World Kinect Corp (WKC) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the World Fuel Services 2018 First Quarter Earnings Conference Call. My name is Ash, and I will be coordinating the call this evening. (Operator Instructions) As a reminder, this conference is being recorded Thursday, April 26, 2018.

I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Vice President, Assistant Treasurer and Investor Relations. Mr. Klevitz, you may begin your conference.

Thank you, Ash. Good evening, everyone, and welcome to the World Fuel Services First Quarter 2018 Earnings Conference Call. I'm Glenn Klevitz, World Fuel's Assistant Treasurer, and I will be doing the introductions on this evening's call alongside our live slide presentation. This call is also available via webcast. To access this webcast or future webcasts, please visit World Fuel Services Corporation's website and click on the webcast icon. With us on the call today are Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer. By now you should have all received a copy of our earnings release. If not, you can access the release on our website.

Before we get started, I would like to review World Fuel's safe harbor Statement. Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information.

A description of the Risk Factors that could cause these results to materially differ from these projections can be found on World Fuel's most recent Form 10-K and other reports filed with the Securities and Exchange Commission. World Fuel assumes no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. This presentation also includes certain non-GAAP financial measures as defined in Regulation G. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in World Fuel's press release and can be found on its website. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. As with prior conference calls, we ask that members of the media and individual private investors on the line participate in listen only mode.

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

Thank you, Glenn, and good afternoon, everyone. Thanks for joining us today. Overall, it was a good quarter for us. We opened the year benefiting from recent improvements and cost management, a focus on rationalizing parts of our portfolio and executing in key operational areas.

Ira will take us through the financials, then I'll make some comments and we'll save some time for Q&A. Ira?

Thank you, Mike, and good evening, everyone. Today we announced adjusted net income of $35 million for the first quarter, that's an increase of $400,000 when compared to the first quarter of 2017. Adjusted diluted earnings per share was $0.52 in the first quarter, that's up $0.02 from the first quarter of last year.

Consolidated revenue for the first quarter was $9.2 billion, that's up 12% compared to the first quarter of 2017. This increase was principally due to a 22% year-over-year increase in oil prices compared to the first quarter of last year, offset in part by lower volume in the Marine and Land segments, which I will discuss shortly.

Our Aviation segment volume was 2 billion gallons in the first quarter, up approximately 135 million gallons or 7% year-over-year. Volume growth in our Aviation segment was derived principally from our core resale operations in North America and EMEA as well as our acquired international physical fueling operations.

Volume in our Marine segment for the first quarter was 5.8 million metric tons, that's down approximately 1.1 million metric tons or 16% year-over-year. The largest drivers of the volume reduction relate to our operations in the Asia-Pac region and our decision to exit certain low margin or unprofitable markets, which we spoke about last quarter.

Our Land segment volume was 1.46 billion gallons and gallon equivalents during the first quarter, that's down approximately 40 million gallons or 3% compared to the first quarter of 2017. The decline in Land segment volume was principally driven by the reduction in supply in trading activities during the first quarter. And total consolidated volume in the first quarter was 4.9 billion gallons. That represents a decrease of approximately 180 million gallons or 4% year-over-year.

Before I continue with our financial overview, please note that the following figures exclude $4.8 million of pretax nonoperational expenses in the first quarter as well as nonoperational items in previously reported periods, as highlighted in our earnings release. The nonoperational expenses are principally comprised of acquisition-related expenses and severance costs. To assist all of you in reconciling results published on our earnings release and 10-Q, the breakdown of the $4.8 million of nonoperational expenses can be found on our website on the last slide of our webcast presentation today.

Consolidated gross profit for the first quarter was $244 million, that's a $12 million increase or 5% increase compared to the first quarter of last year. Our Aviation segment contributed $110 million of gross profit in the first quarter, that's an increase of $10 million or 10% compared to the first quarter of 2017.

Commercial activity in North America and Europe increased year-over-year and despite lower margins from our recently renewed government contract, contributions from our NCS government business also increased when compared to the first quarter of last year, driven by increased volumes and continued spot activity in the region. We still expect contributions from these activities to decline over the course of 2018.

