CVR Energy, Inc.
Q2 2018 Earnings Call Transcript

Published: 27 Jul 2018

[Operator:]

Greetings, and welcome to the CVR Energy Inc., Second Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [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 and Treasurer. Thank you. You may begin.

[Jay Finks:]

Thank you, Michelle. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy second quarter 2018 earnings call. With me today are Dave Lamp, our Chief Executive Officer; Tracy Jackson, our Chief Financial Officer and other members of management. Prior to discussing our second quarter 2018 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 2018 second quarter earnings release that we filed with the SEC yesterday after closing the market. With that said, I will turn the call over to Dave, our Chief Executive Officer. Dave?

[Dave Lamp:]

Thank you, Jay. Good afternoon, everyone and thank you for joining our earnings call. Hopefully, you have the opportunity to listen to the CVR Partners and CVR Refining earnings calls earlier today. We reported CVR Energy's second quarter 2018 consolidated adjusted income was $45 million or $0.52 per diluted share, as compared to an adjusted net loss of $3 million or $0.04 per diluted share in the second quarter of last year. On May 29, we announced a quarterly cash dividend of $0.75 per share, which will be paid on August 13, to stockholders of record on August 6. We also announced the commencement of an exchange offer of CVR Energy shares for CVR Refining units. CVR Energy believes that, in light of recent tax reform, many unitholders would prefer to hold their investments in the form of common stock rather than partnership interests. In addition, the exchange offer would also allow CVR Energy to increase its ownership at CVR Refining. The exchange offer expires at 5 PM Eastern on July 27. Now I'll speak to some of our second quarter highlights from each of our business segments. CVR Refining the second quarter 2018 adjusted EBITDA was a $147 million as compared to $43 million a year-ago. CVR Refining also declared a second quarter distribution of $0.66 per common unit. Operationally the combined crude throughput for the second quarter of 2018 was approximately 206,000 barrels a day as compared 214,000 per day of crude in the second quarter of 2017. The Coffeyville Refinery processed approximately 129,000 barrels a day of crude and the Wynnewood Refinery processed approximately 77,000 barrels a day of crude in the second quarter of 2018. The Wynnewood Refinery ran at reduced rates in July due to external power failures. The financial impact of this lost opportunity was approximately $16 million. And it was for the most part due to these power failures. Now turning to the fertilizer business, CVR Partners announced a second quarter 2018 adjusted EBITDA of $26 million as compared to $32 million in the second quarter of [2013]. The second quarter results were impacted by a schedule turnaround the Coffeyville facility and unplanned downtimes at both plants. Financial impact of this lost production from the Coffeyville plant was due to the turnaround and unscheduled – due to the turnaround and unscheduled downtime was approximately $12 million. CVR Partners announced that it will not pay a cash distribution in the second quarter of 2018. Now let me turn the call over to Tracy to talk about some financial highlights.

[Tracy Jackson:]

Thank you, Dave and good afternoon everyone. We reported net income of $51 million in the second quarter of 2018 as compared to a net loss of $11 million in the same quarter of 2017. As previously mentioned, adjusted net income for the second quarter of 2018 was $45 million or $0.52 per diluted share as compared to an adjusted net loss of $3 million or $0.04 per diluted share in the second quarter of 2017. The total income tax expense for the second quarter of 2018 was $17 million as compared to a benefit of $7 million in the second quarter of 2017. The overall effective tax rate in both 2018 and 2017 was impacted by the incumbent losses associated with the non-controlling interest in CVR Refining and CVR Partners' earnings and certain state income tax benefits. The effective tax rate for the second quarter of 2018 was approximately 18% as compared to 26% in the second quarter of 2017. The year-over-year reduction was primarily as a result of the Tax Cuts and Jobs Act, which reduced the federal statutory tax rate from 35% in 2017 to 21% in 2018. We estimate our full-year 2018 effective tax rate to be between 15% and 20%, depending on the outcome of the exchange offer. I'll now turn to the specific performance of our two business segments impacting our overall quarterly results. As Dave mentioned earlier, CVR Refining's adjusted EBITDA for the second quarter of 2018 was $147 million as compared to $43 million in the same period in 2017. The increase in adjusted EBITDA year-over-year was mainly the result of higher Group 3 crack spreads, lower RINs prices and wider crude differentials. In the second quarter of 2018, CVR Refining's realized refining margin adjusted for FIFO was $12.61 per barrel of total throughput as compared to $7.21 in the same quarter of 2017. The Group 3 crack spread averaged $19.18 per barrel in the second quarter of 2018 as compared to $14.30 in the second quarter of 2017. Now turning to our fertilizer segment, as previously mentioned, CVR Partners' second quarter adjusted EBITDA was $26 million as compared to $32 million in the same period last year. The decrease in adjusted EBITDA from last year was mainly attributable to the planned and unplanned downtime. The average UAN netback price for the second quarter of 2018 was $191 per ton, which is a 10% increase over the prior year second quarter. The average ammonia netback price was $328 per ton in the second quarter of 2018, which was a 5% increase over the second quarter of 2017. The total consolidated capital spending for the second quarter of 2018 was $22 million, which included $16 million of CVR Refining and $6 million of CVR Partners. We estimate total consolidated capital spending for 2018 of approximately $160 million. Our cash position remained strong, as we ended the quarter with cash of approximately $534 million on a consolidated basis of which approximately $248 million was held at CVR Energy. With that Dave, I'll turn the call back over to you.

[Dave Lamp:]

Thanks, Tracy. As discussed on our last call, I outlined our strategic objectives for 2018. We continue to develop these objectives and as we move forward I will provide updates. In addition to running our facilities reliably safe and environmentally compliant, a recap of our objectives are

[Operator:]

Thank you. [Operator Instructions]

[Operator:]

There are no questions at this time. I would like to turn the call back over to management for closing remarks.

[Dave Lamp:]

Thanks, Michelle. Again, I'd like to thank you all for your interest in CVR Energy. Additionally, I'd like to thank our employees for their continuous hard work and commitment to safety. We look forward to reviewing our third quarter results during our next earnings call. Thank you

[Operator:]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.