CVR Energy Inc (CVI) 2015 Q1 法說會逐字稿

Greetings and welcome to the CVR Energy first-quarter 2015 conference call. (Operator Instructions) As a reminder, this conference is being recorded. It's now my pleasure to turn this conference over to your host, Jay Finks, Vice President of Finance. Jay, please go ahead.

Thank you, Kevin. Good afternoon. We very much appreciate you joining us this afternoon for our CVR Energy first-quarter 2013 earnings call. With me are Jack Lipinski, our Chief Executive Officer, and Susan Ball, our Chief Financial Officer.

Prior to discussing our 2015 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, 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, 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 except to the extent required by law.

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 2015 first-quarter earnings release that we filed with the SEC this morning prior to the open of the market.

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

Thank you, Jay. Good afternoon, everyone, and thanks for joining our conference call. Hopefully you had the opportunity to listen to the CVR Partners and CVR Refining first-quarter earnings calls earlier today.

This morning, we reported CVR Energy's first-quarter consolidated adjusted net income of $84.9 million or $0.98 per diluted share as compared to $81.9 million or $0.94 per diluted share for the first quarter of 2014. Susan will provide you more details on the financials reported this morning.

We also announced today a quarterly cash dividend of $0.50 per share which will be paid on May 18 to stockholders of record on May 11.

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

CVR Refining's 2015 first-quarter adjusted EBITDA was $161.7 million and that compares to $194.1 million a year ago. CVR Refining also declared a first-quarter distribution of $0.76 per common unit. CVR Energy owns approximately 66% of the common units of CVR Refining, and therefore receives a proportional amount of distributions from CVR Refining.

CVR Refining's total accrued throughputs to the first quarter was approximately 201,700 barrels a day. Coffeyville processed approximately 126,800 barrels a day of crude and Wynnewood processed approximately 74,900 barrels a day of crude. Let me turn to fertilizer.

In our fertilizer segment, CVR Partners announced a 2015 first-quarter adjusted EBITDA of $38.4 million and that compares to $29.9 million in the first quarter of 2014. CVR Partners also declared a 2015 first-quarter cash distribution of $0.45 per common unit. As CVR Energy owns approximately 53% of the common units of CVR Partners, we will receive a proportional amount of CVR Partners distribution.

At this point, let me turn the call over to Susan to give you more detail on the financials. Susan?

Thank you, Jack, and good afternoon, everyone. Net income attributable to CVR Energy stockholders was $54.9 million in the first-quarter 2015 as compared to $126.7 million in the first quarter of last year. The net income attributable to noncontrolling interest was $29.8 million for the first-quarter 2015 as compared to $87 million in the same period a year ago.

Adjusted net income for the 2015 first quarter was $84.9 million or $0.98 per diluted share as compared to $81.9 million or $0.94 per diluted share in the first quarter of 2014. 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 provides a more transparent view as to market expectations.

The more significant adjustments to net income during the 2015 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 and loss on derivatives not settled. We realized an unfavorable FIFO inventory impact of $24.5 million and a loss on derivatives not settled during the period of $45.1 million.

The adjustments for the 2014 first quarter were a favorable FIFO impact of $21.6 million and a gain on derivatives not settled during the period of $88.3 million. These gross adjustments to net income are reduced for the portion that's attributable to the noncontrolling interest and are further reduced for the net tax impact associated with them.

The first quarter of 2015 effective tax rate was approximately 22% as compared to 25% in the first quarter of 2014. We estimate that our full-year [2000] effective tax rate will approximate 20% to 23%. The 2015 tax rate is lower than the expected statutory rate, primarily due to the reduction of income subject to tax associated with the noncontrolling ownership interest in CVR Refining and CVR Partners, and benefits related to domestic production, activities deduction, and state income tax credits.

I will now turn to the specific performance of our two business segments impacting our overall quarterly results.

As Jack mentioned earlier, CVR Refining's adjusted EBITDA for the 2015 first- quarter was $161.7 million as compared to $194.1 million in the same period in 2014. Both the Coffeyville and Wynnewood refiners have solid operating performance during the first quarter. In the first-quarter 2015, CVR Refining's realized refining margin adjusted for FIFO was $15.03 per barrel as compared to $15.98 in the same quarter of 2014. The NYMEX 211 crack spread averaged $22.88 per barrel in the first quarter of 2015 as compared to $23.04 per barrel in the same period of 2014.