As we look to the second quarter, we expect seasonal sequential increases in our core resale business, which should be the principal driver of stronger Aviation results in the second quarter. The Marine segment generated first quarter gross profit of $31 million, that's down $2 million or 7% year-over-year, but up $2 million or 8% sequentially. The year-over-year gross profit decline was principally driven by the reasons described earlier. However, the stronger-than-expected sequential growth was principally driven by increased activity in our offshore business and the sale of price risk management products.

Continued increases in bunker prices, which increased more than 20% in the first quarter alone likely contributed to greater success in these lines of business. Additionally, our cost-reduction initiatives also positively contributed to Marine segment profitability in the first quarter. Looking ahead to the second quarter, we are cautiously optimistic about delivering another good quarter in Marine, however, quarter-to-date, we aren't running at the same pace as we were in the first quarter at the same time during the quarter.

Our Land segment delivered gross profit of $102 million in the first quarter, an increase of $4 million or 5% year-over-year. The increase in gross profit was principally driven by a strong contribution from our activities in the U.K., which benefited from the first seasonally cold winter in a few years. Gross profit associated with our Multi Service payment solutions business was $17 million in the first quarter, that's up 20% year-over-year, demonstrating the continued growth of our global FinTech payments platform. Second quarter results in the Land segment are expected to decrease sequentially coming off of the strong seasonal gains we realized in the first quarter.

Operating expenses in the first quarter, excluding our provision for bad debt and nonoperational items, were $180 million, in line with the mean estimate that we provided on last quarter's call, that is $5.3 million up year-over-year, but down $8.1 million sequentially. Excluding the expenses related to acquired companies, operating expenses were up $1.6 million year-over-year, but down $9.8 million sequentially. The sequential decrease in expenses principally relates to our cost-reduction initiatives, offset in part by expenses of recently acquired companies.

In the second quarter, we expect operating expenses, excluding bad debt and nonoperational items, to be in the range of $177 million to $181 million. Again, we remain focused on improving cost efficiencies and dropping more gross profit to the bottom line.

Last year's expense ratio is not a metric we are looking to repeat. Therefore, we continue to evaluate our cost structure throughout the company in both our commercial segments as well as functional corporate departments and aim to drive a year-over-year reduction in this metric of at least 250 basis points in 2018 and another 250 basis points in 2019 with additional improvement in 2020 and beyond.

Consolidated income from operations for the first quarter was $62 million, up $8 million or 14% year-over-year, reflecting solid gross profit performance as well as the benefit of our cost-reduction programs. Adjusted EBITDA was $81 million in the first quarter, up from $77 million in the first quarter of 2017 and $61 million in the fourth quarter of 2017.

Trailing 12-month EBITDA increased to $305 million, up from $301 million at year-end. Nonoperating expenses, which is principally comprised of interest expense, was $18.6 million in the first quarter. This represents a $5 million increase year-over-year, principally related to higher average interest rates compared to the first quarter of last year.

I would assume interest expense will be in the range of $16 million to $19 million in the second quarter. Our effective tax rate in the first quarter was 19.3% compared to 16% in the first quarter of last year. This is a result of tax reform. Changes in our tax rate will likely still be a bit of a rocky road over the next few quarters. Our first quarter rate wound up lower than we anticipated driven by some earlier posttax reform effects. However, our rate will most likely increase to the mid-20s or possibly even higher over the balance of the year, again, due to many of the new elements of the tax code posttax reform.

Our total accounts receivable balance was $2.7 billion at quarter end, that's an increase of approximately $450 million year-over-year, principally due to higher fuel prices. Inventory investments supporting strategic and seasonal opportunities, combined with a sharp increase in fuel prices were the principal drivers of $108 million of negative operating cash flow as historically defined for the first quarter.

If you take a look at our cash flow statement, you will see that operating cash flow for the quarter is reflected as negative $229 million. This is a result of a new accounting standard which applies to receivable sales activity. The adoption of this new standard did not have any impact on the timing or amount of cash flows. However, it simply resulted in a change in classification from operating activities to investing activities. So this quarter, you will see a $121 million use of cash from operations offset by $120 million of positive cash flow from investing activities. We are currently reviewing opportunities to amend our related receivables facilities, which could eliminate this issue going forward. In any event, while we used cash in the first quarter for the reasons described, we remain focused on delivering positive cash flow for the full year, despite higher fuel prices.

