CVR Energy Inc (CVI) 2016 Q3 法說會逐字稿

Greetings and welcome to the CVR energy third-quarter 2016 conference 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, Vice President of Finance. Thank you. Mr. Finks, you may begin.

Thank you, Doug, and good afternoon, everyone. We very much appreciate you joining us this afternoon, for our CVR Energy third-quarter 2016 earnings call. With me are Jack Lipinski, our Chief Executive Officer, and Susan Ball, our Chief Financial Officer.

Prior to discussing our 2016 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 a reconciliation to the most directly comparable GAAP financial measures, are included in our 2016 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?

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

This morning, we reported CVR Energy's third-quarter consolidated adjusted net income of $11.5 million or $0.13 per diluted share, as compared to $82.4 million or $0.95 per diluted share in the third quarter of 2015. 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 14 to stockholders of record on November 7.

I will talk a little bit about each of our business segments. On the petroleum business, CVR Refining's 2016 third-quarter adjusted EBITDA was $75.3 million, as compared to $229.6 million a year go. CVR Refining's total crude throughput for the third quarter was approximately 198,000 barrels per day.

Coffeyville processed 130,000 barrels a day of crude, while Wynnewood ran about 68,000 barrels a day of crude. Escalating RINs expenses and cash set aside for reserves impacted CVR Refining's ability to declare a distribution this quarter.

Turning to the fertilizer business, CVR Partners announced a 2016 third-quarter adjusted EBITDA of $17.4 million, as compared to $3.8 million in the third quarter of 2015. Operationally, CVR Partners continues to post high onstream rates. In the third quarter, Coffeyville's gas-fire ran at 96%.

The ammonia plant operated at almost 95%, and our UAN plants ran at 94%. Similarly, East Dubuque's ammonia unit operated at 94%, and the UAN plant ran at 93%. While the nitrogen fertilizer pricing environment was challenging during the third quarter, CVR Partners was slightly free cash flow positive.

In the past few weeks, we have seen global price increases for fourth-quarter and first-quarter delivery of urea. This should bode well for UAN and ammonia, as pricing of these three nitrogen products typically trend in a similar direction. However, CVR Partners did not declare a distribution for the quarter.

At this point, I'll turn the call over to Susan to talk about financials. Susan?

Think you, Jack, and good afternoon, everyone. Net income attributable to CVR Energy stockholders was $5.4 million in the third quarter of 2016 as compared to net income of $57.9 million in the third quarter of last year. Adjusted net income for the 2016 third quarter was $11.5 million or $0.13 per diluted share, as compared to $82.4 million or $0.95 per diluted share in the third quarter of 2015.

We believe adjusted net income is a meaningful metric for analyzing our performance, as it eliminates the impact of non-cash and other unusual items inherent in our business, and provides a more transparent view as to market expectations. The adjustments to net income during the 2016 third quarter to derive adjusted net income were: unfavorable impacts, as a result of our accounting under first-in-first-out, or the FIFO inventory accounting method of $7.7 million; a loss on derivatives not settled during the period of $8.4 million; business interruption and insurance recovery of $2.1 million; and expenses associated with the East Dubuque merger of approximately $700,000.

The adjustments for the 2015 third quarter were: an unfavorable FIFO impact of $45.6 million; major scheduled turnaround expenses of approximately $22 million; gain on derivatives not settled during this period of $11 million; share-based compensation expense of $3.2 million; and expenses associated with the East Dubuque merger of $1.5 million. These gross adjustments to net income are reduced for the portion that is attributable to the non-controlling interest, and are further reduced for the net tax impact associated with them.

As a reminder, CVR Energy owns approximately 66% of CVR Refining, and effective with the acquisition of East Dubuque, CVR Energy's ownership percentage was reduced from approximately 53% to 34% at April 1, 2016, in CVR Partners. The third-quarter 2016 effective tax rate was approximately 56% as compared to 19% in the third quarter of 2015. The effective tax rate is higher in 2016, primarily due to the correlation of our projected pre-tax levels for the year and expected state income tax credits generated, as applied to year-to-date income.

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 2016 third quarter was $75.3 million, as compared to $229.6 million in the same period in 2015. The decrease in adjusted EBITDA over the period was primarily driven by lower realized refining margins, and increased RINs expenses. In the third quarter of 2016, CVR Refining's realized refining margin adjusted for FIFO was $10.09 per barrel, as compared to $18.65 in the same quarter of 2015.

The NYMEX 2-1-1 crack spread averaged $14.03 per barrel in the third quarter of 2016, as compared to $21.14 per barrel in the same period of 2015. PADD II Group 3 2-1-1 crack spread averaged $14.78 per barrel in the third quarter of 2016, as compared to $21.59 in the third quarter of 2015.

RINs expense for the third quarter 2016 was just over $58 million, as compared to just over $19 million in the third quarter of 2015. RINs expense on a per-barrel basis negatively impacted the realized refining margin for the third quarter of 2016, by over $3 per barrel on average.

Now turning to the fertilizer segment, again, the acquisition and merger of the East Dubuque facility occurred at the beginning of this year's second quarter. Therefore year-over-year comparability is significantly impacted across line items in our reported financials. As mentioned earlier, CVR Partners' third-quarter adjusted EBITDA was $17.4 million, as compared to $3.8 million in the same period last year.

The increase in adjusted EBITDA over the periods was primarily driven by the inclusion of East Dubuque in this year's third-quarter results. As Jack mentioned, the nitrogen fertilizer pricing environment was challenging during the 2016 third quarter. UAN average product price at gate for Q3 2016 was $154 per ton compared to $227 per ton in the prior year's third quarter.

Our cash position remains strong, as we ended the quarter with cash and cash equivalents of just over $762 million on a consolidated basis, which includes approximately $65 million held at CVR Partners, and approximately $286 million at CVR Refining. As such, CVR Energy held cash of $411.4 million as of September 30, 2016. Total consolidated debt as of September 30 was approximately $1.2 billion.

CVR Energy has no debt exclusive of the debt that resides at CVR Refining and CVR Partners. As of September 30, CVR Refining's debt approximated $579 million, and CVR Partners' debt approximates $650 million. With that, Jack, I will turn the call back to you.

Okay. Thank you Susan. Again, I hope everyone had the opportunity to listen to our earlier calls with CVR Partners and CVR Refining, and at this point, I would like to turn it back to the operator for questions.

(Operator Instructions)

There are no questions in the queue. I'd like to hand it back over to management for closing comments.

Thank you, Doug. I'd like to thank everyone for listening to our conference call today. As a reminder, our conference call, along with CVR Refining and CVR Partners, will be available for replay over the next 14 days. Please visit our website, CVREnergy.com, or contact Investor Relations for additional information. Thanks again.

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