World Fuel Services Corporation
Q4 2014 Earnings Call Transcript

Published: 13 Feb 2015

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the World Fuel Services 2014 Fourth Quarter and Full Year Earnings Conference Call. My name is Scott, and I will be coordinating the call this evening. [Operator Instructions] As a reminder, this conference is being recorded. And I would now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Assistant Treasurer. Mr. Klevitz, you may now begin your presentation.

[Glenn Klevitz:]

Thank you, Scott. Good evening, everyone, and welcome to the World Fuel Services fourth quarter and full year earnings conference call. My name is Glenn Klevitz, World Fuel's Assistant Treasurer, and I'll be doing the introductions on this evening's call alongside our live presentation. This call is also available via webcast. To access the webcast or future webcast, please visit our website www.wfscorp.com 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 I 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 results to materially differ from these projections can be found in World Fuel's Form 10-K for the year ended December 31, 2014, 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. At this time, I would like to introduce our Chairman, and Chief Executive Officer, Michael Kasbar.

[Michael Kasbar:]

Thank you, Glenn and good afternoon everyone. Today we announced full year earnings of $222 million or $3.11 per diluted share and earnings for the fourth quarter of $67 million or $0.94 per diluted share. Excluding the one-time gain related to the recent sale of our interests in our crude oil joint ventures and certain other one-time expenses, full year earnings were $217 million or $3.04 per diluted share and earnings for the fourth quarter were $57 million or $0.81 per diluted share. Both the full year and quarterly earnings records are major accomplishments and demonstrate the hard work and dedication of our team of more than 4000 employees worldwide. As I previously mentioned, on December 8, we announced the sale of our interests in our crude oil joint ventures, including the Pioneer Terminal in New Town, North Dakota to our joint venture partner. The strategic decision to sell these interests allows us to re-allocate our resources to better manage our portfolio, maintain our bias towards asset light businesses and continue to participate in the fragmented North American crude oil marketplace. In our aviation segment, we again posted double-digit volume growth for the year and now have achieved an annual run rate of approximately 6 billion gallons. Our volume growth has been principally organic for many years now as we develop our distribution and services businesses in the markets that we currently serve as well as expanding our network to new locations. According to recent industry reports, 1% of world’s GDP is expected to be spent on air transport in 2015, totaling more than $820 billion. Air travel is also increasing with growth of 7% expected in 2015, partly driven by improvements in the global economy as well as greater access to travel in developing markets. With the recent fall in fuel prices, average fares are forecasted to be 5% lower than 2014 after adjusting for inflation. The combination of increased travel and access to travel together with the strengthening of the balance sheet of many of our large commercial airline customers puts us in a very favorable position to continue to expand our business as we look forward into 2015. Our business in general aviation activities continued to perform well as we posted year-over-year growth in our contract fuel, deicing distribution, software and card issuing and processing businesses. We’re very pleased with the continued integration of the Colt acquisition which combined with our existing global business in general aviation activity provides customers with the largest contract fueling network in the industry and a premier global platform for international trip planning logistics. Combined with our growing fuel distribution business and our technology and payment processing solutions, we provide a compelling package to the global business in general aviation markets. In our marine segment, our team capitalized on some increased price volatility and an increase in demand for our services. In the fourth quarter of 2014, our marine segment posted the highest quarterly volume in more than a year, principally related to increases in our core resell business. The tanker market now has a brighter outlook as the demand supply equation tips. Although dry-bulk continues to struggle and containers remain challenged, as the market bounces within its current ranges and opportunities continue to present themselves, our team remains responsive to the growing needs of our thousands of global customers and suppliers. Our land segment again posted solid annual volume growth, achieving more than 4.2 billion gallons in 2014, an increase of almost 20% compared to 2013. Our US land business continues to grow as our dealer, wholesale, commercial and industrial businesses continue to mature and gain market share as we leverage our supply and logistics capabilities. In the UK, the acquisition of Watson Petroleum in March has allowed us to integrate our international land businesses onto a common platform. The front and back-office synergies that we are gaining will allow us to leverage our business model for future growth in the United Kingdom and beyond. US Energy’s natural gas power and energy management expertise provides a platform for our land and marine segments to cross-sell its core natural gas power and sustainability advisory services as well as LNG solutions domestically and overseas. And lastly, our transaction management and payment processing services businesses of multi-service continue to expand their product offering and enhance its operating platform to deliver broader solutions to a growing customer base. The current fast-paced dynamic environment suits our asset light responsive business model and leverages our core competency of risk management. As we look forward to 2015, it is exciting to consider that we sell over 1 million barrels per day, amounting to more than 1% of total global liquid fuel supply. We’ve worked to build the durable business founded on making long-term investments in people and technology while also delivering strong shareholder returns. By any measure, we have succeeded in this objective, having delivered exceptional growth for almost 30 years. Although we are proud of our past success, we are even more optimistic about the future. While we execute well in many areas of our business in so many parts of the world, there remain significant opportunities to perform at an even higher level. We are focusing on capitalizing on these opportunities as we continue to build out our global diversified intermodal solutions platform centered at the crossroads of the energy, transportation, logistics, finance, credit, transaction management and payment processing industries. We appreciate all of the support from our shareholders, customers and suppliers and we look to make 2015 a great year for our company. And now I’ll turn the call over to Ira for a financial review of our results.

