World Kinect Corp (WKC) 2009 Q4 法說會逐字稿

Good afternoon, my name is Sarah and I will be your conference operator today. At this time I would like to welcome everyone to the World Fuel Services Corporation fourth quarter, full-year earnings conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions). Thank you, Mr. Frank Shea, Executive Vice President and Chief Risk and Administrative Officer, you may begin your conference.

Good evening, everyone and welcome to the World Fuel Services fourth quarter conference call. I'm Frank Shea, Executive Vice President and Chief and Risk and Administrative Officer and I'm doing the introductions on this evening's call, with as we did last quarter a live slide presentation, as well. This call is also available via webcast. To access this webcast or future webcasts, please visit our website, www.WFS.com and click on the webcast icon.

With us on the call today are Paul Stebbins, Chairman Chief Executive Officer, Michael Kasbar, President and Chief Operating Officer, Ira Birns, Executive Vice President and Chief Financial Officer, and Paul Nobel, Senior Vice President and Chief Accounting Officer. By now you should have all received a copy of our earnings release. If not, you can access our release on our website.

Before we get started I would like to review World Fuel's Safe Harbor statement. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding World Fuel's future plans and expected performance are forward-looking statements that are based on assumptions that management believes are reasonable but are subject to a range of uncertainties and risks that could cause World Fuel's actual results to differ materially from the forward-looking information. The summary of some of the risk factors that could cause results to materially differ from our projections can be find in our just filed Form 10-K for the year ended December 31, 2009, and other reports filed with the Securities and Exchange Commission. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.

At this time I would like to introduce our Chairman and Chief Executive Officer, Paul Stebbins.

Good afternoon and thank you for joining us. Today we announced earnings of $34.5 million or $0.57 per diluted share for the fourth quarter of fiscal 2009. Our earnings for the year were $117.1 million or a $1.96 per diluted share an 11.5% increase in net income over fiscal 2008. These results represented the second best quarterly performance in the history of the Company and our results for the year set a new record. In the fourth quarter operating results grew sequentially in all three segments while we again achieved strong returns on equity, working capital and invested capital. Total shareholders' equity approached $0.75 billion while our cash and overall liquidity positions remain strong. Given the Company's extraordinary performance in 2008 and the highly uncertain outlook for the global economy for the beginning of 2009 we are very pleased with the strong results we delivered in 2009. While this performance was not easy to achieve, it underscores the durability and sustainability of our business model in highly variable market conditions.

Those familiar with the energy and transportation industries know well that the operating environment in 2009 was challenging. With shipping companies losing between $20 billion and $30 billion and the aviation industry losing an estimated $11 billion. Faced with a deep recession and the corresponding sharp drop in global trade, fuel costs and credit concerns featured prominently for transportation companies and other users of fuel. At the same time many of our customers were challenged with declining asset values and concerns about the uncertain outlook for global trade. Meanwhile, the oil industry struggled under the pressure of collapsing refining margins, reduced demand and systemic concerns about credit risk.

In this environment our efficient global distribution platform provided a reliable conduit for suppliers trying to manage access to safe ratable demand. For our customers World Fuel represented Safe Harbor as they sought a reliable source of supply, competitive pricing, quality service and financial support. In our marine segment we faced a special set of market circumstances as we entered the year, with the majority of world trade moving by sea, the global recession hit the shipping industry hard. Most large container fleets reported significant losses and a few risked outright failures asset values collapsed. Most work to renegotiate new building programs and delay taking delivery of additional ships. While the market appeared to stabilize somewhat towards the end of the year our view consistent with general market sentiment is that we do not expect any meaningful recovery in the container trade until 2011.

The tanker market also felt the pain of volatile rates and erratic demand as energy consumption remained weak. The one bright spot was the bulk market which benefited from continuing demand for raw materials driven largely by China which continued to make large-scale investments in infrastructure. World Fuel of course was not immune to the reduction in demand for fuel experienced throughout the marine industry in 2009. But the strategy we launched four years ago to improve the quality of our customer portfolio allowed us to gain market share and avoid the losses experienced by some of our competitors. Over the past two years it has often been said that a crisis is a terrible thing to waste. Ahead of the crisis we took proactive measures to protect our balance sheet and enhance commercial execution with a heightened focus on risk adjusted returns.

