Calumet Inc (CLMT) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2009 Calumet Specialty Earnings Conference Call. My name is Katina and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this presentation.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Miss Jennifer Straumins, Senior Vice President. Please proceed.

Thank you, operator. Good afternoon, and welcome to the Calumet Specialty Products Partners investors call to discuss our second quarter 2009 financial results. During this call, Calumet Specialty Products Partners will be referred to as the Partnership or Calumet. Also participating in this call will be Bill Grube, our President and CEO, and Pat Murray, our CFO.

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 Section 21-E of the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management, as well 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 assurance that such expectations will prove to be correct. Please refer to the Partnership's press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and could cause them to differ from our forward-looking statements made on this call.

The significant increase in crude oil prices and continued weakness in product demand resulted in a second quarter that was very challenging for all refiners, including Calumet. This has caused us to focus even more on placing specialty products in higher value applications and markets and developing additional specialty products and controlling operating costs.

We've continued to proactively manage our business during this volatile period. As the worldwide economy has weakened, we've seen demand for some of our specialty products weaken, especially those used in the automotive and construction industries. Many of our products are feedstock -- are feedback to products --.

We've seen reduced demand for several of these products over the last several months. We're attempting to offset the impacts of this weaker demand by broadening our markets, marketing efforts and focusing on specialty product development. We've also continued our field products and our crude oil hedging program to help protect us against rapid changes in pricing levels for both fuels products and crude oil.

Compliance with the financial covenants pursuant to our credit agreements is measured quarterly. Based upon performance over the most recent four fiscal quarters and as of June 30, 2009, we continue to be in compliance with all financial covenants under our credit agreement. While assurances cannot be made regarding our future compliance with these covenants and being cognizant of general uncertain economic environment, we believe that we will continue to maintain compliance with such financial covenants and preserve our liquidity.

As announced on July 20, 2009, the Partnership declared a quarterly cash distribution of $0.45 per unit for the quarter ended June 30, 2009 on all outstanding units. The distribution will be paid on August 14th to unit holders of record as of the close of business on August 4, 2009.

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

Thank you, Jennifer. Net loss for the three months ended June 30, 2009 was $26 million, compared to net income of $50 million for the same period in 2008. The Partnership's performance for the quarter ended June 30, 2009 as compared to the same period in the prior year decreased by $76 million, due primarily to a decrease of $42.5 million in gross profit and increased non-cash derivative losses of $31 million.

The increase in non-cash derivative losses is primarily related to our fuel product segment and such losses either may not be realized or may be realized in different amounts upon settlement. These non-cash derivative losses are not included in our adjusted EBITDA of $26.6 million for the second quarter of 2009.

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 as defined by our credit agreements were negative $1.9 million and $26.6 million respectively for the three months ended June 30, 2009 as compared to $65.5 million and $48.0 million respectively for the same period in 2008.

The Partnership's distributable cash flow for the quarter ended June 30, 2009 was $14.3 million, as compared to $36.9 million for the same period in 2008. Adjusted EBITDA, quarter-over-quarter was negatively impacted by decreased gross profit as previously mentioned.

We encourage our investors to review the section of the earnings press release found on our website entitled Non-GAAP Financial Measures, and the attached table 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 by segment for the second quarter 2009 for specialty products and fuel products was $20.7 million and negative $2.3 million respectively, compared to $21.5 million and $39.4 million respectively for the second quarter of 2008. Specialty products segment gross profit quarter-over-quarter was primarily impacted by reduced LIFO inventory gains of $50.2 million, resulting from the liquidation of lower cost inventory layers in 2008, as well as lower sales volumes in lubricating oils, solvents and waxes due to economic conditions impacting product demand.

This reduction in specialty products segment gross profit was positively impacted by significant improvements in overall specialty products selling prices in relation to crude oil prices from the 2008 quarter. The decrease in our fuel product segment gross profit quarter-over-quarter was due primarily to lower overall fuel products crack spreads and reduced LIFO inventory gains of 10 million from liquidation of lower-cost inventory layers in 2008, partially offset by increased sales volume resulting from higher throughput rates at the Shreveport refinery and increased gains on derivatives of $9.7 million.

Selling, general and administrative expenses decreased $2.5 million or 26.3% to $6.9 million in the three months ended June 30, 2009 from $9.4 million in the same period in the prior year. This decrease was primarily due to reduced accrued incentive compensation costs, resulting from the lower quarterly distributable cash flow in 2009 as compared to 2008, and a recovery of $0.9 million from a fully reserved account receivable in the current period.

Transportation expenses decreased $5.1 million or 24% to $16.1 million in the three months ended June 30, 2009 from $21.2 million in the prior year's quarter, as a result of reduced sales volume of lubricating oils, solvents and waxes.

