Calumet Inc (CLMT) 2011 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the First Quarter 2011 Calumet Specialty Products Partners LP Earnings Conference Call. My name is Crystal and I'll be your operator for today. At this time all participants are in listen-only mode, later we will conduct a question-and-answer session.

(Operator Instructions)

I'd now like to turn the conference over to your host for today Mr. Todd Bertman, Senior Analyst. Please proceed.

Thank you operator. Good afternoon and welcome to the Calumet Specialty Products Partners Investor's Call to discuss our First Quarter 2011 Financial Results. During this call, Calumet Specialty Products Partners LP will be referred to as the partnership or Calumet. Also participating in this call will be Bill Grube, our CEO and Vice Chairman, Jennifer Straumins, our President and COO, 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 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 the 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 this morning, as well as our latest filings with the Securities & 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. I will now turn the call over to Jennifer Straumins.

Thank you. Our specialty products production levels and gross profit significantly improved in the first quarter compared to the first quarter of last year. We continue to focus on increasing our run-rates to meet higher demand for our specialty products and to benefit from the current fuel products crack spreads.

We completed a follow-on equity offering in March of 2011. We sold 4.5 million common units on a price to the public of $21.45 per common unit. We received net proceeds of approximately $94.3 million, which included our general partners' contribution. We used these proceeds to pay down borrowings under our revolver.

Subsequent to quarter end on April 21, 2011, we issued and sold $400 million in aggregate principal amount of 9.380 senior notes due in 2019. We received net proceeds of $389 million, which we used to repay in full borrowings outstanding on our existing senior secured first lien term loan facility as well as all the all accrued interest and fees and for general partnership purposes.

And finally as announced on April 8, 2011, the partnership declared a quarterly cash distribution of $0.475 per unit for the quarter ended March 31 on all outstanding units. This distribution will be paid on May 13, 2011 to unit holders of record as of the close of business on May 3, 2011. This distribution represents an increase of half a penny per unit from the fourth quarter of 2010. I'll now turn the call over to Pat Murray for a review of our financial results.

Thank you, Jennifer. Net income for the first quarter was $4.2 million compared to a net loss of $13.1 million for the same period in 2010. The $17.3 million improvement in net income quarter-over-quarter was due primarily to an increase of $15.2 million in gross profit partially offset by an increase in selling, general and administrative expense of $3.4 million and higher transportation expense of $2.8 million due to increased sales volume. These results were also impacted by a decrease in non-cash unrealized derivative losses of $7.3 million, which may or may not be realized in the future as the derivatives are settled.

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 debt instruments were $26.4 million and $34.7 million respectively for the first quarter of 2011 as compared to $8.9 million and $20.1 million respectively for the same quarter in 2010. The Partnership's distributable cash flow for the first quarter was $18.2 million as compared to $7.1 million in the same period last year.

The increase in adjusted EBITDA quarter-over-quarter was due primarily to higher gross profit partially offset by increased transportation expense in selling, general and administrative expense. 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 reconciliations of this non GAAP measures to the comparable GAAP measures.

Gross profit by segment for the first quarter, for specialty products and fuel products was a profit of $47.9 million and a loss of $1.0 million respectively compared to gross profit of $23.4 million and $8.2 million respectively for the same period in 2010. The increase of $24.5 million in specialty product segment gross profit quarter-over-quarter was due primarily to a 20.5% increase in the average selling price per barrel partially offset by a 21.3% increase in the average cost of crude oil per barrel. Also, specialty products sales volumes increased 7.9% quarter-over-quarter due primarily to improvements in overall specialty products demand as a result of improved economic conditions.

Fuel product segment gross profit was negatively impacted by a 1.2% decrease in fuel products sales volume as a result of planned turnaround activities at our Shreveport Refinery in the first quarter. Weather related unplanned downtime and the increased realized losses from our fuel products hedging program partially offset by selling prices, excluding the impacts of hedging activities for our fuel products increasing by 31% as compared to a 21.4% increase in the cost of crude oil.

Our fuel hedging program resulted in a decrease of $25.3 million gross profit in 2011 as compared to 2010 as we had outstanding hedges, which approximated 80% of our diesel and jet fuel sales related to the 2011 period. As a result, we did not benefit materially from the increase in market crack spreads for diesel and jet fuel.