[Ira Birns:]

Thank you, Mike and good afternoon everybody. As I review our results, I will talk about our performance for the fourth quarter as well as highlight many of our full year achievements for 2014. Consolidated revenue for the fourth quarter was $9.8 billion, down 17% sequentially and 6% compared to the fourth quarter of 2013. Our aviation segment generated revenues of $3.9 billion, down 16% sequentially and 8% year-over-year. Our marine segment revenues were $3.1 billion, also down 17% sequentially and 12% year-over-year. And finally, our land segment generated revenues of $2.8 billion, down 16% sequentially but up 5% year-over-year. All of these sequential declines were due to lower oil prices offset in part by increased volumes in the marine and land segments. Consolidated revenue for the full year was $43.4 billion, up 4% compared to 2013. The year-over-year improvement in revenue was due to the increase in overall volume across all three of our segments. Our aviation segment sold 1.5 billion gallons of fuel during the fourth quarter, that was flat sequentially but up nearly 170 million gallons or 13% year-over-year. For the full year, our aviation segment sold 5.7 billion gallons of fuel, up approximately 780 million gallons or 16% year-over-year. Volume in our marine segment for the fourth quarter was 7.1 million metric tons, up approximately 700,000 metric tons or 11% compared to last quarter and approximately 900,000 metric tons or 14% year-over-year. Fuel re-selling activities constituted approximately 90% of total marine business activity in the fourth quarter which is fairly consistent with the past few quarters. For the full year, our marine segment sold 25.7 million metric tons, down nearly 1 million metric tons or 4% year-over-year. Our land segment sold 1.1 billion gallons of fuel during the fourth quarter, up 2% sequentially and 21% from the fourth quarter of 2013. For the full year, our land segment sold 4.2 billion gallons of fuel, up nearly 700 million gallons or 19% year-over-year. Overall we sold a record 16.8 billion gallons of fuel in 2014, that’s up 1.2 billion gallons or 8% from 2013. Consolidated gross profit for the fourth quarter was $219 million, which represents an increase of $5 million or 2% sequentially and $24 million or 12% compared to the fourth quarter of 2013. Consolidated gross profit for the full year was $814 million, that’s an increase of $61 million or 8% year-over-year. Our consolidated gross profit has now grown at a compound annual growth rate of 17% over the past five years. Our aviation segment contributed $75 million of gross profit in the fourth quarter, that’s a decrease of $22 million or 23% sequentially and $10 million or 12% compared to the fourth quarter of 2013. For the full year, our aviation segment contributed $322 million in gross profit, down $6 million or 2% from 2013. The sequential decline in gross profit is driven by several factors. First, the dollar value of our jet fuel inventory position declined by approximately $180 million, principally driven by the sharp drop in oil prices in the fourth quarter. The velocity and severity of the decline in prices during the quarter contributed to an inventory-related loss of approximately $6 million as compared to a gain of approximately $4 million in the third quarter. Second, the negative impact of the fourth quarter seasonality and a decline in government fuel sales also contributed to the balance of this sequential decline. These declines were offset in part by continued improvement in our business in general aviation platform, driven in part by the Colt acquisition as well as seasonal de-icing sales. Our marine segment generated gross profit of $60 million, that’s a $10 million increase or a 21% increase sequentially and $17 million or a 39% increase year-over-year. The sequential increase was principally driven by increased volatility during the quarter as well as some well-publicized competitive dynamics which have provided us with an opportunity to increase market share. With our strengthened market position and increased volatility in the market, opportunities for marine may be getting brighter. Following the strong performance in the fourth quarter, for the full year, our marine segment contributed $206 million in gross profit, an increase of $29 million or 16% from 2013, returning marine gross profit to peak levels achieved back in 2008. Our land segment delivered gross profit of $85 million in the fourth quarter, that's up $16 million or 24% sequentially and $17 million or 25% year-over-year. Approximately half of the increase was due to some seasonal improvement in our Watson Petroleum business in the UK despite relatively mild temperatures for most of the fourth quarter. The balance related to