required permits and started construction at the end of the fourth quarter of 2006. We have increased our cost estimate from $150 million to $200 million on the project. This increase in estimated cost of the Shreveport expansion project is due to further escalation in construction costs that is being seen throughout the refining industry.

Also, we made a decision to enhance the project to allow the Shreveport refinery to run an estimated 25,000 barrels per day of sour crude in the future. This will be possible after completion of a planned capital project to add capacity and modify certain other operating units. We expect this planned project to lower our overall per barrel feedstock cost. Following is a summary of our quarter-over-quarter sales volume by segments --

Total specialty product segment sales volume for the first quarter of 2007 was 23,022 barrels per day as compared to 26,817 barrels per day in the same period in 2006, a decrease of 3,795 barrels per day, or 14.2%. Total fuels products segment sales volume for the first quarter of 2007 was 20,378 barrels per day as compared to 25,273 barrels per day in the same period for the prior year, a decrease of 4,895 barrels per day, or 19%.

The overall decrease in sales volume for both segments was primarily due to scheduled turnaround activities at our Shreveport and Princeton refineries in the first quarter of 2007, with no similar activities in the comparable period in 2006.

I would now like to turn the call over to Pat Murray for a review of our financial results.

Thank you, Bill. Now, we would like to offer a brief review of the financial results of the quarter ended March 31, 2007. In all comparisons, the prior year includes predecessor results for the period of January 1, 2006 to January 31, 2006.

Net income for the three months ended March 30, 2007 was $28.2 million compared to $3.8 million for the same period in 2006. The partnership's performance for the first quarter of 2007 as compared to the same quarter in the prior year was positively impacted by improved specialty and fuel product margins per barrel, partially offset by decreased sales volume of specialty and fuel products.

As Bill discussed, the decrease in sales volume was primarily due to scheduled turnaround activities at our Shreveport and Princeton refineries during the quarter, with no similar activities in 2006. Further, the net loss on derivative instruments not designated as hedges for accounting purposes decreased during the first quarter of 2007, as compared to the same period in 2006, primarily due to adopting hedge accounting on certain derivative instruments at the beginning of the second quarter of 2006.

We believe the non-GAAP measures of EBITDA, adjusted EBITDA, and distributable cash flow are important financial performance measures for the partnership. EBITDA and adjusted EBITDA, both as defined by the partnership's credits agreements, were $32.7 million and $32.5 million, respectively, for the three months ended March 31, 2007, as compared to $13.5 million and $26.1 million, respectively, for the same period in 2006. The partnership's distributable cash flow was $28.4 million for the three months ended March 31, 2007.

We encourage investors to review the section of the earnings press release found on our website, entitled, "Non-GAAP Financial Measures" and the attached tables for discussion and definitions of EBITDA, adjusted EBITDA, and distributable cash flow financial measures, and reconciliation of these non-GAAP measures to the comparable GAAP measures.

Gross profit increased 7.4% to $55 million for the three months ended March 31, 2007 from $51.2 million for the same period in the prior year. Gross profit by segment for the three months ended March 31, 2007 for specialty products and fuel products was $40.8 million and $14.2 million, respectively, compared to $37.4 million and $13.9 million, respectively, for the same period in 2006.

The $3.5-million increase in gross profit of our specialty products segment for the quarter ended March 31, 2007, as compared to the same period in the prior year, was primarily due to increases in sales prices for certain lubricating oils products, as compared to a decrease in the cost of crude oil; partially offset by decreased sales volumes of lubricating oils and increases in derivative losses on crude oil and natural gas flow, cash flow hedges recorded to cost of sales. Specialty products segment gross profit was also negatively impacted by increased operating costs primarily due to maintenance activities.

The $0.3 million increase in gross profit in our fuel products segment for the three months ended March 31, 2007, as compared to the same period of the prior year, was primarily due to sales prices decreasing at a lesser rate than the decrease in the cost of crude oil, partially offset by decreases in sales volume of gasoline and diesel.

Fuel products segment gross profit was also negatively impacted by a net derivative loss on cash flow hedges of crude oil purchases and fuel product sales, with no similar activity in the comparable period in 2006.

Selling, general, and administrative expenses increased $0.5 million to $5.4 million for the quarter ended March 31, 2007, compared to the same period in the prior year. This increase primarily resulted from increased costs associated with Section 404 of the Sarbanes-Oxley Act of 2002 compliance.

