CVR Energy Inc (CVI) 2017 Q3 法說會逐字稿

Greetings, and welcome to the CVR Energy, Inc. Third Quarter 2017 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Jay Finks, Vice President of Finance. Thank you. You may begin.

Thank you, Michelle. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy Third Quarter 2017 Earnings Call. With me today are Jack Lipinski, our Chief Executive Officer; and Susan Ball, our Chief Financial Officer.

Prior to discussing our 2017 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 2017 third 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 earnings call. Hopefully, you 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 net income of $22.2 million as compared to net income of $5.4 million in the third quarter of last year. Adjusted net income for the 2017 third quarter was $32 million or $0.37 per diluted share, and that compares to an adjusted net income of $11.5 million or $0.13 per diluted share a year ago. In a few minutes, Susan will provide you more detail 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 17 to stockholders of record on November 10.

I'll speak to some of the highlights from each of our business segments at this point. CVR Refining's 2017 third quarter adjusted EBITDA was $138.6 million compared to $75.3 million a year ago. CVR Refining also declared a third quarter distribution of $0.94 per common unit. CVR Energy owns approximately 66% of the common units of CVR Refining and, therefore, receives a proportional amount of the distribution. Operationally, Coffeyville processed 128,500 barrels a day of crude, and Wynnewood processed 74,600 barrels a day. The combined throughput for the quarter was just over 203,000 barrels a day.

This morning, CVR Refining and Plains All America pipeline announced the formation of the 50-50 joint venture, the Midway Pipeline, LLC, which acquired the approximately 100-mile, 16-inch Cushing to Broome pipeline system from Plains. The Cushing to Broome pipeline connects the Coffeyville refinery to Cushing. By contract, the Plains will remain the operator of the pipeline.

Additionally, CVR Refining announced that the company has agreed to acquire an approximate 100-mile, 8- and 10-inch Cushing Dallas crude oil pipeline system from Plains. This acquisition is expected to close in the fourth quarter.

With these 2 transactions, CVR Refining will have essentially purchased their driveways to the refineries, which will further secure long-term Mid-Continent sourced price advantaged crudes.

On the fertilizer side, CVR Partners announced a third quarter adjusted EBITDA of $5 million, and that compares to $17.4 million in the third quarter a year ago. Operationally, the third quarter results were impacted by a scheduled turnaround and 8 days of unplanned downtime at the East Dubuque facility. The East Dubuque ammonia unit ran 76%, and the UAN plant operated 70 -- sorry, 77%. Coffeyville's gas fired unit ran at 96%, while both the ammonia and UAN units ran at 94%. CVR Partners announced today it will not pay a cash distribution for the third quarter of 2017.

At this point, I'll turn the call over to Susan to talk about our financial highlights.

Thank you, Jack, and good afternoon, everyone. As Jack previously mentioned, adjusted net income for the 2017 third quarter was $32 million or $0.37 per diluted share as compared to adjusted net income of $11.5 million or $0.13 per diluted share in the third quarter of 2016. We believe adjusted net income is a meaningful metric for analyzing our performance as it does -- as it eliminates the impact of noncash and other unusual items inherent in our business and provides a more transparent view as to the market expectations. The more significant adjustments to net income during the 2017 third quarter to drive adjusted net income were major scheduled turnaround expenses of $24.2 million, loss on derivatives not settled in the current period of $17 million, a favorable impact as a result of our accounting under first-in, first-out or the FIFO inventory accounting method of $14.9 million and business interruption insurance recovery of $1.1 million.

The adjustments for the 2016 third quarter were an unfavorable FIFO impact of $7.7 million, loss on derivatives not settled during the period of $8.4 million, business interruption insurance recovery of $2.1 million and expenses associated with the East Dubuque merger of $0.7 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 third quarter of 2017 effective tax rate was approximately 27% as compared to 56% in the third quarter '16. Our 2017 effective tax rate varies from the expected statutory rate, primarily due to the reduction of income subject to tax associated with the noncontrolling ownership interest in CVR Refining's and CVR Partners' earnings and the benefits related to state income tax credits.

I will now turn to the specific performance of our 2 business segments impacting our overall quarterly results. Turning to the Petroleum segment. As Jack mentioned earlier, CVR Refining's adjusted EBITDA for the 2017 third quarter was $138.6 million as compared to $75.3 million in the same period in 2016. The increase was primarily driven by a significant increase in the Group 3 2-1-1 crack spread, partially offset by the increase in net RINs cost and an overall slightly reduced crude discount.

In the third quarter of 2017, CVR Refining's realized refining margin adjusted for FIFO was $13.72 per barrel as compared to $10.09 in the same quarter of 2016. The NYMEX 2-1-1 crack spread averaged $20.73 per barrel in the third quarter of 2017 as compared to $14.03 per barrel in the same period of 2016. The PADD II Group 3 2-1-1 crack spread averaged $20.57 per barrel in the third quarter of 2017 as compared to $14.78 in the third quarter of 2016. Just as a reminder, Wynnewood's bifurcated turnaround began as scheduled in the latter half of September. The turnaround lasted approximately 42 days and had an estimated cost of approximately $70 million.

During the third quarter, the Petroleum business gathered approximately 89,200 barrels per day of crude as compared to 73,000 barrels per day of crude in the same period last year. There continues to be opportunities to expand the Petroleum business's gathering footprint. Third quarter results represent an 8% increase over second quarter of 2017. Based upon most recent projections, the Petroleum business is targeting over 90,000 barrels per day for the fourth quarter.

Turning to our Fertilizer segment. As Jack mentioned, CVR Partners' third quarter adjusted EBITDA was $5 million as compared to $17.4 million in the same period last year. The decrease in adjusted EBITDA over the periods was primarily attributable to the planned 14-day turnaround at the East Dubuque facility as well as 8 days of unplanned downtime. Lower realized UAN and ammonia sales prices in the quarter partially offset by increased ammonia tons sold. UAN average product price at the plant gate for the third quarter of 2017 was $138 per ton as compared to $154 per ton in the prior year third quarter. Ammonia average product price at the plant gate was $214 per ton in the third quarter of 2017 as compared to $345 per ton in the third quarter of 2016.

Our cash position remained strong as we ended the quarter with cash and cash equivalents of approximately $849 million on a consolidated basis. Total consolidated gross debt as of September 30 was approximately $1.2 billion as compared to $1.2 billion at the end of the year 2016. CVR Energy has no debt exclusive of the debt that resides at CVR Refining and CVR Partners. As of September 30, CVR Refining's gross debt approximated $546 million, CVR Partners' total gross debt approximated $647 million.

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

Well, thank you, Susan. In addition to the other announcements made this morning, I announced my retirement effective December 31 of this year after 45 years in the business and 12.5 years as CEO of the CVR family of companies. It's just time to hang up my cleats, go home, relax and smell the roses. So replacing me will be Dave Lamp. Dave, you may know, was the President and Chief Operating Officer most recently at Western and, prior to that, the CEO and President at Northern Tier. Dave is obviously very qualified. I look forward to turning the reins over to him. We've done a really good job over the last 12 years as a team to place the CVR family of companies in very good shape operationally and financially. I want to thank all my staff, thank all the employees for their hard work and dedication over the years. It's -- our success is not mine, it's theirs.

And with that, operator, I'll turn it over to you.

(Operator Instructions) There are no questions at this time. I'd like to turn the call back over to management for closing remarks.

Thank you, Michelle. I'd like to thank everyone again today for joining our call. Should you have any additional questions, feel free to reach out to the Investor Relations or via contact via the website, cvrenergy.com. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.