CVR Energy Inc (CVI) 2015 Q3 法說會逐字稿

Greetings, and welcome to the CVR Energy third quarter 2015 conference call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Finks, Vice President of Finance for CVR Energy. Please go ahead, Jay.

Thank you, Kevin. Good afternoon everyone. We very much appreciate you joining us this afternoon for CVR Energy's third quarter 2015 earnings call. With me are Jack Lipinski, our Chief Executive Officer, and Susan Ball, our Chief Financial Officer. Prior to discussing our 2015 third 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 third 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?

Thanks, Jay. Good afternoon, everyone, and thank you for joining our earnings call. Hopefully you had the opportunity to listen to the CVR Partners and CVR Refining third quarter earnings calls earlier today.

This morning we reported CVR Energy's third quarter consolidated adjusted net income of $82.4 million, or $0.95 per diluted share. And that compares to $37 million, or $0.43 per diluted share in the third quarter a year ago. 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 November 16 to stockholders of record on November 9.

Let me speak a little bit about our business segments. On the petroleum side, CVR Refining's 2015 third quarter adjusted EBITDA was $229.6 million, as compared to $129.9 million a year ago. CVR Refining also declared a third quarter distribution of $1.01 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 crude throughput for the third quarter was approximately 200,000 barrels a day. Coffeyville processed approximately 119,000 barrels a day of crude, and Wynnewood processed approximately 81,000 barrels a day of crude.

In our fertilizer segment, CVR Partners announced a 2015 third quarter adjusted EBITDA of $3.8 million, as compared to $21.1 million in the third quarter of 2014. CVR Partners did not declare a 2015 third quarter cash distribution.

Impacting CVR Partners' results for this year's third quarter was its previously scheduled 18-day major plant turnaround. The turnaround went well, including the installation of new equipment that has resulted in ammonia production rates over the last several weeks that are highest in the facility's history.

While the turnaround was completed within the anticipated time frame and the plant running well, following the turnaround the facility experienced more than two weeks of additional down time caused by three separate outages at Linde's air separation unit. This unit provides CVR Partners--the CVR Partners plant oxygen and nitrogen that are necessary for production.

At this point, I'll turn over the call to Susan so she can discuss the financials in more detail. Susan?

Thank you, Jack, and good afternoon everyone. Net income attributable to CVR Energy stockholders was $57.9 million in the third quarter 2015, as compared to $7.9 million in the third quarter of last year. The net income attributable to non-controlling interest was $41 million for the third quarter 2015, as compared to $13.4 million in the same period a year ago.

Adjusted net income for the 2015 third quarter was $82.4 million, or $0.95 per diluted share, as compared to $37 million, or $0.43 per diluted share in the third 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 the market expectations.

The adjustments to net income during the 2015 third quarter to derive adjusted net income were adjustments related to the unfavorable impact as a result of our accounting under first-in first-out or the FIFO inventory accounting method of $45.6 million, major scheduled turnaround expenses of $22.2 million, which included $15.6 million for the petroleum segment and $6.6 million for the fertilizer segment, gains on derivatives not settled during the period of $11 million, share-based compensation of $3.2 million, and expenses associated with the Rentech Nitrogen merger of $1.5 million.

The adjustments for the 2014 third quarter were an unfavorable FIFO impact of $52 million, losses on derivatives not settled during the period of $12.5 million, major scheduled turnaround expenses of $5.5 million, and share-based compensation of $2 million. These gross adjustments to net income are reduced for the portion that's attributable to the non-controlling interest and further reduced then for the net tax impact associated with them.

The third quarter of 2015 effective tax rate was approximately 19% as compared to 17% in the third quarter 2014. 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 third quarter was $229.6 million, as compared to $129.9 million in the same period in 2014. The refineries ran approximately 200,000 barrels per day of crude for the third quarter 2015, as compared to approximately 176,000 barrels per day in the third quarter 2014. The higher crude throughput in 2015 attributed to the improvement of the adjusted EBITDA.

Additionally, in the third quarter 2015 CVR Refining's realized refining margin adjusted for FIFO was $18.65 per barrel, as compared to $13.16 in the same quarter of 2014. This increase was primarily driven by the significantly higher Group 3 gasoline crack spreads and decreased liquid volume loss due to the lower crude prices.

The NYMEX 211 crack spread averaged $21.14 per barrel in the third quarter of 2015, as compared to $19.85 per barrel in the same period of 2014. The Pad 2 Group 3 211 crack spread averaged $21.59 per barrel in the third quarter of 2015, as compared to $18.21 in the third quarter of 2014.

As discussed earlier, CVR Refining announced a 2015 third quarter distribution of $1.01 per common unit, with $98.3 million to be paid to CVR Energy, and the remaining $50.8 million paid to the public unit holders of CVR Refining.