The pad 2 group 3 211 crack spread averaged $18.79 per barrel in the first quarter of 2015 as compared to $19.63 in the first quarter of 2014.

As discussed earlier, CVR Refining announced a 2015 first-quarter distribution of $0.76 per common unit with $38.2 million to be paid to the public unitholders and $74 million to be paid to CVR Energy. Now, turning to our fertilizer segment.

The fertilizer plant of CVR Partners had a solid operating performance during the first-quarter 2015 with onstream rates nearly reaching 98% for the UAN plant, 94% for the ammonia unit, and 99% for the gas supplier. As mentioned earlier, CVR Partners' first-quarter adjusted EBITDA was $38.4 million as compared to $29.9 million in the same period last year. The increase in adjusted EBITDA over the periods was primarily driven by higher sales volumes and prices from both UAN and ammonia, partially offset by increased cost of product sold due to the increased sales volumes.

The partnership announced a cash distribution of $0.45 per common unit for the first quarter of 2015. Of the $32.9 million to be paid, $15.4 million will be paid to public unitholders CVR Energy will receive $17.5 million. In addition to the operating results of our business segments, CVR Energy recorded other income of approximately $36 million for the first-quarter 2015 as compared to $100,000 for Q1 2014. The $36 million recorded in Q1 2015 primarily related to gains recorded on investment securities.

Our financial position remains strong as we ended the quarter with cash and cash equivalents of approximately $852.2 million on a consolidated basis, including $72.6 million held at CVR Partners and $422.1 million held at CVR Refining. As such, CVR Energy held cash at $357.5 million as of March 31, 2015.

CVR Energy has no debt exclusive of the debt that resides at CVR Refining and CVR Partners. Total consolidated debt, including current portions as of March 31, was approximately $674.6 million.

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

Okay, thank you, Susan. And again, thank you, everyone, for joining our call today. Hopefully, you have the opportunity to listen to the more robust discussion we had on each of our subsidiary companies earlier, CVR Partners and CVR Refining, and at this point, I would like to open the call for questions.

(Operator Instructions) Ed Westlake, Credit Suisse.

Hey, good afternoon, and congrats on the CVR results which I guess I follow more closely. But the -- sort of a debate that's come up in the conference call so far today is around whether the demand data that we are seeing in the DOE feels right with what you are seeing in your area, more generally for gasoline and diesel, so maybe just a question on that the start with.

Sure, I mentioned it earlier. And in our area, the primary pipeline of the primary system is the Magellan system. And while inventories for both gasoline and diesel still remain above the five-year range for this time of year if you look at days of supply, meaning the actual liftings that are coming out of the system they're in the middle of that range. So what's quite interesting is yes, we are seeing the demand product is flowing freely.

Right, good. And then on the -- we are starting to see a little bit of I wouldn't say widening but twitching of Bakken and WCS and even TI a little bit, on the physical availability of crudes, and I don't really want to talk about Cushing inventories but more just the physical flows, do you feel that pressure or how would you characterize the crude market in terms of your ability to buy?

Well, obviously, we buy pretty much at market and we buy -- basically we are buying six weeks out or four to six weeks out. And the price has moved around a bit.

For example, WCF at the beginning of the year was trading at about a discount of $15 to WTI. Today it's about $11, meaning the market has tightened up. But generally, you expect the WCF market to tighten up in the summertime. You have other refiners and actually even [ethyl] refiners that will pull in that crude to increase the supply of ethyl.

And as far as the other grades, yes, certainly we've seen Midland tighten up, but that was not to be unexpected with all the new pipeline capacity coming on. We don't have any issues. We are bringing some Bakken down to Cushing and into Coffeyville, but we're not seeing issues with that. It's just the market has tightened a little bit. (multiple speakers) it's just market, it's just this time of year.

Yes, the normal seasonality as the refiners will start running out of maintenance, then you get a bit of tightening and then you see what happens on the floor.

Exactly.

Okay, cool. Well, thanks very much.

Jeff Dietert, Simmons.

I was just hoping you could talk a little bit about M&A in the refining sector and in fertilizer and with these low oil prices are you seeing anything get distressed or anything get interesting? We have seen some public company purchases ongoing. Just give us an update on your view into the M&A market.

