Global Partners LP (GLP) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to the Global Partners' First Quarter 2011 Financial Results Conference Call. Today's call is being recorded. There will be opportunities for questions at the end of the call.

With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka; Chief Operating Officer and Chief Financial Officer, Mr. Tom Hollister; Executive Vice-President and Chief Accounting Officer and Co-Director of Mergers and Acquisitions; Mr. Charles Rudinsky; and, Executive Vice-President and General Counsel, Mr. Edward Faneuil.

At this time, I'd like to turn the call over to Mr. Faneuil for opening remarks. Please, go ahead, sir.

Good morning, everyone, and thank you for joining us. Before we begin let me remind everyone that during today's call we will make forward-looking statements within the meaning of federal securities laws.

These statements may include but are not limited to projections, beliefs, goals and estimates concerning the future financial and operational performance of Global Partners. The actual performance for Global Partners may differ materially from those expressed or implied by any such forward-looking statements.

In addition, such performance is subject to risk factors including but not limited to those described in Global Partners filings with the Securities and Exchange Commission. Global Partners undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statement that may be made during today's conference call.

With Regulation FD in effect it is our policy that any material comments concerning future results of operations will be communicated through press releases, publicly announced conference calls or other means that will constitute public disclosure for purposes of Regulation FD.

Now let me turn the call over to our President and Chief Executive Officer, Mr. Eric Slifka.

Thank you, Edward, good morning, everyone, and thank you for joining us. Our total product volume reached a record 1.3 billion gallons, reflecting the success of our strategic efforts to expand our gasoline business through acquisitions and organic projects. Volume increased 39% over last year's first quarter and 12% from the fourth quarter of 2010.

First quarter gross profit improved $8.6 million to more than $56 million, as our wholesale gasoline net product margin posted a quarterly record of $21.4 million. Wholesale gasoline net product margin increased 145% from the first quarter of 2010, and 30% from the fourth quarter of last year.

The volume and gasoline margin results achieved in the first quarter benefited from our acquisition of the Mobil retail stations and related fuel supply business, as well as from our 2010 purchase of the former Warex Terminal Facilities in Newburgh, New York. We also began to supply other Mobil distributors in New England with more than 150 million gallons of branded and unbranded fuel annually.

The performance of our gasoline business was constrained by the $0.66 per gallon increase in gas prices that occurred over Q1. A 27% increase. At both the station level and the Wholesale Supply business, rapidly rising gasoline prices generally create margin pressure and we certainly have experienced some of that.

However, when you consider the fierce headwinds created by the market environment and the decision by many drivers to reduce gas consumption in the wake of higher prices, the volumes at our stations held up reasonably well.

Whilst steep price increases are difficult to absorb, history demonstrates that over time as gas prices stabilize, margin pressure eases and margins begin to improve. Considerable margin pressure also affected our distillers business in the first quarter. Wholesale distillate net margin was down nearly 40% to $20.9 million in the first quarter from the same period in 2010.

This decline was not unexpected. As we discussed on our Q4 conference call, for the past two quarters our Distillate business has been hindered by less favorable market conditions, and fewer favorable buying opportunities. We continue to believe that these issues are not long-term in nature.

It's important to point out the fact that factors that affected the distillate market are related more to margins than volume. Heating oil volume, primarily as a result of colder weather, was up slightly while diesel fuel consumption also moved higher compared with the first quarter of last year.

Now let me turn to our Commercial business, which continues to generate improved profitability. Commercial product volume increased more than 60% in the first quarter to approximately 112 million gallons, while commercial net product margin nearly doubled year-over-year to $9.5 million from $4.9 million in the first quarter of 2010.

In addition to fuel sales at our company operated gasoline stations, the growth of our Commercial segment is also tied directly to a fundamental shift in our business mix in recent years.

In Q1 of 2006, for example, residual fuel comprised the majority of our commercial sales, volume and net product margin. But with those sales gradually eroding as businesses have converted to natural gas, we have focused on organic opportunities to profitably grow the Commercial segment.

These opportunities include a flourishing business with towns and municipalities, and an emerging Natural Gas business that has set a growing presence in bunker fuels.

Before turning the call over to Tom, let me turn to the topic of distributions. In April, the Board of Directors of our general partner declared a distribution of $0.50 per unit for the first quarter of this year. The decision to hold the distribution level reflects our philosophy to maintain over time a conservative distribution coverage ratio. The Board will continue to evaluate the distribution on a quarter-by-quarter basis.

In summary, in the first quarter we saw considerable weakness in the distillates market, separately, an environment of rapidly rising gas prices hampered gas station supply and street margins. We are pleased with the strong performance of our growing Gasoline business, which contributed to record product volume and record wholesale gasoline net product margin in the quarter.

The Mobil sites and related Supply business have been integrated successfully, and are running smoothly. Having completed that process, we now have the opportunity both from a revenue and expense standpoint to further promote efficiencies and improve performance across the enterprise. The strategic shift in the business mix within our Commercial segment has also led to improving results. Looking ahead, we believe that Global Partners is positioned effectively for long-term growth.