Now turning to our fertilizer segment, as was mentioned earlier, CVR Partners third quarter adjusted EBITDA was $3.8 million, as compared to $21.1 million in the same period last year. The decrease in adjusted EBITDA over the period was primarily driven by reduced UAN sales volumes associated with the scheduled turnaround during the 2015 third quarter, as well as the unplanned down time in August and September resulting from the Linde shutdowns. Additionally, there was lower pricing in the third quarter of 2015.

Our financial position remains strong as we ended the quarter with cash and cash equivalents of approximately $1 billion on a consolidated basis, including approximately $33 million held at CVR Partners and approximately $501 million at CVR Refining. CVR Energy held cash of approximately $478 million at September 30, 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 September 30 was approximately $674 million.

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

Thank you, Susan. Again, I hope all the listeners had an opportunity to hear the earlier calls. Operator, we're ready to take questions.

Thank you. (Operator Instructions) Neil Mehta, Goldman Sachs.

Hey, good morning, guys.

Good afternoon, Neil.

Good afternoon, yes. Losing track of time after seven hours of consecutive conference calls. I think we answered a lot of these questions during the CVRR call, but one thing I want to talk about was the special dividend. And I realize that this is ultimately the purview of the Board here. But how do you think about that--it's been a fantastic year for refining margins. Is there a role for special dividends at the CVI level for shareholders?

Well, Neil, obviously we did build more cash than the dividends we will pay out. It becomes the subject of Board discussions, and some of it has to do with what potentially could CVI do with the money, if there was something to acquire or otherwise invest in, versus distributing the cash. It's always an open question, and I wish I could give you more clarity, but it's something that we always look at.

And there's no regular timing on that, right? It is an ongoing process?

It is. If you go back and look at when there were special dividends, it's when CVI--excuse me--would accumulate cash or large pieces of cash, and then it was felt that it was time to pass it on to our shareholders. Right now, again, we've had a good run. We've reduced our dividend a year ago now, I guess. So we have been building cash. But there's no set answer. There is always that possibility.

Yes. Makes sense. And then you talked about this a little bit, Jack, earlier, but on the M&A point, we're starting to finally see the consolidation that you've been talking about for three years in the mid-continent. Do you see--envision in mid-continent a couple of years from now with just a handful of players, as opposed to the fragmented market that we see today?

I do believe there's going to be some assets that come up that will be attractive to us, and those of us that know us know we look at everything in the market. I mean, it's no surprise, it's no secret if somebody is willing to sell something we're willing to see if we could do it better or if it fits our bill, does it help us generate incremental cash flow for our shareholders. I do believe at some point in time these opportunities will arise, and I will say that we are uniquely positioned where we are, not only having CVRR or UAN, one of the examples--a perfect example is the merger with Rentech, having a parent that's supportive of this made that much easier to do. Same thing at CVRR or even CVI.

Everybody should know, and if they don't know, we are fully consolidated into Icahn Enterprises L.P. So that does not necessarily mean that there's a cash register there, but if there's a good deal for CVI, being part of IE gives us reach to the vast resources at IEP. I think I've said it before, we are not limited to acquisitions smaller than us. It could be acquisitions larger than we are.

Thanks, Jack. Last question for me, CapEx next year at the different segments, any flavor would be helpful.

Susan--I mean, what we have is we have a plan. It's pretty much planned out. As far as growth capital and all, Susan has all the details on that. But our sustaining and environmental CapEx, we had a program that we began when we went public. We pre-funded, I believe, $160 million or more at the time. We have a reserve quarterly for both environmental and sustaining. We don't see--we will see changes over time as costs escalate, and we have a reserve for turnarounds. But as far as the big capital projects, we pretty much announced the large CapEx.

I notice some of my peers mention the smaller projects that they're doing and the like. We're doing several million dollars of growth CapEx projects at Coffeyville. As a matter of fact, they're being completed right now as we're ready to find out way out of turnaround, for upgrading yields on our cat cracker and other units. We just don't speak to the smaller ones. We only speak to the larger ones.

But our big capital numbers are all out there. There are no surprises. As soon as you--as soon as we'll enter into something, we'll mention it. Again, we're under a letter of intent on this Oklahoma pipeline system. We're not done with the negotiations yet. They're still ongoing. When we finally come to an agreement, we'll make it public what our participation will be.

But there are projects always going--no big numbers. The last big number was the $122 million for the hydrogen plant at Coffeyville, which we think is--even at lower crude prices--still has a remarkable return for us.

Thanks, Jack, Susan, Jay. Appreciate it.

Thank you.

Thank you, Neil.

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. Again, I'd like to thank everyone for joining us today. As a reminder, the conference call will be available for the next 14 days. You can visit any of the three websites we have for additional information. And feel free to contact me as well. 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 participation today.