As of June 30, 2009, total capitalization consists of Partner's capital in the amount of $449.6 million and outstanding debt of $457.0 million, comprised of borrowings of $373.2 million under the term loan facility with an unamortized discount of $14.1 million on the term loan; borrowings of $95.8 million under the revolving credit facility in the long-term capital lease obligation of $2.1 million.

The $23.6 million increase in Partner's capital from December 31, 2008 was primarily due to net income of $49.7 million, offset by $29.6 million in distributions, and a $43.7 million decrease in other comprehensive income primarily to a decrease in the fair market value of our derivative instruments.

On June 30, 2009, we had availability on our revolving credit facility of $73 million based on a $203.9 million borrowing base, $35.1 million in outstanding standby letters of credit and outstanding borrowings of $95.8 million. We believe we have sufficient cash flow from operations and borrowing capacity to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures.

However, we are subject to business and operational risks that could materially adversely affect our cash flows. Material decrease in our cash flow from operations or a significant, sustained decline in crude oil prices would likely produce a corollary and material adverse affect on our borrowing capacity under our revolver and potentially our ability to comply with the covenants under our credit facilities.

Substantial declines in crude oil prices, if sustained, may materially diminish our borrowing base, which is based in part on the value of our crude oil inventory, which could result in material reduction in our borrowing capacity under our revolver. Significant increase in crude oil prices, if sustained, would likely result in increased working capital, funded by borrowings under our revolver.

Now, I'll turn the call over to Bill Grube.

Thank you, Pat, and Jennifer. 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?

Thank you.

(Operator Instructions)

Your first question comes from the line of Darren Horowitz, representing Raymond James. Please proceed.

Good afternoon, thank you. Could you give us a little bit more color on how you plan to offset the weakness that you're seeing in the specialty products, specifically maybe some more detail into other market segments that you're looking to enter? And also, what else can be done to rationalize costs out of the equation?

We're doing several things; we've expanded a lot of our product lines. We are looking at markets that we've participated in in the past and then had left based on our not having enough volume to service those markets, so we're going back to some of those.

We are looking at some higher value-added small capital projects we can do at our plants to help us move further down the value chain and we're continuing to look at any feedstock compatibility we have between our historical plants and the new Penreco plants that we acquired last year, and all of these things will help upgrade our overall margin.

When you look at all those things in total, do you have a projected CapEx?

It's very minor; all in, it's probably less than $10 million.

Okay. Moving over to your hedges, when you look at hedging incremental barrels from this point further, where do you want to be more hedged? It seems like you're pretty well hedged into 2010 on your crude oil with swaps, but are there other areas on the diesel or the jet fuel side that you want to be a bit more hedged?

We are completely hedged to 2010 on any crack spreads that we plan on doing. And as we move into 2011, we're continuing to place those barrels more so on the diesel and jet side; those values are stronger than gasoline at this point in time. But we are hedging in order to remain in compliance with all of our credit agreements, which requires the hedge on the crack spread side. And on the crude oil side for the specialty product segment, we're continuing to take a very short term focus, which we've done historically.

Okay. Thanks, Jennifer, I appreciate it.

Sure, thank you.

Your next question comes from the line of Adrayll Askew, representing HMCO. Please proceed.

Yes, so far as your hedges, you say you're layering hedges on the diesel and jet fuel; what price points are you layering at hedges for 2011?

The diesel and jet fuel are between -- I'm sorry, 2012 is between --

No, I said 2011.

2011? $15 on the diesel.

Okay. That's very helpful, and can you update on your working capital, I guess expectations over the next six months?

We don't really view those as being all that different than what they've been historically.

Maybe a little lower.

I think we're looking at opportunities to continue to run barrels, but also maybe lower some inventory levels just to make sure those levels are in line with product demand. So I think we see some opportunity to reduce inventory levels a little further to help to lower our borrowings a bit under the revolver.

Okay. Do you provide some indication of order of magnitude? Is that somewhere in the range of 5% or more than that?

I would say maybe a 10% reduction.

Okay. All right, that's helpful. Can you give a sense of your view on dissolutes on the dissolute demand and market there; what you're seeing in your markets?

We're seeing some weakness in the dissolute markets at this point and I think in the trucking industry situation that's out there today. I mean what you do is look at the current dissolute crack spreads are pretty ugly. If you go out two years, they're $15. So everybody thinks that this economy is going to be turning -- it's just a matter of when.

Okay, that's helpful. Thanks.

With no further questions in queue, I would now like to turn the call back to Miss Straumins for closing remark.

Thank you. This concludes our earnings conference call covering the second quarter 2009 results. Thank you for your participation in the teleconference, and please note that this teleconference will be available for replay using the instructions contained in the press release. Have a great afternoon, everybody.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.