So in closing and before I turn it back over to Mike, all 3 of our segments delivered solid results in the first quarter, significantly rebounding from the fourth quarter. Our operating expenses declined sequentially and meaningfully so, demonstrating our continued commitments to drive greater efficiencies in our business model. We still have a lot of hard work ahead of us, but we are getting more adept at driving cost efficiencies throughout our business, while at the same time investing in growth where appropriate.

So I would now like to turn the call back to over to Mike for some additional commentary before we open the call up to Q&A.

Thank you, Ira. Our Aviation business volume growth exemplifies the differentiated value-add we bring to the jet fuel marketplace. Our combination of third-party inventory distribution and technology is a winning formula that we are replicating in all of our businesses.

Our Marine business is doing an excellent job of managing cost and repositioning the business within the supply chain. We are committed to the global marine logistic markets and are well positioned to meet the requirements of 2020 by virtue of our global sourcing and distribution capabilities, including LNG. We are reallocating capital in our Land business, trimming inventory levels, which have produced variable results and at times lower returns and allocating more investment to an end-to-end 0 touch distribution model where clients can order products on a smartphone.

Our NCS and government business performed well and continues to demonstrate our complex physical logistics capabilities. Multi Service is increasing its operational sophistication and global reach. Despite its modest size, we remain optimistic about its business pipeline and prospects to accelerate profitable growth. Our Kinect Energy Group is expanding its range of services to a broader range of small- and medium-sized natural gas and power customers, which is dovetailing nicely with our existing C&I clients and aggregates demands with our larger client base to create purchasing and supply efficiencies.

Today, we operate a platform that creates efficiency and simplicity in global complex energy logistics and payments in 225 countries and territories. We have an increased focus on sharpening our portfolio, reallocating capital and rationalizing infrastructure costs, SG&A and operations. We are using an agile methodology to drive a leaner management system. This is driving our ability to allocate capital for better returns, methodically improve our OpEx ratio and drive growth. As a key part of this, we are aggressively leveraging cloud technologies and AI automation to drive speed to market and lower costs over the next 2 years.

I'd now like to turn the call over to the operator to begin our Q&A.

(Operator Instructions) And our first question comes from the line of Ben Nolan with Stifel.

I wanted to follow up with something, Ira, that you had mentioned in the Marine business that it seems like the first time in a long time that there was an uptick in the price risk management part of that aspect. And really is that -- I don't know, is that something that you would think is -- that you are continuing to see thus far in the quarter? And maybe, more importantly, are you starting to see people think critically about how they're going to address their needs for the 2020 regulations? And is there any preemptive hedging or anything like that, that's beginning to happen that might actually be beneficial for your business?

I'll cover the first part of your question and let Mike chime in on 2020, Ben. Thanks for the question. Look, we're certainly happy with some of the incremental results we saw coming out of the first quarter that I described in Marine. In terms of the hedging piece of the puzzle, that's a tough one. Prices are up pretty meaningfully. So more people seem to be thinking about doing some hedging. They may not have thought about doing that for quite some time. The question is, how sustainable is what we picked up in the first quarter. It's kind of spotty. We've got a couple of more transactions with the hedge component associated with them that were nice wins for us. Whether that continues or not into the second quarter or third quarter, it's really tough to forecast. Thus far this quarter, we're not running at the same pace we were in the -- halfway through the first quarter or a third of the way through the first quarter. So we're -- I purposely use the words cautiously optimistic because it seems like those opportunities have resurfaced a bit, how much they're going to drive incremental profitability is really a difficult one to nail down.