improvements in our domestic wholesale business, multiservice as well as our operations in Brazil. For the full year, the land segment generated $286 million in gross profit, up $38 million or 15% from 2013, now representing 35% of our consolidated net revenue while as recently as 2010, land’s gross profit contributed only 14% of overall results. Our land team, now nearly 1900 strong, has grown dramatically, and considering the position we've established in the 500 billion plus gallon global market for ground-based fuels, opportunities for continued growth remain strong. As Mike mentioned earlier, we sold our interests in the crude oil joint ventures which we effectively began operating in 2011 to our joint venture partners for a sales price of $43 million plus future contingent payments through 2026. The gain related to the sale after considering all related expenses was $16.3 million, $10 million after-tax or $0.14 per diluted share. Operating expenses in the fourth quarter, excluding our provision for bad debt and certain expenses related to the joint venture sales, were $146 million, that’s up $7 million or 5% sequentially and $23 million or 18% year-over-year. The increase in total operating expenses related principally to increased Watson operating expenses related to winter seasonality as well as the impact of a full quarter of Colt operating expenses. Excluding the impact of Watson and Colt and other one-time charges, operating expenses actually declined sequentially. As we look to the first quarter of 2015, I would assume overall operating expenses, excluding bad debt expense, of approximately $144 million to $148 million. Our total accounts receivable balance was $2.3 billion at year-end, that’s down $530 million or 19% sequentially, principally related to the sharp decline in fuel prices during the quarter, resulting in no real need to increase our bad debt reserve during the fourth quarter. Therefore our bad debt expense in the fourth quarter was only $200,000, that's down from $1.2 million recorded in the third quarter. Despite the modest amount of bad debt expense this quarter, our overall bad debt reserve as a percentage of accounts receivable actually increased slightly and we continue to believe such reserve is adequate. Excluding certain expenses related to the joint venture sales and other acquisition-related expenses, consolidated income from operations for the fourth quarter was $73 million, down $1 million or 2% sequentially but an increase of $7 million or 11% year-over-year. And for the full year, income from operations was $278 million, up $12 million or 5% from 2013. For the quarter, income from operations in our aviation segment was $20 million, down $20 million or 41% sequentially and $13 million or 33% compared to the fourth quarter of 2013, principally related to the items which I mentioned earlier. For the full year, income from operations in our aviation segment was $142 million, down $9 million or 6% year-over-year. Our marine segment’s income from operation was $27 million for the fourth quarter, an increase of $6 million or 30% sequentially and $10 million or 56% year-over-year. This represents the highest level of marine operating income since the third quarter of 2012, again driven by increased volatility during the quarter and favorable competitive dynamics. For the full year, income from operations in our marine segment was $90 million, up $16 million or 22% over 2013. And finally, our land segment had income from operations of $30 million, that’s an increase of $11 million or 59% sequentially and $9 million or 43% year-over-year. For the full year, income from operations in our land segment was $90 million, up $6 million or 7% year-over-year. EBITDA for the full year, excluding the gain on the sale of the joint ventures and other one-time expenses, was $348 million, up $43 million or 14% compared to 2013. We generated non-operating income of $12.3 million in the fourth quarter. Excluding a portion of the gain on the sale of the joint ventures which generated non-operating income, we actually incurred non-operating expenses of $5.8 million in the fourth quarter. That’s down $400,000 compared to the third quarter but up $2 million from the fourth quarter of 2013. Excluding any foreign exchange impact, I would assume non-operating expenses to be approximately $4 million to $6 million for the first quarter of 2015. The company's overall effective tax rate in the fourth quarter was 19.4% but excluding the impact of the gain related to the joint venture sales, the tax rate for the fourth quarter was approximately 15%, down from 19.8% last quarter and up from 12.2% in the fourth quarter of 2013. The sequential decline was principally impacted by the increase in marine profitability which has