CVR Energy Inc (CVI) 2016 Q4 法說會逐字稿

Greetings and welcome to the CVR Energy fourth-quarter 2016 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. 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 fourth-quarter 2016 earnings call. With me today are Jack Lipinski, our Chief Executive Officer, and Susan Ball, our Chief Financial Officer.

Prior to discussing our 2016 fourth-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 statement 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 maybe 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 fourth-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?

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

This morning we reported CVR Energy's fourth-quarter consolidated adjusted income of $4.4 million, or $0.05 per diluted share, as compared to a net loss of $4.3 million or $0.05 loss per diluted share in the fourth quarter of 2015. In a few minutes, Susan will provide you with more details on the financials we reported this morning. We also today announced a quarterly cash dividend of $0.50 per share, which will be paid on March 6 to stockholders of record on February 27.

Let me talk a little bit about each of our segments. First petroleum. CVR Refining's 2016 fourth-quarter adjusted EBITDA was $27.7 million, and the compared to $16.4 million a year ago.

CVR Refining's total crude throughput for the fourth quarter was approximately 207,000 barrels per day. Coffeyville processed 132,000 barrels a day of crude, which is a new quarterly record for the plant, while Wynnewood ran about 75,000 barrels a day of crude. Continued exorbitant RINs expenses and lower Group 3 crack spreads impacted CVR Refining's ability to declare a distribution this quarter.

Turning to our fertilizer business, CVR Partners announced a 2016 fourth-quarter adjusted EBITDA of $18.3 million, as compared to $28.5 million in the fourth quarter of 2015. Operationally, CVR Partners continues to post high onstream rates. In the fourth quarter, Coffeyville's gasifier ran at 96%.

The ammonia unit operated at 91%, and the UAN plant ran at 93%. Similarly, East Dubuque's ammonia unit ran at 99%, and the UAN plant operated at 98%. Primarily as a result of the challenging nitrogen pricing environment, and the deferral of ammonia deliveries to the spring for East Dubuque, CVR Partners was not in a position to pay distribution for the fourth quarter of 2016.

Now I'll turn the call over to Susan and let her discuss the financials. Susan?

Thank you, Jack, and good afternoon, everyone. Net income attributable to CVR Energy stockholders was $7.1 million in the fourth quarter of 2016, as compared to a net loss of $45 million in the fourth quarter of last year.

Adjusted net income for the 2016 fourth quarter was $4.4 million or $0.05 per diluted share, as compared to a net loss of $4.3 million or a loss of $0.05 per diluted share in the fourth quarter of 2015. We believe the adjusted 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 the market's expectations.

The adjustments to net income during the 2016 fourth quarter to drive adjusted net income were the favorable impacts as a result of our accounting under first-in first-out or our FIFO inventory accounting method of $22.4 million, loss on derivatives not settled during the period of $15.8 million, and a gain on extinguishment of debt of $200,000. The adjustments from 2015 fourth quarter were an unfavorable FIFO impact of $26.6 million, major schedule turnaround expenses of $84.9 million, gain on derivatives not settled during the period of $15.5 million, share-based compensation expense of $3.7 million, and expenses associated with the Rentech Nitrogen Partners acquisition of $800,000.

These 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 66% of the petroleum segment, or CVR Refining, and 34% of the fertilizer business, CVR partners.

The fourth quarter of 2016 effective tax rate was approximately 79%, as compared to 21% in the fourth quarter of 2015. The effective tax rate for the year ended December 31, 2016 was approximately 182%, as compared to 22.1% for 2015. The combined federal and state expected statutory rate for the year ended December 31, 2016 was approximately 39%, as compared to an approximate 40% for 2015.

Our 2016 effective tax rate varied from the expected statutory rate, primarily due to the reduction of loss subject to tax, associated with the non-controlling ownership interest in CVR Refining and CVR Partners' earnings. The benefits related to domestic production activity, with Section 199 and state income tax credits and other state income impacts, all in correlation with the overall low levels of pretax 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 fourth quarter was $27.7 million, as compared to $16.4 million in the same period in 2015. The increase was primarily driven by higher crude throughput, partially offset by lower Group 3 crack spreads and increase RINs expenses.