The results are clear. A strong coordinated commercial initiative supported by technology and a strong functional team navigated a difficult market and achieved great performance. This will serve us well as the economy rebounds and global trade recovers. In our aviation segment we grew volume and improved profitability in the second half of the year. This performance reflected the success of a deliberate strategy to diversify our mix of business in the commercial aviation market and further develop specialty markets such as government sales. Over the course of the year, we increased our investment in our self-supply model which led to improved profitability and accelerated volume growth with limited incremental risk.

As the oil companies conspicuously ramped up their programs to shed asset and retreat from airports we saw opportunities to expand our supply position both domestically and overseas. Within the past six months we've added senior supply specialists in Europe and the Middle East and enhanced the number of our supply partnerships. As we look forward our strategy is to continue to refine our sales and marketing initiative as we build more depth in logistics and supply. In our land segment the combination of our Teknor business with the acquisition of TGS and Henty, as well as organic growth resulted in record results. On the international front our Henty acquisition has opened up new land markets for us in the UK and operations in Brazil showed promising results. We are very excited about the progress we've made in the development of our land business and will continue to target additional strategic opportunities in this space in 2010.

As we look back on 2009 we are gratified to see our strategy worked. Our ability to execute was tested and we performed well. Our business model has become easier to understand for the investment community and we are spending more time in communicating how our model works and our strategy going forward. As many of you know, it has been suggested from time to time that our success over the past two years was all about serendipity, that our performance was only a function of one-off market anomalies and that any return to normalized stasis in the economy and the credit markets would revive our competition and undermine our profitability. Fortunately the truth is more prosaic. Our success and consistency of performance throughout this period can be attributed to far more than tight credit and wounded competitors.

Success in transformation of World Fuel is at its core about executing well against the strategy we embarked on four years ago and is now bearing fruit. We invested years of hard work and financial resources in building out the best commercial team in our industry supported by a mature and robust functional support structure. This allows us to respond quickly to fast-changing market opportunities while preserving a tight credit risk management discipline. We did this while investing heavily in technology, which supports robust sales and marketing initiatives, and much faster decision-making on supply. We have tightly focussed or sales and supply functions which has been central to our ability to efficiently buy and competitively sell fuel.

Through our intensified focus on supply we've developed a richer understanding of markets while improving our operational excellence both of which are critical to delivering high-level service to our customers and suppliers. We have used technology and business process improvement to drive cost discipline and realize additional value from the market. And we have been developing our physical logistics competencies across all three segments to creat additional value. We have aggressively worked to strengthen our balance sheet, improve liquidity and expand our business development activity, all of which are critical to deriving organic and strategic growths. All of this has been developed with patience and strategic deliberation over many years to secure our position in the supply chain and become an indispensable fixture in providing value to the energy and transportation industries. Our performance speaks for itself and we are excited about the future.

As we look forward we believe the credit markets will remain tight as the banks build their capital reserves and focus on lower risk strategic customers. Access to capital, quality of balance sheet and technology will continue to be significant competitive differentiators in the market. Our strategy is to continue to expand and fortify our position in the global supply chain as we use our financial, operational and commercial expertise to add value to the global energy and transportation industries. Our plan is to stay focussed on tight execution as we manage risk, take market share, grow earnings and pursue strategic opportunities.

We appreciate your continued support and I will now turn the call over to Ira Birns for a detailed review of the financials, Ira.

Thank you, Paul. Good evening, everybody. Today we announced the second highest level of quarterly profits and the highest level of full year profits in Company history. Coming off of the previous record year in 2008 this is a true testament to the continued effort put forth by the entire World Fuel team. I would like to thank all of our employees for their outstanding hard work and dedication this past year. Consolidated revenue for the fourth quarter was $3.5 billion up 11% sequentially and up 22% compared to the fourth quarter of last year. The year-over-year change in revenue is impacted by the increase in crude oil prices from an average of $59 per barrel in the fourth quarter of 2008, compared to an average of $76 per barrel in the fourth quarter of this past year. The aviation segment generated revenues of $1.4 billion, up $199 million or 17% sequentially, and up $228 million or 20% year-over-year. Approximately half of this increase was a result of higher average fuel prices and the other half was the result of increased volume.