a large concentration of income in low tax jurisdictions, including Singapore, as well as a reduction in US income tax at much higher rates. For the full year, our effective tax rate, excluding the impact of the gain related to the joint venture sales, was 18%, up from just under 16% in 2013. While our tax rate can fluctuate on a quarterly basis, we estimate that our effective tax rate for the full year of 2015 to be between 17% and 20%. Our net income for the fourth quarter was $67.1 million. Excluding the one-time gain and one-time charges, our net income for the fourth quarter was $57.6 million, an increase of $1.6 million or 3% from the third quarter and $3.9 million or 7% year-over-year. For the full year, net income was $221.7 million. Again, excluding the one-time gain and other charges, full year net income was $216.8 million, that’s up $11.9 million or 6% year-over-year. Non-GAAP net income, which excludes the one-time gain and other charges but also excludes intangible amortization and stock-based compensation, was $68.1 million in the fourth quarter, an increase of $3.5 million or 5% sequentially and $8 million or 13% year-over-year. For the full year, non-GAAP net income was $249.1 million, up $18.6 million or 8% year-over-year. Excluding the impact of the joint venture sales and acquisition and divestiture related expenses, diluted earnings-per-share for the fourth quarter was $0.81, an increase of 3% sequentially and 7% year-over-year. While we don't normally make reference to consensus estimates, I’d like to point out that FactSet has apparently reflected an $0.80 consensus estimate for us for the fourth quarter. This is because one firm adjusted their estimate upward for the gain on the joint venture sales back in December. Without this adjustment, consensus would be $0.77 as properly reflected on Bloomberg. For the full year, excluding the one-time gain and all one-time expenses, diluted earnings-per-share was $3.04, an increase of 6% year-over-year. Non-GAAP diluted earnings-per-share was $0.96 in the fourth quarter, an increase of 5% sequentially and 13% year-over-year and for the full year, non-GAAP diluted earnings-per-share was $3.49, an increase of 8% year-over-year. We generated $12 million of operating cash flow in the fourth quarter, bringing our total operating cash flow for 2014 to more than $140 million. We've now generated positive cash flow from operations for the past 10 consecutive quarters, totaling nearly $600 million. Many of you may have expected more significant cash flow generation in the fourth quarter considering the near 40% decline in oil prices during the quarter. While a decline of this magnitude does reduce our working capital investment which contributes to operating cash flow, as many of you may remember from 2012, there is another key factor which can also impact cash flow in the short term. This relates to our derivatives portfolio. As prices drop, our collateral deposits with the major commodity exchanges like NYMEX and ICE, actually increase. With the near unprecedented fuel price decline in the fourth quarter, such deposits increased by just over $250 million. Excluding these deposits, our cash flow from operations for the fourth quarter would be approximately $265 million. Assuming oil prices remain in the range that they are in today, this cash will return as related derivative contracts mature, with the heaviest concentration of this cash expected to be generated in the second and third quarters of this year. Nevertheless our balance sheet remains and liquid. We had more than $300 million of cash at year-end and our net debt was under $400 million. Net debt to EBITDA remained strong at approximately one time, providing us with significant capacity to fund organic growth and future strategic investment opportunities while continuing to maintain a strong balance sheet. Furthermore we recently increased the size of our banking facilities by approximately $250 million while amending certain financial and other covenants, providing us with greater liquidity and operating flexibility. This demonstrates the strong continued support provided to us by our banking partners across the globe. So in closing, we’re pleased with our performance in 2014 as we posted record fourth-quarter and full-year results. We completed two strategic acquisitions with integration activities and synergy realization well underway. Our balance sheet remained strong and liquid which has allowed us to invest in our organic business as well as make strategic investments. Lastly, we remain focused on aligning our internal and external resources to drive strategic priorities and deliver long-term shareholder value. I would now like to turn the call back over to the operator to open up the Q&A session.

