CVR Energy Inc (CVI) 2013 Q2 法說會逐字稿

Greetings and welcome to the CVR Energy second quarter 2013 conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Finks, CVR Director of Investor Relations. Thank you. Mr. Finks, you may now begin.

Thank you, Shea. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy second quarter 2013 earnings call. With me are Jack Lipinski, our Chief Executive Officer; Susan Ball, our Chief Financial Officer; and Stan Riemann, our Chief Operating Officer.

Prior to discussing our 2013 second quarter results, let me remind you that this conference call may contain forward-looking statements. As that term is defined under federal securities laws, for this purpose any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, the actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2013 second quarter earnings release that we filed with the SEC this morning prior to the opening of the market.

With that said, I'll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

Jay, thank you. Good afternoon, everyone and again, thanks for joining us on our earnings call.

In the second quarter, CVR Energy's consolidated adjusted net income was $124.5 million, or $1.43 per diluted share, as compared to $223.1 million, or $2.52 per diluted share in the second quarter of 2012. Like prior quarters, we adjust net income for the impact of FIFO -- that's First In, First Out accounting; share-based compensation; loss on the extinguishment of debt; major turnaround expenses; the impact of derivative gains and losses; and other one-time expenses.

We continue to return cash to shareholders through special and recurring dividends. As you're well aware, on May 28, CVR Energy declared a $6.50 special dividend which was paid on June the 10th. Our Board of Directors also declared a cash dividend of $0.75 per share, which was announced this morning, and will be paid on August 19 to shareholders of record on August the 12th. With this latest distribution, we will have returned $13.50 per share to our shareholders.

Hopefully you had the opportunity to listen to our earnings calls earlier today hosted by CVR Refining LP and CVR Partners LP. These conference calls will be available for replay over the next 14 days.

Let me address some of the highlights from our business segments. First let me deal with the petroleum business. CVR Refining second quarter distribution of $1.35 per common unit will be paid on August 14 to unit holders of record on August the 7th. CVR Energy owns approximately 71% of the common units of CVR Refining and, therefore, receives a proportional amount of distributions from the Company. This brings the cumulative cash distributions for 2013 to $2.93 per common unit for CVR Refining. CVR Refining's 2013 second quarter consolidated adjusted EBITDA was $250.6 million and that compares to $379.6 million a year ago.

Overall realized refining margin, adjusted for FIFO, was $19.18 per barrel, as compared to $27.07 per barrel in the same quarter last year. We are seeing the impact of narrowing crack spreads and the higher costs to rims to comply with the renewable fuel standard. In the second quarter we ran approximately 193,000 barrels a day of crude. Our crude throughputs were at the high end of the guidance we provided during CVR Refining's first quarter conference call.

During the second quarter CVR Refining completed an underwritten offering of common units, which generated approximately $394 million in net proceeds. The net proceeds were used to redeem an equal number of common units from us. Accordingly, there was no increase to the number of CVR Refining common units outstanding. CVR Refining has 147.6 million units outstanding, consisting of 42.8 million common units or approximately 29% owned by the public, which includes the 6 million common units held by affiliates of Icahn Enterprises, and 104.8 million common units, or approximately 71%, owned by CVR Energy.

Let me turn to the nitrogen fertilizer segment. CVR Partners announced a 2013 second quarter cash distribution of $0.583 per common unit. CVR Energy owns approximately 53% of the common units of CVR Partners and, again, receives a proportional amount of distributions from CVR Partners. With this distribution, the cumulative cash distributed to unit holders will be $1.19 per unit. CVR Partners' second quarter adjusted EBITDA was $44.1 million which was virtually the same as last year.

During the second quarter we completed a secondary offering of common units. There was no increase in common units outstanding. The secondary offering generated approximately $293 million in net proceeds to us. Subsequent to the offering, CVR Partners had 73.1 million units outstanding, consisting of 34.2 million common units, or approximately 47%, being owned by the public and 38.9 million common units, or approximately 53%, being owned by CVR Energy.