Our marine segment revenues were $1.9 billion, up $144 million or 8% sequentially and up $321 million or 21% year-over-year. Almost the entire sequential increase was a result of the increase in average bunker fuel prices during the quarter. And finally our land segment generated revenues at $342 million, flat with last quarter, but up $82 million or 32% year-over-year. During the quarter the increase in fuel prices were offset by a slight drop in volume during the fourth quarter. Our aviation segment sold 603 million gallons of fuel during the fourth quarter, up 9% sequentially and up 33% year-over-year. Representing the highest level of quarterly volume since the first quarter of 2008 and sequential volume growth for the third straight quarter. The sequential growth in aviation volume was principally driven by increased sales to commercial passenger, cargo and government customers. Our marine segment's total business activity for the fourth quarter was 5.3 million metric tons up slightly from last quarter but down 21% year-over-year. Over the past few quarters marine volumes have stabilized, but as you are aware the marine markets remain challenging. And, therefore, we do not expect significant volume growth in the near-term. But meanwhile we remain focussed on managing risks and maintaining a strong receivables portfolio.

Fuel reselling activities constituted approximately 79% of total marine business activity in the quarter and this is in line with the average percentage over the past several quarters. Our land segments sold 159 million gallons during the fourth quarter down 3% sequentially but up 14% from last year's fourth quarter. The year-over-year change was driven in part by the acquisitions of TGS and Henty, as well as growth in our international businesses. Consolidated revenue for the full year was $11.3 billion, down $7.2 billion or 39%, compared to 2008. Approximately $4.6 billion with a year-over-year decline in revenue is attributable to the sharp decline in average fuel prices with the remainder a result of lower volume driven in part by our conscious efforts to shed risk.

Consolidated gross profit for the fourth quarter was $102 million, an increase of $7 million or 8% sequentially, but down $1 million or 1% compared to the fourth quarter of last year. Our aviation segment contributed $49 million in gross profit, an increase of $6 million or 14% sequentially, and up $14 million or 40%, compared to the fourth quarter of 2008. The principal drivers of the sequential increase in gross profit related to increased commercial passenger and cargo business, as well as increased government business, which includes a new contract awarded to us in the fourth quarter. Our self-supply models, jet fuel and inventory position was approximately 38 million gallons or $75 million at the end of the fourth quarter. A slight reduction from the 39 million gallons at the end of the third quarter, but an $8 million increase in inventory over the last quarter due to higher prices. We did again realize the benefit from inventory average costing this quarter. The amount of such benefit was similar to the benefit realized in the second and third quarters of 2009, or approximately $3 million.

The marine segment generated gross profit of $41 million, an increase of $1 million from last quarter, but a decrease of $18 million compared to last year's extremely strong fourth quarter results. For the third consecutive quarter volume and gross profit have remained steady. As market conditions begin to improve, we are confident that the strong value proposition which we continue to offer to our customers, and our expertise in supply, will begin driving more meaningful growth in volume and increases in gross profit dollars. Our land segment delivered gross profit of $11.6 million, in the fourth quarter, flat sequentially, but up $2 million or 21% year-over-year, 2009 was a successful year for our land segment as we further developed this business which driven in part by the acquisitions of TGS and Henty, contributed 11.4% of our annual gross profit, up from only 6.6% in 2008. We remain committed to continue to grow this segment both organically and through additional strategic investment opportunities.

Consolidated gross profit for the full year was $376 million, the second highest level of annual gross profit in Company history. This equates to a 24% compound annual growth rate over the past five years, demonstrating our ability to continue to drive profitable growth over the long-term. Operating expenses in the fourth quarter, excluding our provision for bad debt, were $56 million, up $4 million sequentially, but down $7 million compared to the fourth quarter of 2008. Our expenses were at the high end of the range I provided on last quarter's call partially due to increased incentives resulting from the strong finish to the year. We continue to strive for improved operating efficiency while also making strategic investments which should enhance profitability going forward.

For modeling purposes I would assume overall operating expenses, excluding bad debt expense, of approximately $54 million to $58 million, for the first quarter of 2010. Our total accounts receivable balance was $951 million at year-end, up approximately $87 million from the third quarter, mainly due to the increase in average fuel prices during the quarter. Our accounts receivable reserve was 2% of the total portfolio at the end of the year, and we feel that we remain adequately reserved. Our bad debt provision in the fourth quarter was $1.9 million, essentially flat to last quarter, but up $2.7 million compared to the fourth quarter of 2008. Similar to last quarter, the provision this quarter was primarily driven by increase in outstanding receivables due to increased fuel prices during the quarter. Consolidated income from operations for the fourth quarter was $44 million, an increase of $3 million both sequentially and year-over-year. Income from operations for our aviation segment reached a record level of $25 million, an increase of $4 million, or 17% sequentially, and $11 million or 77% compared to the fourth quarter of 2008.