[Operator:]

[Operator Instructions] And our first question is from Jon Chappell with Evercore.

[Jonathan Chappell:]

Ira, you made mention of the much publicized competitive shift in the marine business. Couple of questions on that. First of all, is there any way to quantify the sequential impact from change in competitive landscape? And I guess one way -- another way to ask that is, one of your other publicly traded peers, we will call them, have been pretty public with entering new markets that OW had left and taking people over, even assets. I know you're an asset light play but have you entered any new markets, taken over any people from that situation or is it more of a function of back in the credit crisis period just because of the uncertainty in that market, you may have benefitted in that regard.

[Michael Kasbar:]

John, I will take that. This is Mike Kasbar. So a good chunk of the gain in the fourth quarter came from, as I said in my script, an increased demand for our services. There's always in times of distress or stress sort of a flight to quality and I think that we’re certainly proud that we can honestly represent that in terms of being a rock solid counterparty in so many different ways, so similar to what we experienced in 2008, I think you said. And in terms of what does it mean on a go forward, we managed to pick up a bunch of talented folks in the industry. We picked up a brokerage operation, a former business from Wilhelmsen Marine with offices in Oslo, Singapore and London. So that will give us some increased volume, some increased activity on the brokerage side. So we’re benefiting from that, on the physical side with some of the folks because they had a physical operation. We do that very selectively. So we haven’t “entered” any physical markets as some of the other folks who have taken over some of those particular assets. We do a lot of business with those folks. So it’s something that there's definitely benefit to us. We, I think, also benefited from a good amount of volatility in the marketplace which helps us with our risk management side. So it’s pretty distributed, I don’t want to sound glib about it. A lot of good people lost their jobs working for the company. We’re not ignoring it. We are sticking to our knitting and picking up some business. When you look at the market, you know this as well as anyone, the dry cargo market is still about as bad as it has been in terms of having a very low bif ex, it’s the lowest that you have seen in a long period of time. So in any case, just to answer the question. We picked up some business. We expect we will pick up some more. There will certainly be a benefit, there has been a benefit. We expect to have a benefit all throughout 2015. Our team is fully engaged. I think you’ve got a good amount of volatility. The market seems to be poised to move around a little bit. So that's how that factored out for us.

[Jonathan Chappell:]

And for my follow-up for that, for taking the question, when we go back to that fourth quarter of ’08, first quarter ’09 when your margins in marine business were phenomenal, it seemed at the time there was maybe a mis-perception as to why and I think the reason as we figured out in hindsight now was you were able to get better terms from a purchasing standpoint because you had a transparent financial statement, very strong liquidity, kind of like one of the only games in town when there was uncertainty to be the provider of choice to some of the suppliers. Did that kind of dynamic happen as well immediately post VOW? Was there more of a focus from suppliers as opposed to customers to the stronger financial counterparties and did you benefit from that at all?

[Michael Kasbar:]

Yes, it was similar but it’s different. When you have an entire global meltdown, the entire world was in shock and you had two enormous drivers. One was a total credit confidence crisis as well as enormous volatility. So these two drivers at the same time caused enormous confusion and we unfortunately were a safe harbor. So it was a flight to quality. We certainly benefited from that. And while this collapse of this fairly large company created some upset, it's a different magnitude of order. So certainly we benefited from, as I said, some amount of volatility and some amount of both suppliers and customers looking for a place to place their business and we picked up some of that.

[Operator:]

And our next question is from Gregory Lewis.

[Gregory Lewis:]

Mike, when we think about aviation in the front half, I realize we’re only one month through the year. But just in everything marine is increased traffic, increased demand, the aviation industry is doing fairly well. I mean typically the start of the year is a little bit softer than the rest of the aviation. Are you seeing anything in the market that, that maybe reverses that trend in 2015? Or do you think it’s more kind of a normal year in terms of how we should be thinking about how the aviation market plays out?

[Michael Kasbar:]

No, I don’t – I think that the aviation industry has had a remarkable recovery, we’ve seen consolidation, there is certainly a lot more discipline, that industry as we all well know has had a very difficult time over a long period. So between the consolidation, between some discipline on capacity, between some of the pickup in demand, I think you’re seeing perhaps a somewhat rare sort of peer at a time where the aviation industry is in pretty good shape. So I don't see anything that will take that off its path. Of course, you've got your very segments with your large carriers obviously, some your segments that are little bit more challenged but I think the industry is in pretty good shape and that’s fundamentally a good thing for us.