Let me turn over the call right now to Susan and let her discuss the financials. Susan?

Thank you, Jack, and good afternoon, everyone. Our net income attributable to CVR Energy shareholders was $183.4 million in the second quarter of 2013, as compared to net income attributable to CVR Energy shareholders of $154.7 million in the second quarter of last year.

Non-controlling interest, which included reducing the 2013 second quarter's net income attributable to the CVR Energy shareholders, was 88.3 million, as compared to 10.6 million in the same period last year. This increase is primarily due to the IPO of CVR Refining in January 2013 in which we sold approximately 19% ownership interest, as well as the most recent reduction of ownership in both CVR Refining and CVR Partners with the offerings that occurred during the second quarter of 2013, which Jack previously mentioned we now own 71% of the common units of CVR Refining and 53% of the common units of CVR Partners.

Adjusted net income for the quarter was $124.5 million, as compared to $223.1 million in the second quarter of 2012 and again, this adjusted net income is adjusted for the non-controlling interest. As mentioned on previous calls, we believe adjusted net income is a meaningful metric for analyzing our performance, as it does eliminate the impact of non-cash and other unusual items inherent in our business, and it provides a more transparent view as to the market expectations.

The most significant adjustment to net income and calculating adjusted net income was a net derivative gain of $120.5 million, adjusted then for current period settlements on derivative contracts of $14.7 million. This is a net adjustment of $105.8 million gross, not tax effected.

Additionally, we adjust for impacts of FIFO inventory accounting. In the second quarter of 2013 we realized a favorable FIFO impact of $24.2 million. We also adjusted for the impact of share-based compensation of $4.3 million for the second quarter of 2013. Additionally, these adjustments are adjusted for the non-controlling interest and then further adjusted for the tax impacts associated with them.

For the second quarter of 2013, our effective tax rate was 26.8%, as compared to 35.5% for the second quarter of 2013. This significant reduction is due to the increased income that's attributable to the non-controlling interest which is not taxable to us.

As Jack mentioned, the -- our Coffeyville and Wynnewood refineries on a consolidated per barrel basis reported a refining margin of $19.18 per crude oil throughput barrel, which is adjusted for the favorable FIFO impact in the second quarter 2013, as compared to $27.07 per barrel in the second quarter 2012, which was adjusted for the unfavorable FIFO impact at that time.

At the plant level, Coffeyville's refining margins adjusted for FIFO impact was $20.30 per barrel in the second quarter 2013, as compared to $28.02 per barrel for the same period a year ago. Wynnewood's refining margin adjusted for FIFO impact was $17.34 per barrel in the second quarter 2013, as compared to $25.23 per barrel for the same period a year ago. And again as Jack mentioned, the adjusted EBITDA at the fertilizer segment was $44.1 million, which was the same in the prior quarter and prior year.

We ended the quarter with cash and cash equivalents of approximately $1.1 billion on a consolidated basis, which included $111.9 million of cash at CVR Partners and $483.3 million of cash at CVR Refining. Excluding the amounts at this segment, we held cash and cash equivalents of $539.3 million as of June 30, 2013.

Total consolidated debt, including current portions as of June 30 was $677 million. All debt resides at our business segments at CVR Refining and CVR Partners. Both of our segments are positioned well for future growth.

With that, Jack, I will turn the call back to you.

Okay. Thank you, Susan. And again, hopefully you did have the opportunity to listen to the earlier conference calls of both CVR Refining and CVR Partners, and you noticed that both companies did pre-announce earnings the other day. And we have reduced our 2013 distribution outlook to $1.80 to $2 a unit for CVR Partners, and $4.10 to $4.90 a unit for CVR Refining -- I'm sorry, $4.80 a unit at CVR Refining. My mistake.

Again, I'd like to thank each of you for joining our call today. At this point I'll just open it up for questions.

Thank you. We will now be conducting a question and answer session. (Operator Instructions) Jeff Dietert, Simmons.

On the $0.75 quarterly dividend, what kind of WTI Brent differential do you think you need to sustain that dividend?