Our marine segment income from operations was $24 million for the fourth quarter, a sequential increase of $2 million or 7%, but a decline of $14 million from last year's very strong fourth quarter. Our land segment had income from operations of $3.1 million, up 12% sequentially, and up 26% year-over-year. Income from operations for the full year was a record $154 million in 2009, slightly higher than the results posted last year. Despite continued volatility and instability in the overall marketplace, we were still able to achieve results which surpassed our previous record results posted in 2008. The Company had other expenses principally net interest expense and other financing costs of $800,000 for the fourth quarter. That's a decrease of $500,000 from the third quarter and a decrease of $5 million from the fourth quarter of 2008. Please remember the fourth quarter of 2008 included $4.1 million in net foreign currency losses which related to prior quarterly periods in 2008. Excluding any foreign exchange impact, I would assume other expenses to be approximately $800,000 to $1.3 million for the first quarter of this year.

The Company's effective tax rate for the fourth quarter was 19.4%, compared to 26.4% in the third quarter, and 19.2% in the fourth quarter of 2008. Our fourth quarter tax rate is well below the range I provided on last quarter's call principally due to a significant sequential increase in the percentage of foreign earnings, taxed at much lower rates than our domestic earnings, as well as increased corporate expenses in the US. This resulted in effective tax rate for the full year of 21.6%, down from 23.5% in 2008. While history has proven our tax rate can certainly vary from quarter to quarter, our full-year tax rate remains fairly consistent with historical averages. We estimate that our effective tax rate for the first quarter should be between 20% and 24%. Our net income for the fourth quarter was also the second highest in Company history at $34.5 million. An increase of $5.4 million over the third quarter, and an increase of $5.8 million year-over-year.

Before I report our earnings per share, I would like to reiterate that all periods are adjusted to reflect the recent two for one stock split which occurred in December of last year. Diluted earnings per share for the fourth quarter of 2009, was $0.57, an increase of 19% sequentially and 16% year-over-year. This was also the second highest level of quarterly earnings per share in Company history and our third straight quarterly increase. Full-year net income was a record $117.1 million, up $12.1 million or 11.5%, compared to 2008. Full-year earnings per share was another record of $1.96, an increase of 9% from last year. Our return on invested capital increased sequentially from 18 to 19%, again well in excess of our cost of capital. We continue to generate solid returns on invested capital demonstrating our commitment to drive profitable results while adding value to customers, suppliers and our shareholders. While our days sales outstanding remains flat sequentially our overall net trade cycle increased approximately 1 day to 6.7 days principally due to a decline in our days payable outstanding. Our return on working capital in the fourth quarter was 68%, down from 82% last quarter, and relatively flat with the returns generated in the fourth quarter of 2008. While down sequentially, our focus on working capital management continues to drive solid returns.

We remain a solid counterparty supported by a very healthy balance sheet which should continue to provide us with a competitive advantage in the markets we serve. On a full-year basis our return on working capital was 79% well ahead of the 37% return which was posted in 2008. Despite the use of approximately $39 million of operating cash this quarter, driven principally by an increase in inventory, we have still generated approximately $78 million of operating cash flow for the full year and over $470 million over the past two years. Despite making strategic investments in working capital, our balance sheet remains very strong and liquid, with over $300 million of cash and short-term investments at year-end, readily available to fund both organic and external and strategic investment opportunities.

In closing, 2009 was another exceptional year for World Fuel Services, in addition to posting record earnings, we closed integrated two strategic acquisitions, doubled our dividend, and further enhanced business process and commercial execution. All which helped us to, again, deliver above average returns to our shareholders. Despite market conditions, which remain generally soft, there are a wide range of strategic growth opportunities available to us today, and our strong liquidity position enables us to quickly capitalize on such opportunities. As always, we will focus on continuous improvement across the business and are prepared for the challenges and look forward to the opportunities that will come our way over the course of 2010.

I would now like to turn the call back over to our operator, Sarah, to open up the call to questions and answers.

(Operator Instructions). Your first question comes from the line of John Chappell, with JPMorgan.

Thank you, good afternoon, guys.

Hey, John.