On the -- just to add some further color to that, by and large, the marketplace believes that prices are range bound despite what we're hearing in the news. I'm hearing a lot of stuff in the news these days. Post fracking world, Saudi and Russia have got greater spare capacity, a lot of discipline there, which is incredibly surprising despite some of the talk about Iran, I don't think people seem to be worried, airlines aren't hedging. So we have the capability, and I think we are pretty sophisticated on that. We use that for our own inventory management. So we are at the ready and it's part of our offering. But it's not something that I think we are forecasting to be a big needle mover, but we are ready, if and when more volatility comes in. And some folks use that to manage their exposure more conservatively than others. On the 2020 hedging, there may be some of that. That will come through as we get closer. I'm personally not aware of people taking large approaches on that. It's been an incredible wait-and-see. Certainly, some people have gone to scrubbers and LNG. But for the most part, a lot of folks are taking -- I think the vast majority of the marketplace for economic reasons are just sitting and waiting. I think we are well positioned to be able to deal with them.

Okay. And then, another thing that had come up was that your inventory levels are a little bit higher. I'm curious if that is a bit structural? Or is there something that we should read through going forward in terms of how you guys are structuring the balance sheet and how much inventory you think you need to have optimally to service your customers? Is there a change, I guess, in how you are thinking about the business from an inventory perspective?

Not really, Ben. Good question again. In the first quarter, there were 2 specific factors that drove most of the increase. So I would say if I put those aside for a moment, our core day-to-day business that involves the inventory piece of the puzzle, the only thing that really had an impact the first quarter was price. Nothing really changed. As a matter of fact, in Land, we're down a few gallons in terms of the amount of inventory we were holding. Aviation was pretty steady as was Marine. But the 2 factors outside of that that were impacting the first quarter -- just said Marine, but starting with Marine, we add -- actually, one of the things that contributed to more profitability in the first quarter was some seasonal business right here in this neck of the woods here in Florida, you can imagine what industry that might support. And that required an investment in inventory that was already dropping off from the peak of where it was during the first quarter as that kind of peak season is over. And then the other piece of the pie related to our government business in Afghanistan, where we consciously work with our principal customer there to add some levels of reserve as a mitigator against the risks of things like border closures, et cetera and we are getting compensated for that. So we invested some more there. That will be there for a while, that's a short to medium term investment. That's not going to turn around overnight. But it seems to be a very sensible move for both sides of that equation. Everything else, again, was pretty steady. And we don't expect any material changes in inventory balances outside of potential price fluctuations in the next couple of quarters.

I'm going to take the opportunity to just add a little more color to that because as we look at inventory, as we've gone through the sort of 3 cycles of evolution within World Fuel, we started out as an asset light, underwriter created -- creating value in a fragmented marketplace and then went into an inventory based commodity market maker with crude oil and rail and you've heard me talk about it before and now we're in our current evolution as a distribution and service network, coming up with more ratable returns. So there's 4 methods of fulfillment. We have our third party, which is where we came from. We have our physical, which breaks down into inventory as well as distribution assets and then we have virtual, what I call [3PV] and those were the 4 ways that we basically satisfied customers' demands. So on the Aviation side, we have inventory because it is strategic, and if we didn't put inventory in some locations, there would be no supply. They're very many manufacturers of jet fuel that have no interest in supplying it into wing. So it's a bit of a peculiarity, if you will, of that particular business model and we both end up markets there. Today, we have inventory in 35 countries. In our Marine business, we started to penetrate the chain in niche markets and that's worked out pretty well for us, developing some capability there. And then in our Land business, again, it's for the same reason. And it's strategic and evaluating the choices there in terms of third-party rack supply inventory. And now we have distribution assets in 16 countries and 11 states. And then in terms of fuel cards and our ability to drive e-commerce, courtesy of Multi Service and AVCARD, we continue to expand that. We're making investments and putting more dollars into those types of investments to create internal efficiencies for us, as 0 touch, end-to-end, eliminating some of the internal manual processes using robotics, but then also, creating convenience for our customers to basically procure fuel and to integrate more completely with our operations. So it's a long way away from inventory, but I thought it was an opportunity just to kind of lay out a little bit of the current business model and how we're looking at the allocation and the returns and optimizing that. So going with standardized accounting systems and looking at consolidating those areas, some of the cloud-based that Jeff Smith and his team are driving is I think going to create an interesting opportunity for us to provide better service at lower cost. So anyway, sorry to use that opportunity on inventory, but I thought it was worth to share that.

