CVR Energy Inc (CVI) 2014 Q1 法說會逐字稿

Greetings and welcome to the CVR Energy First Quarter 2014 Earnings Call.

(Operator Instructions)

As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Jay Finks, Director of Investor Relations. Thank you, sir you may begin.

Thank you, Kevin. Good afternoon, everyone. We very much appreciate you joining us for our CVR Energy First Quarter 2014 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 2014 first 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 outlook, believe, anticipate, 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, 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 2014 first quarter earnings release that we filed with the SEC this morning prior to the open of the market. With that said, I'll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

Thank you, Jay. Good afternoon, everyone. Thanks for joining us on this earnings call.

Hopefully you've had the opportunity to listen to the CVR Partners and CVR Refining first-quarter earnings calls earlier today, and just as reference both conference calls are available for playback over the next 14 days.

Today we reported CVR Energy's first quarter consolidated adjusted net Income of $81.9 million, or $0.94 per diluted share, and that compares to $156.8 million or $1.81 per diluted share first quarter a year ago. Susan will provide you more details on the financials reported this morning. CVR Energy also announced its quarterly cash dividend of $0.75 per share, which will be paid on May 19 to stockholders of record on May 12.

Let me talk a little bit about our business segments. I'll start with petroleum.

This morning, CVR Refining released their first quarter results. The adjusted EBITDA for the quarter was $194.1 million, as compared to $309.9 million a year ago.

CVR Refining also declared a first quarter distribution of $0.98 per common unit to be paid on May 19 to unit holders on record on May 12. You all should know that CVR Energy owns approximately 71% of the common units of CVR Refining and therefore receives a proportional amount of distributions from CVR Refining.

Operationally our refineries ran exceptionally well during the first quarter, resulting in a record throughput of approximately 201,900 barrels a day and this exceeds our first quarter estimate of 185,000 to 200,000 barrels a day which I stated on our last Conference Call. Coffeyville processed approximately 124,000 barrels a day of crude, while Wynnewood processed about 77,900 barrels of crude.

Just parenthetically, on the CVR Refining call, we estimated our operational guidance for Q2 to be between 190,000 barrels a day and 205,000 barrels a day for the combined throughput at our plants.

Turning to fertilizer, this morning CVR Partners announced the first quarter results, which met our expectations. The 2014 first quarter adjusted EBITDA was $29.9 million, as compared to $23.8 million in the first quarter of 2013.

CVR Partners also declared a 2014 first quarter cash distribution of $0.38 per common unit, to be paid on May 19 to unit holders of record on May 12. And again, here CVR Energy owns approximately 53% of the common units of CVR Partners and therefore receives a proportional amount of distribution from CVR Partners.

And operational guidance for the year, for CVR Partners, remains at 1 million tons for the calendar year. We expect UAM production for the second quarter to be between 230,000 and 240,000 tons. At this point I'll turn the call over to Susan to talk about the financials. Susan?

Thank you, Jack and good afternoon, everyone. Net income attributable to CVR Energy stockholders was $126.7 million in the first quarter 2014 as compared to $165 million in the first quarter of last year. Non-controlling interest, which contributed to the reduction in the 2014 first quarter net income associated with the CVR Energy stockholders, was $87 million as compared to $47.7 million in the same period last year.

Adjusted net income for the 2014 first quarter was $81.9 million, as compared to $156.8 million in the first quarter of 2013. The more significant adjustments to the net income during the 2014 first quarter to derive adjusted net income were adjustments related to the increase or decrease in our inventory values that are realized under the First In, First Out, or the FIFO, inventory accounting method. We realized a favorable FIFO inventory impact of $21.6 million and gains on derivatives not settled during the period of $88.3 million.

These adjustments for the first quarter of 2013 were a favorable FIFO inventory impact of $4.7 million, with gains on derivatives not settled of $32.5 million. These gross adjustments to net income are reduced for the portion that's attributable to the non-controlling interest and are further reduced for the net tax impact associated with them.