Paul, my first question is on the marine business. Obviously I understand what's going on in the global marine markets, but I keep reading about record Bunker sales out of Singapore. So basically my question is, is Singapore's record volumes somewhat misleading is there something about that market making it stronger than the rest of the geographic markets. Or is it that your volumes have been steady by World Fuel to focus scale back risk in that market?

I would say it is a focus on the latter. We've exercised a lot of discipline this year. You know better than most people just what's going on in shipping and I think that our corporate disposition was that we should take a very prudent and sort of cautious outlook and we should exercise discipline in matching you are our receivables portfolio. There is uncertainty in the market, as you well know, and until there is transparency, I think that prudence was the better part of valor. I think that was the way to handle it. Singapore is a bit of anomaly. It is a trading center. So I would say that it gets a little bit more complicated, too, when you consider how they count the barrels out there. You have the retail supply but you've also got what we call X wharf supply. All of that adds up into what they call the bunkering market. You got not only retail distribution but cargo activity there as well. The way it all gets counted can be misleading if you are trying to deduce or deduct from that activity what's going on in the global market. I would say that there isn't anybody who isn't that in the industry between slow steaming, drop in global trade, drop-off in some of the services that many of the large fleets put in place, that there there was a very, very substantial reduction and overall demand for fuel through out the marine industry independent of what Singapore's particular's may be. I would say there is cautious optimism there. Are some signs that the markets are turning but, again, we're not going to be too bullish just because we don't know what the outcome of the economy is going to be.

Okay. Understood. And then on the aviation side you've been giving us updates throughout the quarters about this prepay business that you're doing and let us know to expect to see increased volumes but probably at lower margins, because it is a low risk business and you're getting paid in advance. The sequential increases in the aviation volumes have been significant over the last couple of quarters. Any way to gauge how much is this new prepay low-margin but low-risk business, as opposed to new business within the markets that maybe have a stronger margin.

Hi, Jonathan. I would say that a fairly large percentage of the increase you see in the last couple of quarters is what we talked about, being that lower margin, low-risk business, even prepay business, that's been the principal driver of growth over the last couple of quarters. But as I mentioned in my prepared remarks, we've also added some government business, as well, including a contract that was entered into, in the fourth quarter.

Jonathan, I might add, just so I think it's important to use this opportunity to step back a little bit strategically. As you know, ow focus has been on using our aggregation and position in the market to really develop our supply excellence and what that's allowed us to do is to go deeper into the supply chain, it has allowed us through our self-supply opportunities to go after some of the what we consider the best in class customers in the world and develop meaningful volumetric throughput with these customers in some key strategic airport locations. We see ourselves sort of going from strength to strength there, and I think the aviation team and Mike Clementi and his team 53 done an excellent job in developing a sophisticated tender review process. I think our relationship and access to pull competitively to broader complex of airports around the world has improved. We've added, as I mentioned in my comments, we've added some very top talent in the supply markets both in Europe and in the Middle East which we think is promising in terms of enhancing our ability to broaden the footprint. So there's a lot going in that drives that and we're pretty excited about the trend and where we're going.

Okay. That's a good segue to the trend. As we look at the fourth quarter number over 600 million gallons of aviation, is that something that's going to continue to grow as you continue to implement that? Or is it something that you feel like you already got a lot of this potential blue-chip low risk prepay business and probably won't add meaningfully going forward?

No, I think the pace of the growth is probably going to level off a bit but we anticipate further growth within this year.

And one last big picture thing. Refinery business obviously has suffered from horrible margins for a while. Has this had any impact on you as a counterpart? And specifically has it kind of accelerated the whole outsourcing of the low-margin downstream business to people like World Fuel?

That's a very good question. I'm glad you asked that . If you look at the macro , this was a tough year for the refining industries for sure. Margins are squeezed. If you look at the integrated oil companies there seems to be an acceleration in their programmatic effort in their shed downstream assets and they're looking to exit some of these downstream markets. There is a tremendous amount of pressure internally in these companies. I think our own disposition is to try to add value to these companies who are trying to reduce their cost by being a rational way to distribute at scale with a counter-party that is very reliable and allows them to use that platform to distribute quickly and efficiently. I think that it's brought us closer to our supply partners. I think they understand the value proposition we offer is global in scope and that is something that is highly reliable. We can move very quickly and make ratable off take at a moment's notice. I think that overall, while they have gone through a tough time, I think it has brought us closer to our suppliers and represents more opportunities as we go forward.

Very helpful. Thanks Paul, thanks Ira.