I think honestly, that was sort of what I was driving at there is this kind of how inventory relates to the strategy of the company's on a holistic level. So that was very helpful, I appreciate it.

Our next question comes from the line of Ken Hoexter with Merrill Lynch.

Michael, Ira, and Glenn, maybe I don't know, I guess, it's Michael, if you want to talk about the Land business you were just talking a bit. You kind of hit on a lot of things: 0 touch, off the web, you can order off the web, robotics. Maybe just -- you also threw out at the beginning rationalizing some of the stuff you're working on. Maybe walk me through what's going on. I mean, Land volumes came down, Ira, you mentioned that through your presentation, but is this now different than just distributing fuel to gas stations, selling in a wholesale model, owning some of those assets. Maybe talk to me about what you're doing because you just -- Michael, you threw out a lot of things that seem very different than from what I understood the Land business to be and I want to understand the rationalization part since your volumes were down year-on-year?

Okay, sure. Thanks, Ken. So we are predominantly in the U.S., the U.K. and Brazil. Although our intention is to go global because it is a global business. We've got the ability to do that in the aforementioned methods of fulfillment. So we grew up internationally. Many of us started by doing business globally, so we have a global orientation in our company. Ships and planes go all over the world, and if you're going to play the game, then you start out with a global orientation. So there is absolutely no reason why our Land business shouldn't be global, so I just want to start out with that. So we entered that space in 2004 de novo. That was an interesting experience. We went to the retail business in 2008 and aggregated a good amount of that in the Midwest. So that was supplying fuel by full truckload to gas stations under multi-year contracts. We still have that, it's a good business. We like it. So that's a chunky piece of our business in the U.S. More recently, in 2016, we diversified into C&I. Let me sort of backtrack a little bit. We started out in 2004 wholesaling at the rack to distributors that were looking for credit and some pricing and some derivatives and we had expertise in all of that. That was interesting. 2008 came, wasn't such a great strategy and we decided to move into the retail business, which we built up a certain amount of concentration in the Midwest. 2016, we went into the C&I business and we've got Western rather, sorry 2010 was Western, the reason we acquired Western was because we were consolidating the 3 business Aviation, branded and unbranded distribution businesses to FBO. So today we distribute through about 1,400 FBOs under contract and they also had a "Land business with inventory." That's where we're using our entrepreneurial roots, pulled the thread on a real business going north to south in Canada as well as crude oil. We built a state-of-the-art crude oil transshipment terminal. That was great while it lasted, of course, but the market crashed Q4 of '14 and Q1 of '15 and the music kind of stopped there. And we had a lot of other issues there as everybody well knows. We got involved in Lubricants. Western was an extremely diversified business and we exploited all of it and made a good amount of money, but the market changed. So we have had to unwind many of those things, which we are now more aggressively unwinding. Some of those take a while to unwind. And we now are much more highly focused on trimming the portfolio and aggressively eliminating that and freeing up that constrained working capital to reallocate and deploy it to a higher return business in our core business activity. So within our Land business, we still have a retail business, we like that business. It's a good business. We have our C&I business with the acquisitions that you well know in terms of APP and PAPCO. PAPCO got a little bit hit with the East Coast transition in the supply market in terms of (inaudible) changing. So as I've mentioned in the past, we are restructuring that business to be more recurring revenue and more retail. A good amount of our cross-selling and selling activities are getting more aggressive on the selling side. Our Kinect business and gas business has a good crossover. I made a comment to that in my prepared remarks where it's common customers. So we do have an interesting ability now to go after those common C&I customers. So today, it is our retail business, our C&I business in the U.S., we've got our U.K. business, which is operating a hell of a lot better today. We've changed the entire management team there. Now with some of these businesses, there are smaller activities. And the one thing that you've got to decide is, are you a supermarket, do you need to have all of these items within your portfolio when we're more aggressively validating that and rationalizing those activities. Brazil is a different story. It's always an interesting adventure there and that is a big market. We know the ups and downs of Brazil, but -- so that's our Land business for the most part. What have I forgotten Ira?

I think you covered all...