[Gregory Lewis:]

And then just one more from me, on the acquisition front, clearly there has been a lot of – with the oil price swing, there has been a lot of turmoil in the oil markets. I mean you guys yourself had to post that huge cash collateral payment, are you having -- have we seen an increase in conversations on the M&A front or at this point, it’s still early innings and we really should – and people are still trying to figure out where they are before those kind of discussions can start?

[Michael Kasbar:]

Well, the folks that probably are giving us a bit more thought are the ones who are long oil and have significant infrastructure. Certainly the natural gas space and the E&P space, the offshore space, that’s obviously challenged in the more traditional oil markets. In terms of the types of folks that we look for, it's probably a little bit easier for them because their balance sheets aren’t quite as challenge. Nevertheless our acquisition pipeline is very full. It cuts across-the-board in all of our businesses and all of our geographies. So we’re still very engaged. We still have a good amount of appetite. As I think I mentioned last quarter we feel that our capability and competency to both acquire and intelligently integrate and grow is better than it ever has been. So but today's market realities doesn't necessarily impact the types of most of the companies that we are looking at.

[Operator:]

And our next question is from Ken Hoexter with Merrill Lynch.

[Ken Hoexter:]

Mike, Ira, and Glenn, can you talk about – now that you’ve operated Watson on land side through the fourth quarter, now you’re more than a third way through the first quarter. Does your thought on the original process 75% to 80% of profits in those two quarters still hold true? Just wondering now that you’ve kind of lived through, do you still see that seasonality?

[Ira Birns:]

Yes, the seasonality is still there. The severity of the seasonality, I mean, in a positive way is not as great as what you would hope it would be because you still had one of the 10 warmest winters as far as the fourth quarter goes in UK history. Started getting little cold in the second half of the winter. January has been moderately cold. We check the weather forecast more than we check our stock price. So at the end of the day, that still holds over the long-term but weather still plays a factor in the significance of that increase from the warmer months into the colder winter. And therefore the jury is still out on the first quarter depending upon weather patterns over the next two months.

[Ken Hoexter:]

And just quickly on the expenses, can you maybe delve a little bit more into the charge for the inventory, kind of what you are left holding? I just wanted to understand what exposure you have to crude on hand.

[Ira Birns:]

Well it’s not crude –

[Ken Hoexter:]

I'm sorry, not crude, apologize, used the wrong term but --

[Ira Birns:]

Yes, so remember we don’t have a whole lot of marine fuel inventory or ground based fuels and inventories, so the principal piece of the puzzle that that has the impact, we refer to as jet fuel. So there are multiple factors here for the fourth quarter in particular. One relates to basis spreads which has impacted us from time to time, we thought about that in the past and in periods of significant volatility like we saw in the fourth quarter, those tend to fall out of whack a little more than normal. So that had somewhat of an impact in Q4. The more meaningful driver, however, relates again to the velocity and severity of the jet fuel price decline that I described earlier which simply resulted in somewhat greater hedge and efficiencies than normal. We get a phone call coming in there, Ken. So while we are hedging our position, when you have a price decline as severe that we saw even within an individual weak during the quarter, it just results in some more imperfection that we’ve seen in the past, then this amount may be a little greater than what we’ve seen in the past couple years. However on a relative basis, considering the impact or considering the magnitude of the jet fuel price decline during the quarter, the impact was not in our opinion overly significant. So the other point I’d say is that the market was severely backwardated in the fourth quarter and that is another example of what drives the opportunity for somewhat greater hedge and efficiencies. We’re always trying to hedge with perfection and learn from prior experiences. And I think we’re doing a very solid job. There is always going to be a bit of breakage that I talk every quarter. Normally it’s been – it’s actually been somewhat positive in a contango market but this quarter, it was a little more negative than normal.

[Ken Hoexter:]

If I can just use my follow up then on the OW bunker question. Is this all done or is there a still a jump ball out there?