Your next question comes from the line of George Pickral with Stephens, Inc.

Question on the marine side. Increasing talk about having to use different types of bunker fuel and you shared your opinion on where you are. Is there a noticeable in the spread you can get on traditional bunker fuel versus low sulfur?

It is pretty discrete. You have to look at it market by market. Changing environmental imperatives coming out of the back of Copenhagen, what is going on with the IMO, the International Maritime Organization on developing more environmentally friendly fuel specifications. We have been involved in the specifications and supply of those products. They have haven't become ubiquitous, yet. It will have some impact. And I think it's a little bit premature to be talking about a general gross general statement about margins as it relates to these discrete fuels. It becomes market by market, region by region. So I would be a little reluctant -- I can't give you any granular firm transparency. It is good for the world. The reality is nobody is arguing that you have to be responsible citizens on the emissions side. These changes are certainly going to impact the supply chain. It will impact the traders and refining slates. But overall I think that the shipping community while they have some anxiety about whether the rules will be applied equally across the board to everybody, I think there is a consensus these are important transformational developments in the industry and it is good for the world at large and we'll all going to be playing a role. We're active in it. It is our strategy not only to be expert in the technical use of those fuels but to make them available in the various markets.

Do you think as we get into situations where it is required more you might have to use two or three or four different types of fuel for one voyage, do you think that just pushes the smaller local and regional players further out of the market?

I think you could argue that that is going to be the case. One of the things that is not often talked about. It is interesting, it is like Mike Kasbar used to say, (inaudible) thinking in concepts, living in the detail. When you get into the granular detail of what it means to be carrying multiple grades of fuel on board these vessels and how do you keep the segregation and tanks and all of the infrastructure issues around this, there is a lot to be sorted out in the supply chain about how this takes place. But I think you could argue, certainly, that I would -- I would say that the game is changing. You can't be a significant player in this space without a balance sheet. You can't be a significant player in the space if you don't have technical expertise to be managing these fuels. You can't be a player if you don't have footprint and scale. So I think it's true that logic predicts, like a lot of things, this just the game-changer. And the small thinly capitalized private enterprises that tend to be regional in scope are going to have a tough time developing the scale. You add to it oversight, quality control, the technology, all of these things are things that, as you know, and as I talked about in my notes, these are strategic investments we have been making for many years. This is part of the macro view and that you have to scale up to become a significant player in the industry that we are becoming. And I think that if you haven't made those investments it certainly will be challenging.

Great. I thank you for all that. Ira, maybe if I could ask you a question on expenses. Thanks again for the Q1 guidance, but not to get too far ahead of ourselves here, but would there be any reason to think that G&A wouldn't continue kind of on this 20 million run rate pretty much indefinitely, and your comp expense would pretty much mirror '09 levels, save any sort of additional incentive comp?

That's a good question, George. If you look at 2009, if you take those two numbers and put them together, they aggregate at approximately 58% of gross profit. While a number can vary a bit quarter to quarter, slightly higher, slightly lower, I'd expect that 2010 would most likely be in that general zip code.

Okay.

Either there may be some additional savings from cost efficiencies going forward. At the same time, we're always considering strategic investments in people and technology to help drive additional growth going forward. So those two, may kind of offset each other over the course of 2010.

Okay. But -- I'm thinking about incremental operating margins here. Assuming we get a little bit of a recovery and you continue to add volumes across your segments, and your costs stay relatively fixed, can you bring -- can you bring the first wave of volume growth in at a -- I don't know -- 75% or 80% incremental margin?

I wouldn't say 75% or 80% considering that the comp piece of the puzzle, but you certainly should be able to -- depending upon the -- the level of volume growth, and that curve upwards, the sharper that curve upwards, the more efficiency and the greater percentage of those gross profit dollars would ultimately drop to the operating income line. So there is certainly efficiencies, especially on the G&A side. Comp always has an incentive component side to it, set to increase those profit dollars. G&A really doesn't and you don't have the need to build that G&A number significantly as you go to those profit dollars. That is where the bigger savings are.

Okay. Thank you. And one more quick question for you, Ira, 300 million in cash, you've been talking for years about making acquisitions and you have, would you consider putting in a stock buy-back in place at the same time over, or are you solely focussed on acquisitions at this point?