I don't know, Ken, I'm sorry. Let me just tell you about the inventory side within Land. We are looking at that where that was fairly robust. The (inaudible) have changed and the market is just not as -- it's just not giving you as much as it used to. So we'll continue to maintain expertise in inventory and derivatives, and distribution because that's what the market needs. So it's really setting up whatever operation is required. Obviously, we get a better return when you've got less amount of working capital deployed, but the market is the market and we basically approach it with whatever need to be done. Sorry to interrupt. I know you had another question.

I guess I was just trying to simplify it at the end there. So it sounded like you wanted to rationalize some parts of that. Does that mean going back down to just simply doing the retail type of operation where you're distributing the fuel to gas stations in a branded? Or is it staying as broad with so many different things going on? I don't know, you even threw like some app-based ordering in your overview. I just want to -- I'm trying to simplify kind of what the story is for Land and then again come back to why it was down?

No. It's a great question. So we've got retail and we have C&I. If you look at this, there is a lot of commonality in our businesses. So if you look at now, our retail businesses, we are arranging for full truckloads to go from Iraq from a terminal to a gas station. We have our FBO business, which is not a lot different. We are arranging a full track of jet fuel to go from Iraq or a terminal or refinery to an FBO. So there is a lot of commonality. As we're looking at our C&I business, there is a lot of commonality there between serving that customer with their liquid fuel as well as their gas and power. So there is a commonality with these businesses all across them where it's logistics, it's procuring fuel and delivering it. With the C&I, that could be a laundromat, it could be an aggregate company. Any commercial and industrial user of diesel or gasoline is our customer. And when I talked about that app, it's -- people are ordering fuel. They want to a truck of fuel. So now in the on-demand economy and society that we have, you've got to provide convenience for them to basically manage their energy and their operations. So that's where the world is going. And we are now deploying technology in our operations that are connecting our complete internal systems with our customers' requirements. So that -- they're able to buy their fuel, when they want it, where they want it, how they want it. So that's the name of the game and we are integrating all of that within our business. I hope that's clear.

Yes. I appreciate you giving me that -- the [brown] response there. Let me ask one question from last quarter. You had mentioned earlier or maybe it's for Ira different things on hedging gains or anything rolling over into the quarter. Is there anything that -- I think you had recognized something this quarter. Is there something that is still left over in that in the quarterly results that does not go forward for the rest of '18?

I think what you're referring to, Ken -- thanks for the question, is the $7 million or so that we talked about in the fourth quarter where we took a hit on the hedge side of the equation and then had the gain on the physical inventory as we sold it in the first quarter. So that $7 million all came back during January, but that's generally behind us now.

Our next question comes from the line of Kevin Sterling with Seaport Global Securities.

Mike, as we think about the rest of the year because we've had a lot of -- we had some moving parts this quarter. You guys had nice rebound from Q4. Can you give us any color how you are thinking about volume growth in your 3 segments for the rest of the year, just to kind of help us there because we've got so many moving parts?

Yes. Okay, well, the thing that we've been spending a lot more time on is looking at all of these metrics. Obviously, as you put all the cost structure together, there is a lot of moving parts. So our model obviously is comprised of volume and margin OpEx. So we've been thinking a lot about that lately as we look at all of the -- this is a lot of where we've been focused on. So this year, I think, we've got some work to do, but I think, over the next 3 to 5 years, we feel like we've got a shot if our plans come to fruition in terms of restructuring some of our systems, our portfolio, being able to get a lot more of our financial resources and our people focused on fewer things that we've got the ability to drive a CAGR over 3 to 5 years of about 10% both organic and inorganic. So that -- I don't know what that sounds like to everybody, but that's certainly in our lay-up. But we think we've got the ability to do that, that as we build our global machine and platform we should have a system that should be able to aggressively hunt for business. I've mentioned in the past that we are deploying some technology in terms of sales and cross-sell. We've got a fairly incredible Rolodex. I mean if you look at our customer base and customer list, it's extraordinary. And as we both acquire companies and as we create more connectivity within the organization and we look at the products and services that we have, we feel that we've got something that is differentiated. We've got a strong right to win. We know that within our existing customers, if you cross-reference our customers' demand with our products and services that there is a lot of white space. So I feel good about it. It's an exciting part of it. I think we are all looking forward to getting back to that place where we've got a lot of capability to execute in the marketplace and getting this global mousetrap that we are building, working a whole lot better. So it's been a transition, but we think that that's reasonable to look at a 10% CAGR over the next 3 to 5 years both organic and inorganic.