Okay, I will kind of repeat what I said at CVR and I will paraphrase what Mark Pytosh said at CVR Partners, but margins in the refining sector are quite good. And we see nothing about anybody actively going to [type s] the refinery today that is worth acquiring. There's always somebody out there that may want to sell, but potentially, those are the weaker sisters.

On the M&A front also, we are constantly looking for add-ins to our logistics business and just for the folks on this call, what our intent is is at some point here to spin an NRP and what we will do is, if we have to, we will do it organically. But as you've seen the growth year over year, quarter over quarter, and we are moving into Colorado as we speak so on that front, we're still looking. Despite the fact that margin's down, volumes may be down on certain types, there are no fire sales out there.

On the fertilizer side, there are several potential M&A possibilities in the works. Again, we don't generally discuss that other than to say that, in the works or in the market -- I'm not saying in the works as necessarily it's us, but in the market.

So we are actively looking. And just remind everybody that CVR Energy as we said is essentially a holding company. What it is is a company that has cash, has no debt, holds the GP and trust of two underlying MLPs as well as a -- the majority of the LP units cash flows up to it, and we intend to use CVI as a support for our underlying MLPs.

For example, at CVR Refining, CVR Energy provides a growth CapEx revolver, and if we were to do an acquisition at either of CVR Partners or CVR Refining, we would look to CVR Energy for assistance, if needed, to provide funding for an acquisition.

So -- and the nice thing about having CVR Energy sitting up as a C Corp -- that is if we do acquire something -- an asset on either side of the fence that has significant nonqualifying income. We run this Company with one management team, with few exceptions. We would then turn CVR Energy back into an opco, for the nonqualifying income assets, so we are looking -- we are actively looking and we're still very focused on doing something on an MLP.

We were hopeful that this downturn would give us some opportunity. It doesn't appear that there's much sitting out there and it's still very, very pricey. So we will do it ourselves.

Got you. Technical question, on the income statement, you've got other income of $36 million during the quarter. Could you talk about what that is comprised of?

Okay, we don't talk directly about which investments we get into but again, CVR Energy is a [hold co], and we do invest our free cash into various securities and have done so in this has been in our numbers for the last -- this is probably the third year that we are into it. So if you look back, you would see some gains, some minor losses, and now a larger gain.

Yes, it just looked like a bigger gain than what has been typical, which is what raised the question for me.

Yes, no, from time to time, we intend to use our free cash and make investments as we see fit.

All right, thanks for your comments.

Neil Mehta, Goldman Sachs.

Easy, easy question for me. Can you just remind us what the turnaround schedule is at the two refineries as we look out over the next couple of years?

Oh, certainly. The Coffeyville plant, as we've done before, we bifurcate it. We intend on starting to bring units down late in September. The total turn of this -- this portion of the turnaround will be six to seven weeks. We would do about 70%, give or take, of all the turnaround activities that we plan in the cycle. The other 30% will be done in the spring of 2016, and Wynnewood -- we have moved the Wynnewood turnaround forward into the spring of 2017 and the Wynnewood plant comes down in its entirety.

So, we feel pretty good about where we are with our turnaround work and scope right now, so -- but that's the schedule.

And we will be operating through the full section at, albeit, reduced rates. But don't forget we have two crude units and two vacuum units and a number of different operating equipment. So the way we schedule this is to take one piece down, store intermediates, move whatever we can out, and then take the other piece down, and then over the course of that six-month period, run off all the intermediates.

Very helpful. My follow-up is on the dividend. So, just want to confirm that the $0.50 we should think of as kind of the right run rate for now after adjusting that from last quarter. And then, any comments on the special in light of the fact that the cash flows should be pretty good here with refining margins doing quite well in the first half of the year?

Again, CVR Energy does have a dividend policy. We did reduce the dividend last quarter to bring it closer in line with what we thought our anticipated cash upflows from the underlying MLPs would be. And as our history shows, if we end up with excess cash, it is not guaranteed but quite probable that you would see additional dividends coming up.

We don't sit on a whole lot of cash. We keep enough that we can support what I stated earlier was the support for our CapEx, support for some acquisitions, but the Company has a history of making dividends when the cash is available.

Very clear. Thanks a lot, Jack.

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

Thank you, Kevin. We appreciate everyone joining us today. As a reminder, the earnings call will be available on our website for 14 days and feel free to contact Investor Relations for any further questions. 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.