Well, first point to note, we do actually have a buy-back program approved and in place. We just haven't exercised or executed on it as of yet. To be honest, it's something that always warrants consideration, something that we talk about on a regular basis. It depends on many variables, available cash, pipeline of organic investment, M&A opportunities, et cetera. I would say in general, our first consideration remains, the investment in strategic opportunities, M&A, internal growth opportunities, that doesn't mean that we would not consider a buy-back at some time in addition to those, but it really depends on where we are at a point in time, depends on stock price, et cetera.

Okay. Great. Thanks for the time guys.

Your next question comes from the line of Steve Ferazani with Sidoti.

Hi, Steve.

On the marine side you talked about you've held back you recognized the risk in the marketplace as that diminishes, as we start to get into a global recovery, could we see a quarter where sort of the flood gates open, you're willing to sell to a lot more customers than you were before and all of a sudden we see a jump?

Steve, I'm not sure -- I understand how you put the question. I don't think we think about it that way. I think we take more of a disciplined approach. We don't anticipate that this is some binary thing where a flood gate opens and there is a flood of activity. This is an ongoing review about penetration into our customers. I mean, certainly you could argue that maybe we were a little too conservative, maybe we were a little too cautious in this market, but I would argue that is always a best place to start, to take a discipline approach. I think we have done very well as a busy model by focusing on a certain class of customer, driving deep value, and as the economy grows, logic predicts those customers are going to scale and their demand will increase. As that happens we certainly will be the beneficiary of that, no doubt about it. Because we already have the relationships and demonstrated capability to execute at scale throughout -- throughout the world market. So from that point of view I think, I think that if it does turn, we're going to absolutely benefit. But I don't see it as so much as a flood gate. I don't think it's a binary thing. I think you'll see a slow escalation back up as the economy turns. Remember, when you think about shipping in the supply chain, it's way down the decision curve as you think about booking your inventories and booking your raw materials, and all of that stuff. So I think from our perspective it will be a challenging environment. If the economy turns and global trades, certainly our class of customer will improve as well and we will benefit from that. I just don't think it will be so binary as a flood gate.

Fair enough. On the land side, how would you distinguish the opportunities to expand organically versus through acquisition? Now, you've had a little bit more time with some of the acquisitions. Have you seen the opportunity to expand that client base from the sort of the midwest base you're in right now?

Hi, Steve, it is Mike Kasbar. Yes, the results that we've had there, again, as Paul said, if anything, being conservative that should be our biggest, our biggest thing that we would be accused of. But we have been very selective in our -- in our acquisition strategy. We have been investing in that technology platform, the one thing that's interesting about the land space is that it's very much driven by technology in terms of all of our businesses. So that takes a little bit of time to ramp up. We've been investing in people. So we feel good about our ability to grow that business and we're committed to becoming a significant player in the market. So, as it's grown from 6.6% of our business activity to 11.4%, you see that we've been taking it step by step, and it will certainly become a bigger part of the Company's business in 2010.

Is it something that you could without making acquisitions that you can grow it organically at a reasonable pace? I mean, -- there are client wins out there from the base you currently have?

Yes, and we've been doing that, in Brazil and the UK, those are picking up. But it takes time. Organic growth is a little bit slower, obviously.

Sure.

But we've been adding people. And one of the benefits of today's market is that we look pretty good in terms of attracting the type of talent that we need in order to -- in order to grow that business organically.

All right. That's it for me. Thanks a lot.

Thanks, Steve.

Your next question comes from the line of Mickey Schleien with Ladenburg.

I wanted to do go back quickly to the aviation segment. In your comments you said that you expect your volume to grow this year.

Yes.

I'm trying to reconcile that with the mixed signals we're getting out of the airlines. We still see red ink, but at the same time some of them are starting to commit to modernizing their fleets, and other companies that supply that industry are starting to anticipate a rebound, at least in the second half of this year. So in your expectation for volume growth in the airline segment, are you basing that on organic growth in the industry, or higher market share?

I think we're seeing it as higher market share, first and foremost. I think that we have a better mousetrap. I think the system that we built over the last couple of years has really differentiated ourselves and we have been becoming a more meaningful and value added player across the cross section of the industry. I would say you're right, Mickey, there is some ambivalence about what is going to happen in the industry, as far as the FBL well being, but we saw exciting activity in the cargo space. We rely on the fact we have a highly diversified customer base. It id global in scope, it is not about large concentrations It si about highly diversified proposition to many customers. For us it is about market share. We've got a better mousetrap. We're executing well, I think the team is highly focussed. We're getting recognition throughout the aviation industry, from the largest to the smallest cargo guys and can add value in multiple locations. I think that has taken a lot of work to build, we're excited about it and that is where we see the growth coming in 2010.

