FutureFuel Corp (FF) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the FutureFuel 2014 first-quarter conference call. (Operator Instructions) As a reminder, this conference call is being recorded today, May 9, 2014.

I would now like to turn the call over to Mr. Lee Mikles, President of FutureFuel Corp. Please go ahead, sir.

Good morning. This is Lee Mikles from FutureFuel Corp. Thank you for participating in today's call to discuss FutureFuel's 2014 first-quarter financial results and business progress. Joining me from FutureFuel is Rose Sparks, our Chief Financial Officer.

I would like to remind listeners that comments made during this call will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. For a list and description of these risks and uncertainties, please review FutureFuel's filing with the Securities and Exchange Commission.

Please note that the content of this call contains time sensitive information that is accurate only as of today, May 9, 2014. FutureFuel disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether as a result of new information, future events, or otherwise. With that out of the way, I would like to turn our attention to the first-quarter results.

Certainly, we had weakened financial results in terms of performance in the first quarter of 2014. Revenues decreased 11% from the first quarter 2013. Adjusted EBITDA was $10.1 million. Net income decreased to $6.3 million versus $14.1 million in year ago's first quarter 2013.

I will turn the call over to Rose, and take it away, Rose, if you would.

Thank you, Lee. Welcome to today's call. For the first quarter 2014, total revenue was down 11% to $82.2 million versus $92.2 million in the first quarter of 2013. Biofuels revenue was flat at $51.9 million versus $52 million last year.

Sales volumes increased, but were offset by lower sales prices and reduced sales of refined petroleum products on a common carrier pipeline. Such pipeline revenues totaled $9.2 million in the first quarter 2013 and $0.7 million in the first quarter of 2014.

Chemical revenues declined 25% to $30.3 million versus $40.1 million in the first quarter of 2013. This reduction was attributed to decreased sales volumes of the bleach activator -- excuse me, decreased sales volume of the proprietary herbicide intermediate, which were slightly offset by new sales of another proprietary herbicide intermediate to another customer. The contract with the new customer is in effect through December 31, 2016.

Also impacting chemical revenues was the absence of products we did not sell in Q1 and expect to sell later in the year and the absence of two products we no longer produce.

For gross profit, the chemical segment decreased 31% to $9 million from $13.1 million for the first quarter of 2013. Reduced sales volumes accounted for the majority of the change in gross profit for the reasons previously mentioned.

Biofuels segment gross profit was $0.6 million versus $8.3 million in the first quarter of 2013. The first quarter of 2013 was benefited by $2.5 million from the 2012 reinstated blenders credit. However, during Q1 2014, margins were squeezed as the average sales price declined greater than the reduction in feedstock prices and with the absence of the dollar blenders credit. In addition, there was a hedging gain in the first quarter of 2013 of $1.3 million and a hedging loss of $0.6 million this quarter.

Income from operations decreased to $7.5 million versus $19 million for the first quarter of 2013. Net income was $6.3 million or $0.14 per diluted share versus $14.1 million or $0.33 per diluted share for the first quarter of 2013. Adjusted EBITDA was $10.1 million versus $17.7 million for the first quarter of last year.

And with that, Lee, I'll turn the call back over to you.

Thank you, Rose. Good job. A couple of points I want to go through with you, because I think it's important in understanding this quarter as it may relate to, maybe, the last five or six quarters that we've had. The bleach activator continues to experience a decline in volumes, but were protected through a price volume curve and so the margins remain relatively the same.

I don't think that should be a surprise to anyone. I think we've been on record repeatedly saying that that business will continue to slowly decline as anticipation of our customer, so again, it shows up in this quarter, but not unexpected at all.

We've been a little bit slow, I think, and slower than we would've anticipated, in bringing up a new intermediate herbicide with a new large customer. We started bringing that up late December. It's probably been a little more complicated than we would have hoped.

But again, we're making progress on that. But in the quarter, we probably did less of that business than we thought we would, so that business just gets pushed forward, if you will, a little bit. So a little bit of it's timing.

Moving on to biodiesel, the biodiesel (technical difficulty) is completely different than it was in the fourth quarter. And if you (technical difficulty) now, you've got the lack of the blender credit. The last time we saw the blender credit go away, we saw a big adjustment in the renewable identification number, the RIN, adjustment in prices. This time we haven't.

Even having said that, our demand for the product actually increased and I've heard others say that they saw a decrease in volume in the first quarter. We didn't see that. We saw a strong demand for the product from our customers. Some of that maybe where they're located, if they're up in the north and maybe it was too cold. So that business has changed a lot.

To give you a dynamic Rose and I talked about yesterday, the RIN values today are about $0.50. A year ago, they were $0.93. It gets more dramatic than that. It was $0.93 plus $1 credit. So it was effectively $1.93 versus $.50 today.

So the fact that in that type of environment, we could still make money is pretty remarkable. Because I think there are few that are going to be able to do it. So I was pleased with our performance, given the challenges and the changes in that business.

I think we remain committed to a growth strategy, both internally and externally. We continue to look at opportunities, both on the biodiesel and the chemical side. And I think there's ability to grow within our existing footprint. Both in product and scale.

So we continue to evaluate capital projects and potential acquisitions. Clearly, we have a very strong balance sheet and a chemical pipeline in terms of the new business that we are pleased with.

So having said that as a primer for any of your questions, I'll turn it back over to the operator.