Transportation expense decreased $0.3 million to $13.6 million for the quarter ended March 31, 2007, compared to the same period in the prior year. This decrease was primarily due to the decreased sales volume for specialty products, partially offset by price increases for rail services. The majority of our transportation expense is reimbursed by our customers and is reflected in sales.

Interest expense decreased $3.0 million to $1.0 million for the quarter ended March 30, 2007 from the same period in the prior year. This decrease is primarily due to lower overall debt levels resulting from our pay down of debt with the proceeds from our initial public offering and cash flows from operations.

Interest income increased $0.8 million to $1.0 million for the three months ended March 31, 2007, compared to the same period in the prior year. This increase was primarily due to the investment of the remaining available proceeds from our follow-on public offering, which closed on July 5, 2006 in short-term investments.

Debt extinguishment costs were $3.0 million for the three months ended March 31, 2006, and we have incurred no such expenses in 2007. The expenses recorded in 2006 resulted from the repayment of a portion of borrowings under Calumet's term loan and revolving credit facilities using the proceeds of the initial public offering.

As of March 31, 2007, total capitalization consisted of partners' capital of $327.5 million, including accumulated other comprehensive loss of $15.1 million and outstanding debt of $49.4 million; comprised of borrowings of $49.4 million under the term loan facility, and no borrowings under the revolving credit facility.

As of May 2, 2007, the partnership had outstanding borrowings of $49.4 million under the term loan facility, and no borrowings at the revolving credit facility with availability for borrowings of $148.8 million under the revolving credit facility. The partnership will pay its quarterly distribution to unit holders for the quarter ending March 31, 2007 on May 15, 2007 to unit holders of record on May 5, 2007.

And now, I'll turn the call back over to Bill Grube.

Thank you, Pat. This concludes our remarks. We will now be happy to answer any questions you may have. Operator, could you please confirm if there are any questions?

Yes, sir. (OPERATOR INSTRUCTIONS) And, we'll hold a moment for questions to queue. Our first question comes from the line of Ted Gardner with Raymond James. Please proceed.

Good morning, everybody, or afternoon, I guess, now. Two quick questions. First of all, have you guys layered on any more hedges going out beyond 2008, at this point during the quarter?

Yes, we've added, since the fourth quarter of 2006, we've added hedges out in 2009, 2010, and 2011. We've added about 2,000 barrels a day of crack spread hedges in 2009. We've added an incremental 2,500 barrels a day in 2010, and about 1,000 barrels a day in 2011.

Okay. What and are they similar pricing as to the other ones you guys (multiple speakers) --

Yes, the average crack spreads are approximately the same in 2009, 2010, and the hedges that we laid down for 2011 actually improved our average crack spread by about $0.50.

Okay. Secondly, on the, I guess on the sour crude unit. You mentioned in the press release that there's another expansion around that to, basically, it's part of that project. I was wondering if you guys could just give us a little bit more details on what all you're doing at Shreveport now with the increased scope of the projects?

Basically, what we decided to do, at the time that we built the sour crude unit, and we had to build a sulfur plant during the current expansion -- we decided to size those, so that they could run up 25,000 barrels a day.

And what we'll have to do -- we're doing some preliminary study and engineering work now on an expansion that would be completed probably in the 2009-2010 timeframe -- that would do some further modifications to our downstream units to handle that amount of sour crude.

Okay, so will that capacity for sour crude be online in the third quarter or is that an '09 (inaudible)?

No, that is a -- with this current project, we'll be able to run 15,000 barrels a day. And then, once we make these further adjustments with the next project, we'll be able to run that extra 10,000.

We basically fixed the crude unit, the vacuum unit, and the sulfur plant to be able to run 25,000-plus barrels a day of sour.

Okay.

That saves us a bunch of rework for the next project.

And cost.

Okay. And just for reference, on the $50-million increase in costs, how much would you say is attributable to the increase in scope versus just the creep of construction costs?

Well, we estimate around $10 million is due to the increase in scope, so the majority of it is due to the increase in cost.

Okay. Thanks.

Thank you.

(OPERATOR INSTRUCTIONS) Currently, no questions on the bridge. (OPERATOR INSTRUCTIONS) Ms. Straumins, we currently have no other questions.

Alright. Well, thank you. This concludes the Calumet Specialty Products Partners call for the first quarter. Thank you very much for your participation, and please note that this teleconference will be available for replay using the instructions contained in our press release. Everyone, have a great afternoon. Thank you.

And this does conclude the presentation. You may now disconnect. And once again, thank you very much.