For the first quarter of 2014, our effective tax rate was 24.5%, as compared to 30.6% for the first quarter 2013. This decrease is primarily attributable to the increase in non-controlling interest ownership for a full period basis of 2014 as compared to 2013.

CVR Refining's adjusted EBITDA for the 2014 first quarter was $194.1 million, as compared to $309.9 million in the same period in 2013. In the First Quarter 2014, CVR Refining's realized refining margin adjusted for FIFO was $15.98 per barrel as compared to $26.44 in the same quarter of 2013. Driving this decrease was the overall lower NYMEX 211 crack spreads and overall increased combined negative product bases. This primarily contributed to the decrease between the periods.

As of March 31, CVR Refining had open commodity derivative positions of 18.1 million barrels at an average fixed price of $27.76 per barrel. The open commodity derivative positions were comprised of approximately 72% of distillate crack swaps and 28% for gasoline crack swaps.

As Jack previously mentioned, CVR refining announced a 2014 first quarter distribution of $0.98 per common unit. As a result, of the approximate $144.6 million that will be paid out by CVR Refining, approximately $41.9 million will be paid to the public unit holders with approximately $102.7 million being paid to CVR Energy.

As noted earlier, CVR Partners' first quarter adjusted EBITDA was $29.9 million, as compared to $43.8 million in the same period last year. A primary contributing factor to the decrease was the 2014 first quarter's lower average netback price of $253 per ton for UAN, as compared to last year's first quarter average netback price of $295 per UAN ton.

CVR Partners announced a cash distribution of $0.38 per common unit for the first quarter of 2014. Of the approximate $27.8 million to be paid out, approximately $13 million will be paid to public unit holders with CVR Energy receiving approximately $14.8 million.

We ended the quarter with cash and cash equivalents of approximately $962.1 million by consolidated basis, which included $85.9 million of cash at CVR Partners, and $413.4 million of cash at CVR Refining. Excluding the cash of CVR Refining and CVR Partners, we held cash of $462.8 million as of March 31, 2014.

Total consolidated debt, including current portions as of March 31, was approximately $676 million. CVR Energy has no debt, exclusive of the debt that resides at CVR Refining and CVR Partners.

We continue to have a strong consolidated balance sheet with both business segments positioned well for continued growth. With that, Jack, I will turn it back over to you.

Okay, thank you, Susan. Again, I thank you all for joining us on this conference call. I urge you, if you didn't have the opportunity to listen to the earlier calls, to go to our website where it's available for playback, and with that, Operator, I'd like to turn it over for questions.

(Operator Instructions)

Jeff Dietert, Simons.

As you think about strategy moving forward, is it primarily associated with the organic growth at CVRR and UAN? Are there M&A opportunities? How do you think about the go-forward plan for CVI?

And secondly, you've been pretty steady on your $0.75-a-quarter dividends. How do you see that evolving over time as we go forward?

Well, certainly, the kind of earnings we have support these kind of distributions and we still have round numbers, $350 million of unrestricted cash on our balance sheet. At CVI, I would say that our view is that CVI will continue to support CVR Refining as we need additional capital for growth projects. But that said, our real indication, our real goal here at CVI, is to be able to grow the Company.

Again, the Company itself has no debt. We have cash. It's ideally suited so that if we were ever to acquire another company, we could drop down the qualifying income to our MLPs and keep the non-qualifying income at the parent, run it separately, which gives us an enormous amount of flexibility as we look across the M&A space. So are we looking? We are always looking.

And would the potential future outlook be more refining fertilizer, all of the above, is there an optimal mix that you're looking for?

Well, fertilizer is a fairly small business. There's a limited number of players and so nobody is up for sale and nobody is really unhappy with the assets that they have right now, but certainly if something came up we would be more than happy to participate.