(Operator Instructions)

One final comment that I will make while we wait for the Q and A to get in line, if you look year over year, it even compresses a little bit more, because we had $2.5 million that came in from the restoration of the credit on a retroactive basis that came in in the first quarter of 2013. That was $2.5 million.

So again, you start to get numbers that get a lot closer together. They don't look as, maybe, dramatic year over year as they might first of year. So just wanted to mention that as well.

Jon Tanwanteng, CJS Securities.

How should we think about the chemical segment revenues and margins going forward? Is the growth in the other businesses that you have going to outpace the declines in the bleach activators and herbicides?

Don't know. Again, it just depends on how quickly that bleach activator declines. I think it's a slow decline is the indication that by all indications we get and it's a question of the uptake on some of the intermediates and some of the new business that is out there.

But again, I think the margins were roughly 30% in chemicals in the quarter and that's -- given their reduction in volume, that's pretty good margin. But again, our view would be is that we will be able to replace that business, either now or in the future.

And again, I'm pleased with the backlog that we have, but again, we've got to not only perform and execute on those businesses, Jon, we've got to continue to bring in new business into the plant and/or make acquisitions for growth as well.

Okay, got it. And then you mentioned that feedstocks had not caught up with the declines in biodiesel pricing. Has that moved as we entered the second quarter?

Not much. I think there's -- it's a little bit out of whack. I've probably seen some periods like this in the past, Jon, but this has probably gone on a little longer than I would've thought, and our sense is that some of that is being driven by the export market. Not for finished product, but for feedstock being exported.

That's probably even a little more dramatic than we would've thought. And I think that's affecting all producers. But again, we can only control what we can control.

And again, if you look at our biodiesel business and the fact that we can make money in this environment without the credit, with reduced RIN prices, with abnormally close spreads on the lower-valued feedstocks to the easier-to-use feedstocks and the overburden that we put on the biodiesel business each quarter from the allocated overhead of the larger plan, I think it's good performance.

But something has to happen here. Because what's going to happen is guys just aren't going to be able to produce. So you're either got to see RIN prices go up or you got to see feedstocks go down. But we're in one of those funny periods and we continue to be where that's in an unnatural state.

Okay, got it. And then just maybe your opinion on why RIN prices have been so low. Is it just a function of the expected volume versus the expected mandate or do you think we have kind of a RIN hangover just from the production from last year?

Yes, both, Jon. I think your question tells me you understand it perfectly. I think there is a RIN hangover. I think there's some anticipation in the industry that maybe you will get some relief on the RBO. The timing of that is -- again, we are trying to answer a unanswerable question -- but it looks like the submissions will all be in by June and maybe that final will come out sometime in July on whether they're going to move that up or not.

And again, I have no idea. I run my business as if none of that is going to change. But there's some anticipation that maybe there will be a move to increase that RBO in July. That's when we will probably know. But again, I think it's probably a function of the hangover more than anything else and I think a little bit of the export of the feedstock is my sense of it.

Okay, got it. And then finally, just maybe an update on what you see in the M&A opportunity space or if you're going to play cash for other purposes, such as dividends or buybacks?

I would -- again, I can't speak for the Board; I will just speak for myself. Again, I am not a buyback guy and I think we endeavored so long, Jon, to get our trading volume just to where it would be acceptable to the marketplace, and I think we've done that. And to bring stock back out of the market, I think, would almost be self-defeating.

Having said that, again, we've been, I think, very shareholder-aware in our dividend policy. I think the Board has been upping the dividend for the last -- each of the last couple of years and then paying special dividends two years ago and last year. So again, if the Board continues to want to go that direction, I'm sure they will.

Having said that on the M&A, more importantly, to your question, I think we're seeing chemical opportunities -- it seems more chemical opportunities than we've seen in a while. And that's whole businesses and products, meaning a product coming out of a larger company or someone exiting a particular business or exiting a particular intermediate that they might need.

You've seen some of the larger chemical companies. Again, this is old news and new news, where they are exiting, then closing particular plants and they either have to exit that chemistry or they've got to outsource it to someone else. So I think that we continue to be positioned well for that and continue to have dialogue on that.

We've looked at a couple of interesting pieces of business on the M&A side, on chemicals. Not much on the biodiesel side recently. Again, I think we are still more or less in the early stages of that.

If you continue as the first quarter went and as we sit today in the biodiesel industry, I can't imagine that if this was -- persists much longer, that there won't be some opportunities and quite a bit -- quite a few sellers in the marketplace, and that would put us in a more advantageous position to make acquisitions in that area.

Okay, great. Thank you very much.

Thank you and I'm not showing any further questions at this time.

Well, I appreciate your time this morning. And again, I encourage everyone to go through our numbers, take a look at it. I think it was a difficult environment for biodiesel, but I think we did a good job of performing. The chemical side is as much timing as it is anything else. And -- but again, I think that continues to be a terrific business.

It's a great moneymaking business. It has -- although it might not look like it this quarter, it has quite a bit of predictability to it. And again, I think we are encouraged by what we see in our book of business going forward. And I want to thank you all for being on the call this morning and look forward to talking to you next quarter.

Thank you. Ladies and gentlemen, thank you for joining today's conference.

Thank you.

This does conclude the program. You may all disconnect. Everyone have a great day. You're welcome, Mr. Mikles.