As a reminder, the 2015 fourth quarter was impacted by the first phase of Coffeyville's bifurcated turnaround. In the fourth quarter of 2016, CVR Refining's realized refining margin adjusted for FIFO was $7.32 per barrel, as compared to $8.96 in the same quarter of 2015.

The NYMEX 2-1-1 crack spread averaged $14.70 per barrel in the fourth quarter of 2016 as compared to $14 per barrel in the same period of 2015. PADD II Group 3 2-1-1 crack averaged $11.60 per barrel in the fourth quarter of 2016, as compared to $13.91 in the fourth quarter of 2015.

Now turning to the fertilizer segment, and as a reminder, the East Dubuque transaction occurred on April 1, so as such, year-over-year comparability is significantly impacted across the line items reported in our financials. As mentioned earlier, CVR Partners' fourth-quarter adjusted EBITDA was $18.3 million, as compared to $28.5 million in the same period last year.

The decrease in adjusted EBITDA over the periods was primarily a result of lower UAN and ammonia fertilizer pricing. UAN average product price at gate for the fourth quarter 2016 was $147 per ton, as compared to $221 per ton in the prior year fourth quarter.

Our cash position remains strong, as we ended the year with cash and cash equivalents of approximately $736 million on a consolidated basis. This included approximately $56 million held at CVR Partners, and approximately $314 million at CVR Refining. As such CVR Energy held cash of approximately [$366] million as of December 31, 2016.

Total consolidated gross debt as of December 31 was approximately $1.2 billion, as compared to $674 million as of December 31, 2015. The increase was due to CVR Partners completing the $645 million senior secured note offering, in conjunction with the East Dubuque acquisition in the second quarter. CVR Energy has no debt exclusive of the debt that resides at CVR Refining and CVR Partners. As of December 31, CVR Refining's gross debt approximated $547 million, and CVR Partners' gross debt approximated $647 million.

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

Okay, thank you Susan, and again hopefully you all had the opportunity to listen into our CVR Partners call this morning, and the CVR Refining call. And with that I'll turn it over to the operator for questions. Thank you.

(Operator Instructions)

Neil Mehta, Goldman Sachs.

So first question is just on the sustainability of the dividend, at the parent at CVR Energy. Can you just talk about that? And you're in a terrific position from a balance sheet perspective, but the macro is obviously difficult for refining. How comfortable do you feel with the dividend at its current levels?

Well I've had this question on many, many calls. Obviously, we've got a very pristine balance sheet. We also believe that both our businesses will see better days in 2017 than they did in 2016.

Now what is the absolute sustainability of the dividend? That gets discussed with our Board every quarter. And realistically with the large ownership of the underlying subsidiaries, it doesn't take a whole lot for CVR Refining or UAN to contribute significant any cash back up to the parent.

So the short answer is, we look at it every quarter, and a lot of it last year was obviously a very difficult year, we think the sun will rise and will shine once again. We came out of a difficult period, and we felt it best at this time not to reduce the dividend. But again, this gets reviewed every quarter.

Appreciate that, Jack, and I'm sorry if I missed this on the call earlier, the refining call, but Coffeyville ran exceptionally well here in the fourth quarter. Anything you'd call out just from a plant performance perspective? And thoughts on the sustainability of that throughput level?

Well you can see from our forward projection of rates, I don't think we've ever put a 210,000 forward top-end forecast. Both plants are running very, very well right now. And if you think about it, knock on wood, we're a little more than halfway through the quarter.

Yes.

So there is nothing -- generally our downtime becomes unforeseen, you go back to last year, losing third-party power because of an incident, it ends up hurting you. We will have a Wynnewood turnaround later this year, which will reduce rates. And the question was asked, when will that be, and I have to look up the exact numbers. But it's roughly cutting the plant capacity in half for the duration of that turnaround

Yes. All right Jack, Susan, thanks again.

This is all the time we have allotted for questions. This does conclude our question-and-answer session. 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 during the next 14 days. You can visit our website, CVREnergy.com, or contact Investor Relations for additional information. Thank you

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.