Also, by-products production increased in 2011 as compared to 2010, due primarily to an increased quarter-over-quarter and (inaudible) crude oil run rates due to the turnaround of the [sweet] crude oil unit which resulted in a reduction in gross profit in our fuel product segment of approximately $5.5 million. Finally, we experienced higher operating cost during the 2011 period, primarily driven by increased maintenance costs.

Selling, general and administrative expenses increased $3.4 million or 46.8% to $10.5 million in the three months ended March 31, 2011 from $7.2 million in the same period in 2010. This increase is due primarily to increased accrued incentive compensation costs of $1.2 million in 2011 compared to 2010 as well as increased overall salaries and wages. Transportation expenses increased $2.8 million to $23.1 million in the three months ended March 31, 2011 from $20.2 million in the same period last year. This increase is due primarily to increased lubricating oils, solvents and waxes sales volumes and higher freight costs.

As of March 31, 2011, total Partnership capitalization consist of partners' capital in the amount of $371.3 million and outstanding debt of $357.8 million comprised of borrowings of $366.4 million under the term loan facility with an unamortized discount of $10.1 million on a term loan and a long-term capital lease obligation of $1.5 million.

The $27 million decrease in Partners' Capital from December 31, 2010 was due primarily to $16.9 million in distributions to Partners and a $109.1 million decrease in other comprehensive income due to decrease in the fair market value of our derivative instruments as well as the settlement of derivative instruments designated as cash flow hedges, partially offset by proceeds from the March 2011 public equity offering of $94.3 million and net income of $4.2 million for the quarter.

On March 31, 2011, Calumet had availability of $225.6 million under our revolving credit facility based on the $310.5 million borrowing base and $84.9 million in outstanding standby letters of credit. We believe that we will continue to add sufficient cash flow from operations and borrowing capacity to meet our financial commitments, minimum quarterly distributions to our unit holders, debt service obligations, [contingencies] and anticipated capital expenditures. Now, I'll turn the call back over to Jennifer Straumins.

Thank you, Pat. This concludes our remarks. We'd now be happy to answer any questions. Operator, can you confirm if there are any questions?

(Operator Instructions)

Today's first question comes from the line of Darren Horowitz with Raymond James. Please proceed.

Good afternoon everybody. I have got just a couple of quick questions. First, Jennifer, I'm trying to get a sense for the current specialty product run rates relative to the demand that you're seeing. So, if you could just give us a little insight there. I'm also curious as to where Shreveport is running currently versus capacity and how does debottlenecking initiatives that you've outlined are tracking?

Sure. Our demand for specialty products is very, very strong right now. We're running our Shreveport and Cotton Valley facilities at higher rates than we have for several years. We're running about 7000 plus barrels at Princeton, and we are running about 7500 barrels a day at Cotton Valley. Shreveport since the turnaround in February, we've been running in excess of 50,000 barrels a day and that plant continues to operate very, very well. The turnaround made a lot of [little] -- as we said, we did a lot of debottlenecking and made some changes to our [fleet] crude system there that have been very, very good.

During the second quarter we will be implementing some minor debottlenecking projects on our [lubes train] on both MEK and PDA, and those are minor CAPEX type of projects that we've been working on for about the last nine months or so, and they'll be completed before the end of the second quarter. So, we continue -- we would continue to expect that Shreveport [run on] 50,000 barrels a day. We are just also completing a WTI project there to be able to run WTI crude, so that will back out some of the -- some of the more expensive incremental barrels that we've been running there.

So, a lot of good things going on at Shreveport right now, and also have very strong demand in our (inaudible) oil business and those plants are running at higher rates than they've ran in the past couple of years as well so. So, and -- you know, in summary everything is running almost as much as it can.

Sure. Now wasn't Shreveport running about 25,000 barrels a day that were already benchmarked at WTI?

That's right.

Okay. So, what you're working on right now is going to take the WTI component relative to Shreveport's capacity to what, maybe 30,000, 35,000 barrels a day?

Yes.

Okay. And then final question from me, just as it relates to distribution increases, you guys have done a great job of putting together a few quarters' now of sequential distribution increases, and it seems that you've got a positive tailwind as it relates to crack spreads as you just outlined. You know, you'll have the benefit of running more WTI through Shreveport, of course also at Princeton, Cotton Valley. So, I'm curious as to -- you know, if the fundamental backdrop gives you more confidence that this type of distribution growth pace will continue this year?