We didn't look at it exactly that way because there's a number of things that go into it. One of the things, Jeff, that you could see is that the Brent WTI has fallen from very high levels to what are very low levels today. And that the NYMEX 211 has not fallen as hard as one might expect.

So we think there's more resilience in the 211, which is also one of the other things that, if you were on my earlier conference call and I failed to mention, is one of the reasons why we believe some portion of the rent cost is getting passed onto the consumer, because without a more robust RBOB crack in New York, the importers -- the ARP closes on them. So we believe a portion of the 211 may be held up a little bit by rents. And again this is all anecdotal. It's very hard to prove.

But the fact of the matter is, is that when we look at what our forward distribution is, we look at the forward crack spread, we do an adjustment for what we believe our group basis will be, our crude differentials and our throughputs. So in one -- I can't just pick Brent and WTI and give you a straight up answer. But if you take the forward strip right now, realizing that it's not very liquid but it is being traded into '14 and '15, we have significantly more cash coming in than the anticipated distribution.

And the same thing on the fertilizer business. You don't have a forward strip to look at. We have the current market. But even at these kind of levels, the cash that's coming from UAN is not insignificant.

Great. You've been very successful acquiring assets in the past with the original Coffeyville acquisition and more recently the Wynnewood acquisition. Could you talk about how important acquisitions are to the growth strategy and maybe provide a little overview of what the current market looks like?

Well, obviously, we are very interested. Virtually any asset that comes up or assets that are even being talked, we are actively looking at. As I mentioned in prior earnings calls, because of our unique situation having a parent, we are actually capable of executing acquisitions at or larger than the market cap of our own company right now simply because we can JV them with Icahn Enterprises and other affiliates of the Icahn organization.

So our balance sheet is -- for being able to do acquisitions is substantiative and we are looking. I can't really say a whole lot more than that.

Yes. Thank you, Jack.

Chi Chow, Macquarie Capital.

Just following up on Jeff's question there, so is the preference now for the use of cash at the CVI level, are you going to be a little bit more cautious on the special dividends as a result of maybe looking at acquisitions? Or is the historical trend on pretty significant specials still there?

I would believe that our ability to raise debt for a significant acquisition is very strong. And cash just sitting, waiting for something to happen is not something that I typically subscribe to. You need to have enough cash to have sufficient liquidity, to meet your dividends, to take care of your shareholders, but our ability to raise debt and issue additional equity, if we have a really accretive acquisition, is probably the way we would do it.

Got it. Thanks. So I want to ask you about the potential P&L impact here in the third quarter on the backward dated WTI market. Is this going to impact all your crude purchases? And can you give us any sort of guidance on what we might expect here in 3Q?

Okay. It impacts the non-gathered barrels. Okay? Gathered barrels did not benefit from the contango. And they don't get hurt by the backwardation. So that's one -- basically the way we buy crude in the gathered system is it's based on product 20 terms. We deliver it today. We pay for it on the 20th of the following month. So the crude is currently priced as delivered and then we pay for it. And all of this, including the crude backwardation, was built into our models when we revised our forecast.

Okay. Okay, good. Does your hedge positions insulate you at all from the backwardation impact, the crack spread hedges essentially?

No. Not to any large degree. Obviously, when we're putting on 2014 cracks, you've got to believe that some of this backwardation is built into what you're paying for them. So the short answer is, is we -- our cracks are usually quarterly settled, quarterly average settled, the way we do them. And so whatever your crack is on at whatever price you're seeing at that point in that time is what you get. So if it turns out that because of backwardation the crack drops, it is to the benefit of our hedge position.

Right. Okay. I think you said in the other call you're gathering about 54,000 barrels a day right now?

Yes. That's correct.

Okay. Great. Okay. Thanks, Jack.

Thank you, Chi.

(Operator Instructions) I'll now turn the floor back over to Jay Finks for closing comments.

Thank you, Shea. I'd like to thank everyone again for joining us today for our conference call. Please visit our website, cvrenergy.com or contact Investor Relations should you require more additional information. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.