The refining side gives us more opportunity. There may be opportunities that come up as people divest themselves of refining assets or we look to acquire others, to get involved in others. Logistics is one area that we focus on, we're constantly looking for businesses that would give us enough EBITDA to meet our minimum threshold to spend another MLP out of CVR Energy or out of CVR Refining, however that may turn out, so CVI is really the acquisition vehicle that we may end up using going forward simply because it's unencumbered right now.

(Operator Instructions)

Chi Chow, Macquarie Capital.

I want to ask you about the midcontinent crude supply situation. There's a lot of moving pieces on crude storage at Cushing, and not only just all the outflows of the Gulf Coast this year, which obviously have an impact on the crude stocks, but also expected inland production growth this year, there's new pipelines coming into Cushing later this year. I guess a couple questions, how do you see inventory levels playing out at Cushing as the year progresses; and secondly, how do you see the WTI pricing both at Cushing and Midland reacting to all of the changing dynamics?

Okay, well, I haven't talked about it in a while but we have viewed this as -- look, we had what people are calling super congestion, the term that when the US fills up with crude, but for years we had congestion at Cushing which was alleviated by some pipelines, and we expect this to be somewhat of a sawtooth. I think if you look at inland production, it's growing at greater rates than those people even anticipate.

As new pipelines come on and there's surplus capacity on those pipelines we would expect individual grades to come under pressure, but ultimately there's only so much crude that you can move into the Gulf Coast. And when the Gulf Coast starts backing up it will back up -- in my view, it will back up into the midcontinent and we will remain advantaged. The immediate impact right now is that Cushing is being emptied, and Cushing, instead of being in contango as it was for a long time, is in backwardation, so that basically -- costs, if you buy WTI or WTI-related crude you're paying for the backwardation instead of collecting the premium on the contango.

But when the Gulf Coast finally squeals Uncle, those crudes are going to have to back up into the MidCon and we would see -- in MidCon or other areas of the country, we would see differentials widening again. So long term, we have the view that we're ideally situated.

People look at the Gulf Coast refiners right now and are saying how wonderful it is for them, and it is, but that's because they didn't have the situation that the MidCon refiners had for years. So what's going to happen is when everything starts choking, I believe we're going to see wider differentials because we consume the crude.

Do you have a sense for exactly when the Gulf Coast might actually squeal, how long is that going to take? And during this transition period, with all of the infrastructure coming online, do you envision a situation, and there's some speculation that TI will trade over Gulf Coast crudes, LS or whatnot, how do you see this playing out between now and when that time that the Gulf Coast is filled?

I have trouble believing that because you have to pay a tariff to get from the MidCon to the Gulf Coast. I mean, very simply, in my view -- again, one man's view, the differential will always remain the pipeline tariff.

Susan, I think you mentioned on the other call that your RIN costs, were they $75 million to $150 million estimated for this year?

Correct. For the year we've estimated $75 million to $150 million. I know that's a wide range but obviously with the changing prices as they are volatile.

What's the price you're assuming in that range?

Anywhere from $0.30 on up to a $0.70 price, basically.

And today they're trading at $0.40.

Do you have a view on where the EPA may set the 2014 mandate when they finally get around to finalizing something for the industry for you to manage to? Any sort of views on how that's going to play out?

There's so many rumors flying around, and obviously the corn lobby is very high behind sending comments and it's kind of like if you get 2 million comments from 2 million people, that weighs more than comments from 100 industry players. When I say weigh, physically weigh, it doesn't mean their points are any more valid. I believe the EPA is kind of giving head shakes, saying that they will adjust from their previous announced levels but you also know that they drop the cellulosic requirement down.

I wouldn't be surprised to see the cellulosic requirement filled with ethanol. Beyond that I don't know. It's a purely political play, quite honestly I think right now, even the ethanol producers realize that they're making more money than they ever had before and they don't need the mandate to keep going.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Management for any further or closing comment.

Thank you, Kevin. I'd like to thank everyone again for joining our conference call today. As a reminder, this call will be available for playback over the next 14 days. Should you need any additional information, feel free to contact Investor Relations or go to our website CVRenergy.com. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.