Are you seeing demand differences in the demand profile from outside North America as opposed to inside North America?

I would say that the encouraging part to us is that we are seeing a growth of interest outside the United States.

Just by way of example there are different dynamics in different markets but Brazil has been growing at about 14% in their aviation demand.

Thank you. That's helpful.

Thanks, Mickey .

Your next question comes from the line of Edward Hemmelgarn with Shaker Investments.

Could you talk a little bit about the acquisition pipeline, what it looks like and where you think you're seeing the most opportunities?

Well, this is Paul Stebbins. I would say that the opportunities slate is broad and it's diverse. There are, when we look at all three of our segments, we have the good fortune to be looking at a number of opportunities that are both international and domestic and they cross all three of our segments and some of them are in our core, immediate business and some are diversified and ancillary to our business. So I would say that it's a full pipeline that we are in the constant process of evaluating. As you know, it's not always easy to execute because there can be impediments to these things but the fact remains is we to evaluate them and we spend a lot of effort developing our business development function and our ability to process these things and that is something that I think we're getting better at and my sense is that it's going to be a robust part of our growth aspirations as we grow over the next couple of years.

Do you think that as you look out over the next couple of years do you expect a greater percentage of your growth to come from acquisitions or internal growth.

Gosh, it is kind of hard to say. As Mike just alluded (inaudible) and building scale over time and penetrating markets and investing in sales and marketing and differentiating supply offering. That is sort of the incremental hard work of growing the business day by day. That's certainly not going to stop. We're commit to do that. The better our mouse trap gets and the better our confidence to do that. The global crisis has turned the supply chain internationally on its ear and while that in one form you can argue that has been a crisis and stressed the global economy and transportation and energy industries, for companies like ours it created opportunity. Because the entire sort of the whole -- who the players are is being completely reevaluate. That represents opportunity for us. The exciting thing for ow business model p given the way we're set up, the way our dynamics are, balance sheet is set up, the way our value proposition is derived, we're excited because we think there are probably more opportunities being created for companies like ours than we've ever seen. So as much as the last couple of years has been painful I would say that in the next few years coming forward this is sort of all good news for this business model.

Thanks, Paul.

Sure.

Your next question comes from the line of Brian Belahaney with [Entrust].

Thank you for taking the call. Just a little clarity on the balance sheet. When I look at the inventory year on year -- I know we made some acquisitions. Can you break down or roll forward how much of the change in inventory is from acquisition versus underlying changes in the commodity price versus I guess you're calling strategic investments and working capital?

A very large percentage of the year-over-year growth is commodity-price related. And we also have -- well, commodity-price related combined with an increase in jet fuel inventory, strategic jet fuel inventory. That's the largest driver. We also bought a company called Henty in April of last year. In the marine and ground base, in Liverpool, England. We picked up inventory with Henty, but that number is a smaller piece of the puzzle. So the largest driver remains the increase in both the price and the gallons on the jet fuel side.

And when you say you're making a strategic investments, just to clarify, what does that mean?

It simply means we built up our overall inventory position on the jet fuel side and that inventory has been a driver of some of the growth that we've seen over the last couple of quarters. A lot of that growth has been coming out of that through that inventory position.

And this is Paul, just to clarify, maybe it will help you. In our business model we have opportunities to sell back to back where you are matching a supplier it is kind of a throughput. And then there are other opportunities where we use the inventory to drive our cost build's up in certain locations. In that sense it is strategic. It allows us optionality in how we actually supply. And it is an interesting part of our business model. But, that's -- I hope that helps you.

So how much of like in the last quarter, how much of the profitability came from those type of inventory investments?

We don't break it out that way.

All right. Thank you.

Sure.

At this time there are no further questions. Presenters, do you have any closing remarks?

Sure, we appreciate you joining us today. As you know, this Company has worked very hard over the last couple of years to transform its operational efficiency, it's developed, we invested in technologies, and done a lot to make the balance sheet a very important differentiator. So from the strategic point of view we're looking to continue to expand and fortify our position in the supply chain and our plan is to continue to stay focussed on very tight execution. And we appreciate your support and we'll talk to you next quarter. Thank you.

This concludes today's conference call. You may now disconnect.