Just to add to that briefly to the first part of your question, Kevin, (inaudible) part of this. For this year, I think, one of the principal reasons why we expect volume not to grow is part of the uncovering all rocks and looking through the entire business to where we've got lower-margin businesses, businesses that aren't performing well. We are looking to actually shed some of them. We've been doing that on purpose, right? As you can see from this quarter, we had year-over-year volume declines but our profitability was stronger. So that is a lot of the story of 2018. I think, once we get through '18, to Mike's point, we believe, with -- maybe with a little bit of M&A, we should be able to grow 10% a year in volume without much of a problem.

Okay. Got you. So Ira, you mentioned M&A. How does the pipeline look? Is there any maybe new verticals you are looking at? Or maybe kind of update us on the pipeline since you did mention M&A, if you don't mind?

There is a lot of opportunity out there. We're certainly not short of opportunities in the pipeline. It's identifying which opportunities make sense, which valuations make sense, how it can plug-and-play into our current business, as Mike says, we continue to sharpen our portfolio and refine it a bit. So I think a lot of what we are looking at in the short term is more in line with our core activities in businesses like Land as an example. So there is really almost too much out there to digest sometimes. But we're cutting through it very carefully. As you can all tell, we haven't been overly acquisitive in the past year or 2 years. But I think the opportunity for us to jump back into that game is getting a bit stronger, but we use the cautious word again, right. We are not going to make an acquisition for the sake of making an acquisition, but rather doing a deal that we think is really going to add some value and provide synergies and help drive one of our existing core lines of business to new levels of growth.

Okay. And one last follow-up here, if you don't mind. With the rise and kind of the steady rise we've seen in oil prices, are you seeing the behavior or your customer buying patterns change kind of with this rise in oil prices? And maybe along those lines, are some of your Marine customers, are they feeling a little bit more optimistic about the environment? Seems like the environment is improving on the Marine side compared to a few years ago. I'm just curious what are you seeing in terms of like buying patterns of your customers with this rise in oil prices? And are your Marine customers feeling a little bit better by the current environment that they operate in?

Kevin, I don't think there is a lot to celebrate within the market. I think this is a -- still a bit of a slog. You've got some of the trade activity, but I think dry bulk there is some moderate expectations, but the product tanker side, maybe has gotten a bit obviously, what the supply in crude, what the supply scenario is in terms of production, it's hard to tell. But it's certainly, I don't think there is anything to celebrate for. Container has sorted themselves out a little bit, but I think it's steady as she goes. I don't think there is anything that is particularly noticeable or that has changed in the recent period. On the volume side, just to answer your question there, there is some moderate activity as you've seen in our results, but remains to be seen. I still believe that the markets more or less range down, so that could change. We certainly are at the ready to handle that, but we're not forecasting that and we're not forecasting that in how we are structuring our costs. So I think, probably, the more important thing that folks may want to hear is that, in the past, I've made these comments, it was really about looking at the next opportunity to make a significant amount of profit in high-margin areas and we're structuring the company such that we are dealing with in our recurring revenue and flow business and should those opportunities present themselves to us, they're gravy. So I think maybe that is the more important comment there, but we're -- we're committed to the Marine industry. We think it makes sense. We think we've got good synergy between our Land business and our Marine business and our natural gas business in terms of provisioning LNG. We think we've got a very good mousetrap within Marine. We've got a great organization. But we're not forecasting any robust increase and it's just continuing to provide a superior service to our clientele and also penetrating the supply chain in select areas, as we've done within Aviation and using technology, which we have.

Mr. Kasbar, at this time, I would like to turn the call back over to you for closing remarks.

Okay. Well, thanks everybody. Appreciate you taking the time to listen to this quarter's results. Thanks for your support. And we look forward to talking to you again next quarter. Take care. Have a good evening.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.