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Edited Transcript of CVI earnings conference call or presentation 27-Apr-17 7:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 CVR Energy Inc Earnings Call

SUGAR LAND May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of CVR Energy Inc earnings conference call or presentation Thursday, April 27, 2017 at 7:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jay Finks

* John J. Lipinski

CVR Energy, Inc. - CEO, President and Director

* Susan M. Ball

CVR Energy, Inc. - CFO and Treasurer

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Presentation

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Operator [1]

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

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

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Jay Finks, [2]

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

Prior to discussing our 2017 first quarter results, let me remind you that this conference call may contain forward-looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements.

Without limiting the foregoing, the words outlook, believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2017 first quarter earnings release that we filed with the SEC this morning prior to the open of the market.

With that said, I'll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

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John J. Lipinski, CVR Energy, Inc. - CEO, President and Director [3]

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Thanks, Jay. Good afternoon, everyone, and thank you for joining our earnings call. Hopefully, you had the opportunity to listen to the CVR Partners and CVR Refining earnings calls earlier today.

This morning, we reported CVR Energy's first quarter consolidated net income of $22.2 million as compared to a net loss of $16.2 million in the first quarter of last year. Adjusted net income for the 2017 first quarter was $23.1 million or $0.27 per diluted share as compared to adjusted net income of $8.4 million or $0.10 per diluted share in the first quarter a year ago. In a few minutes, Susan will provide more details on the financials reported this morning.

We also announced today a quarterly cash dividend of $0.50 per share, which will be paid on May 15 to stockholders of record on May 8.

Let me just spend a few minutes talking about the highlights of our business segments, starting with the Petroleum business. CVR Refining's 2017 first quarter adjusted EBITDA was $114.5 million as compared to $35.1 million a year ago. CVR Refining's total crude throughput for the first quarter was approximately 214,400 barrels a day, which was a new quarterly record. Coffeyville processed 130,800 barrels a day, while Wynnewood ran 83,600 barrels a day. CVR Refining announced today that it will not pay a cash distribution for the first quarter.

Turning to the Fertilizer business. CVR Partners announced a first quarter adjusted EBITDA of $20.8 million as compared to $27.9 million in the first quarter a year ago. CVR Partners also declared a first quarter cash distribution of $0.02 per common unit. As CVR Energy owns approximately 34% of the common units of CVR Partners, we will receive a proportional distribution of that amount.

Operationally, CVR Partners continues to post high onstream rates. In the first quarter, Coffeyville's gas-fired and ammonia units both ran well at 99% onstream, and the UAN plant ran at 97%. Similarly, East Dubuque's ammonia unit ran just under 100%, and the UAN plant operated at 98%.

At this point, I'll turn the call over to Susan to talk about the financials. Susan?

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Susan M. Ball, CVR Energy, Inc. - CFO and Treasurer [4]

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Thank you, Jack, and good afternoon, everyone.

As Jack previously mentioned, net income attributable to CVR Energy's stockholders was $22.2 million in the first quarter of 2017 as compared to a net loss of $16.2 million in the same period last year. Adjusted net income for the 2017 first quarter was $23.1 million or $0.27 per diluted share as compared to adjusted net income of $8.4 million or $0.10 per diluted share in the first quarter of 2016. We believe adjusted net income is a meaningful metric for analyzing our performance as it eliminates the impact of noncash and other unusual items inherent in our business and provides a more transparent view as to market expectations.

The adjustments to net income during the 2017 first quarter to derive adjusted net income were major scheduled turnaround expenses of $12.9 million, a net gain on derivatives not settled during the period of $11 million and an unfavorable impact as a result of our accounting under our first in, first out, or the FIFO, inventory accounting method of $300,000.

The adjustments for the 2016 first quarter were major scheduled turnaround expenses of $29.4 million, a loss on derivatives not settled during the period of $22.6 million and an unfavorable FIFO impact of $8.8 million as well as expenses associated with the East Dubuque merger of $1.2 million. These gross adjustments to net income are reduced for the portion that's attributable to the noncontrolling interest and are further reduced for the net tax impact associated with them.

The first quarter of 2017 effective tax rate was approximately 28% as compared to 41% in the first quarter of 2016. The combined federal and state expected statutory rate for the quarter ended March 31, 2017, was approximately 39%. The effective tax rate for the 2017 first quarter varies from the 2016 first quarter primarily due to the correlation of the effective tax rate with state income tax credits as applied to pretax income in 2017 as compared to pretax loss in 2016 and also the change in the noncontrolling interest percentage of CVR Partners as a result of the April 2016 merger with Rentech Nitrogen.

I will now turn to the specific performance of our 2 business segments impacting our overall quarterly results. As Jack mentioned earlier, CVR Refining's adjusted EBITDA for the 2017 first quarter was $114.5 million as compared to $35.1 million in the same period in 2016. This increase was primarily driven by higher crude throughput, higher Group 3 crack spreads and a significant reduction in the net RINs costs associated with uncommitted obligations. As a reminder, the 2016 first quarter results were impacted by the second phase of Coffeyville's bifurcated turnaround.

In the first quarter of 2017, CVR Refining's realized refining margin adjusted for FIFO was $11.54 per barrel as compared to $7.19 in the same quarter of 2016. The NYMEX 2-1-1 crack spread averaged $15.11 per barrel in the first quarter of 2017 as compared to $13.88 per barrel in the same period of 2016. The PADD II Group 3 2-1-1 crack spread averaged $13.34 per barrel in the first quarter of 2017 as compared to $10.43 in the first quarter of 2016.

Now turning to our Fertilizer segment. As previously mentioned, the East Dubuque transaction occurred at the beginning of 2017's second quarter. As such, year-over-year comparability is significantly impacted across the line items reported in CVR Partners' financials.

CVR Partners' first quarter adjusted EBITDA was $20.8 million as compared to $27.9 million in the same period last year. The decrease in adjusted EBITDA over the periods was primarily a result of lower UAN and ammonia fertilizer pricing. UAN average product price at the gate for the first quarter of 2017 was $160 per ton as compared to $209 per ton in the prior year first quarter. Ammonia average product price was $308 per ton in the first quarter of 2017 as compared to $367 per ton in the first quarter of 2016.

The partnership did announce a 2017 first quarter distribution of $0.02 per common unit, with $1.5 million that will be paid to the public unitholders of CVR Partners, and the remaining $800,000 will be paid to CVR Energy.

Our cash position remained strong as we ended the quarter with cash and cash equivalents of 800 -- of approximately $804 million on a consolidated basis. Total consolidated gross debt as of March 31 was approximately $1.2 billion as compared to the same level at December 31, 2016. CVR Energy has no debt exclusive of the debt that resides at CVR Refining and CVR Partners. As of March 31, CVR Refining's debt approximated $546 million, and CVR Partners' debt approximated $647 million.

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

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John J. Lipinski, CVR Energy, Inc. - CEO, President and Director [5]

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Okay. Thank you for joining our call.

Seeing that there's no questions, Jay, would you give the closing statement?

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Jay Finks, [6]

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Sure. Thanks, everyone, for listening to our conference call today.

As a reminder, our call, along with CVR Refining and CVR Partners, will be available for replay over the next 14 days. You can visit our website, cvrenergy.com, or contact Investor Relations for additional information. Thank you.

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Operator [7]

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.