We take that as a -- you know, on a quarter-by-quarter basis, we've got some other capital type of projects that we're working on. Certainly and since they've taken -- continuing to increase distributions, but as far as the pace and the timing, we'll have to weigh all that with the projects that we've got going on here.

Okay, thanks for the color, Jennifer, I appreciate it.

Good, thanks.

Our next question comes from the line of Brian Zarahn with Barclays Capital. Please proceed.

Good afternoon.

Hi.

You posted strong margins in your specialty business the past few quarters. I guess given the rise in crude prices since February, is it reasonable to assume that margins will decline a little bit from current levels or you feel like you can pass along price increases in a fairly quick manner to your customers?

We've been able to pass price increases on very quickly to our customers, where some of our competitors have had some operating issues. There have been some plant turnarounds and with economy recovering, our specialty products are in very tight supply right now.

Okay. And then as it relates to turnarounds, do you have any plant turnarounds for your assets for the remainder of the year?

Yes, we're -- our Princeton Refinery is actually getting ready to go into a two week turnaround and we've got -- we'll do a turnaround on another unit at Shreveport in the fall. All of our facilities, you know, come down for about two weeks a year to turnaround various units, you know every year something different gets turned around. Typically we've got enough (inaudible) capacity that it can build inventory going into a turnaround, but you don't see that impact in the results.

Okay. As it relates to expansion CAPEX, you mentioned you have some projects. Do you have any updates to what you expect your expansion CAPEX to be?

Right now we are still -- you know what we've -- our budget for the year is about approximately $10 million in growth CAPEX. And there are some things that we'd like to do, so if our results continue to be strong, we may add additional projects, but right now our budget is $10 million for the year.

In terms of maintenance, you're still expecting about $20 million?

Yes.

Okay. Final question is on your balance sheet, I saw the derivative liabilities increase from the prior quarter about $115 million or so. Can you give some color as they'll change?

Sure, that's just the -- we're hedged two years out on crack spreads. And as the crack spreads have strengthened significantly during the first quarter in other -- in excess of $20 a barrel right now, those hedges were mark-to-market and that's the impact of that change.

Okay, thanks Jennifer.

Thank you.

Our next question comes from the line of Aaron Weitman with Appaloosa Management. Please proceed.

Hi guys, just a couple of questions. Starting off with in terms of the Shreveport expansion to do more TI crude, so the size of that is about 7,000 barrels per day, when do you expect that up?

We're running 3000 barrels of WTI now and we'll ramp up to 8000 in June.

Okay. Could you walk us through for this quarter what I guess normal or try to show us what the adjustments would be to a normal quarter ex-turnarounds and ex I guess the hedging losses? Is it right to add back I guess $5.5 million from the turnaround and add in another $20 million from the hedging?

That's right.

Okay, so --

And the hedging is about $15 million, but yes --

So, a normalized type quarter would be at least $20 million higher than the $34 million?

Assuming we didn't have any hedging and crack spreads were where they're at, yes.

Okay. I'll pass it back to the queue. Thank you.

Thanks.

(Operator Instructions)

Our next question comes from the line of [Gary Shainberg] with Barclays Capital. Please proceed.

Hi, it's Gary Shainberg, sorry. Just two questions for you, one is just on working capital. Working capital was a large use of funds in the first quarter, I guess at the run up of prices. Do you expect to get some of that cash back in the next couple of quarters or do you think that's a good run rate for receivables and inventory?

I think that's a pretty good run rate. We had pretty low inventories at the end of the year, so a lot of that was rebuilding based inventory levels. And then as well as the run up in feedstock and product prices.

Okay. And then second, just on acquisitions, can you update us on the acquisition front and then if there were larger acquisitions, how you plan to finance them?

Sure. We've been looking at potential acquisitions for about the last nine months or so. We've participated in several auction processes, and we'll certainly -- we're certainly looking to do something on the acquisition front and don't have anything to announce at this point in time though. And as far as financing a large acquisition, anticipate that that would be a combination of debt and equity in such a way that we can preserve it at 50/50 debt to cap structure.

Okay. That's all I have. Thank you.

Okay, thank you.

That concludes our question-and-answer session. I would like to hand it back to management for closing remarks.

Thank you. This concludes Calumet Specialty Products Partners earnings conference call covering the company's first quarter 2011 results. Thank you for your participation today. And this teleconference will be available for replay using the instructions contained in our press release.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect and have a wonderful day.