With that, let me turn the call over to Tom.

Thank you, Eric, and good morning, everyone. As Eric has discussed our strong volume performance, as well as the factors that affected our gross profit, let me turn first to a discussion of EBITDA and DCF.

Although EBITDA of $24.8 million and DCF of $15.7 million both improved from our results in the most recent fourth quarter of 2010, both matrixes as Eric mentioned were less than last year's first quarter, due primarily to the lower wholesale distillate net product margin.

On the expense side, the year-over-year increase in both operating costs and SG&A are directly related to our Warex acquisition, as well as the acquisition of the Mobil gas station assets and related Supply business.

The one notable item in Q1 expenses is a $1.6 million provision for bad debt, up $1.4 million from about $200,000 a year ago. This charge is substantially related to a specific customer account. We expect future quarterly charges to be far less and more comparable to past experience.

Interest expense is $7.9 million was up $3.8 million from a year ago, as a result of borrowings for the acquisitions of the Warex terminals and the Mobil station assets, as well as higher working capital costs across all of our business lines associated with commodity price increases.

Borrowings under our acquisition revolver stood at $250 million at the end of the first quarter, up from $79 million at the same time a year ago. Working capital borrowings increased by approximately $200 million on a year-over-year basis, largely due to price increases affecting the dollar level on the balance sheet of inventories and accounts receivable.

The NYMEX cost of gasoline, for example, was up 35% or $0.70 from $2.31 as at March 31 a year ago, to $3.11 as of March 31 this year. Headcount at the end of the first quarter was 298 people.

Turning to the balance sheet, with the closing of our 2.6 million common unit offering in February, our net worth at March 31 was almost $350 million, the highest level in partnership history.

Looking at our liquidity and capital position, we have a bank credit facility of $1.250 billion. As of March 31, we had available committed but unused borrowing capacity of $300 million, not including a $100 million accordion expansion feature. We believe that we have ample liquidity to fund our capital requirements.

It is almost worth noting that almost two-thirds of our balance sheet, over $1 billion, is highly liquid inventory in accounts receivable. Consequently, over two-thirds of our borrowings or $543 million, is directly for self-liquidating working capital purposes, which tend to distort comparisons with other MLPs.

Our borrowings are different than the fixed asset term borrowings you see on the balance sheet on other Master Limited Partnerships. Our term borrowings to support fixed assets are only $250 million, compared with our Partners equity of $346 million.

With that, we will be happy to take your questions.

Thank you.

(Operator Instructions)

Our first question comes from the line of James Allred, with Raymond James. Please proceed with your question. Your line is live.

Good morning, how are you guys doing? Do you have any comments on -- in a $4 gallon gas price environment has anything changed with regard to your stated expected returns on the Mobil acquisition in the mid to high teens.

You know we're still very comfortable with the assets, we think they're great assets. I think the conclusion that maybe you could draw is that our volumes will be hurting and obviously we've begun to see a little bit of that but obviously they're great assets.

Okay. So really no change on your expected -- your forecasted return.

Correct.

Okay. And then just moving to the Albany expansion on the 200,000 barrels that you guys plan to put in service next quarter are these tanks that existed that were just out of service, or are they new tanks?

They were tanks that were out of service that we brought back into service.

Okay, and you're expecting them in early this quarter or later in the quarter?

Yes in the next 30/60 days.

Okay great, that's all I had. Thank you.

Thank you. Our next question comes from the line of James Jampel with HITE. Please proceed with your question. Your line is live.

Hey guys, just a couple of questions. First, can you give some additional color on the types of opportunities that were available last year at this time and that -- in the distillates business that are not available now, and give us some color as to what might bring that back?

Yes, I think they are related as much to supply as anything else, James. I think when you look back historically over distillates, what I would tell you is the reason we feel comfortable that those opportunities will exist is because they have historically.

There's nothing that's sort of changed structurally out there that would lead to a different conclusion?

We don't think so

Okay. And then, the second question is, here deep into the second quarter here what trends are you seeing on a more macro basis on gasoline use in New England?

Yes, I mean directionally, James, we can't really talk about anything future, but higher prices as you read in the news media are affecting demand patterns. So, I think what you can read in the newspapers is probably the right place to go and see because that's going to affect us as well.

Is there anything -- parallels that we might draw with the summer of 2008 that would be proper or parallels that would be false?

I think so. I mean, that's -- actually when we go back and look at that sort of history and patterns and all that kind of stuff that's exactly what we refer to.

All right, thanks.

Thank you.

(Operator Instructions)

Mr. Slifka, there are no further questions at this time. I'd like to turn the call back over to you for any additional remarks you may have.

Thank you all for joining us this morning, we look forward to keeping you updated on our progress, and that concludes today's call. Thanks, everyone.

Ladies and gentlemen, that concludes our conference call. We thank you for joining us today.