[Michael Kasbar:]

I think there is obviously a lot of focus on that. And we’re pretty engaged in marketplace. The opportunity certainly to grow our business within the marine is there. We’re pretty focused on that. Our teams are focused on that. So I don't think we’re done and regardless of that we are oriented toward growing it. As I said in the past it’s possible that we were a little overly conservative, certainly the dry cargo side we’ve got to be very careful. Low interest rates, low bunker prices, that’s certainly going to have a salutary effect on the industry. So we expect that we will grow our volume in our marine business in 2015. Some of that is going to be related to OW, some of it is going to be related to just more of a commitment to be little bit more aggressive in the marketplace and leverage what we think is a fantastic global platform.

[Operator:]

And our next question is from Jack Atkins with Stephens.

[Jack Atkins:]

So I guess just to kind of start off here. Mike, could you maybe comment for a moment on just we’ve seen this dramatic decline in the price of fuel over the course of the last several months. To what degree do you think that could potentially drive incremental demand on the part of your customers, given that significant component of their cost structure has come down? And then to what degree does it make you more willing to do business with maybe some customers that had a little bit more of a troubled balance sheet previously, but lower fuel prices sort of help clean that balance sheet up? Does that play into your outlook for 2015 to any degree?

[Michael Kasbar:]

To some extent. On the low pricing side is that we’ve got a significant amount of slow steaming which has crushed demand in the marketplace. I think the only part of the market that is going to respond to that is the tanker side. That is going to move speeds up from, I don’t know, 14 to something higher than that, perhaps or 214 anyway. You are going to see not an enormous impact in consumption there. I think the rest of the market, you’d have to see low price has continued for quite some time to eliminate some of that slow steaming. Go back to more consumption, that has an opposite effect of basically increasing capacity. So you’ve got some opposite drivers there. On the rest of the market, certainly on the dry cargo side for some of those companies, that’s certainly going to be helpful. On the aviation side, it’s sort of interesting they have seen – you’ve seen dropping prices and you’ve see an increase in fares. So finally you are seeing an aviation industry that is oriented towards profit, first, on profitable growth as opposed to just simply market share and beating each other up. So you’re going to see I think an improvement in their profits, whether you’re going to see an improvement in their consumption, I don’t really know about that. You’re seeing an increase in travel as I commented in my script. So the entire global economy obviously is getting a significant B-12 shot which is going to increase driving, I haven’t looked at the statistics lately but you're going to see an improvement in gasoline and diesel consumption without question and that will have a very favorable impact on our land business throughout the world. So some of those effects will occur, depends on how long these prices are going to stay as low as they are. So that will be generally beneficial for us in terms of margins in absolute terms, we may see some softening. History tells us that we've managed to hold onto them reasonably well, as a percentage may go up and certainly our returns will improve. So it will definitely have a positive impact on our overall returns.

[Jack Atkins:]

That's helpful, Mike. And then Ira, I guess this one is for you. If you could maybe speak to -- this is a two part follow-up. If you could speak to, first, the impact of a contango market to your P&L. I know you mentioned it briefly a second ago, but can you comment on, if that's a positive or negative impact versus the backwardized market that we were in this time last year? And then also did the sale of the joint venture trigger any incremental bonus accruals in the fourth quarter that maybe we should be thinking of, that may have pulled up G&A in the fourth quarter?

[Ira Birns:]

Yes, so on the first part, in a contango market, certainly the physical side of our business, we are holding some inventory. Even though we are hedging, if there is going to be breakage, there is a whole lot more likely that that’s going to be positive which has been evidenced by the results that we shared, with that piece of information in terms of inventory impact over the last several years, we’ve had a lot of contango activity over the last several years. And what we saw in the fourth quarter was, the fourth quarter was a bit of vice versa with the heavily backwardated market. So clearly in terms of – the back to back business really doesn't have much of an impact, but on the physical side of the business, we’re more likely to see a bit of benefit in a steep contango market and a bit of negative impact in a steeply backwardated market. And yes to question number two, that’s where I try to be clear, especially in the notes on the webcast and my comments. So when we announced the actual gain, when I reported the gain earlier, a portion of the impact of the gain was sitting in operating expenses, that’s in compensation. And that was about $2 million. So that’s effectively the incremental effect on overall compensation for a lot of people driven by the increased profitability related to the joint venture sales. And then the rest of the impact is sitting in other income expenses as I described earlier.

[Jack Atkins:]

So just to be clear, that $2 million impact from higher bonus accruals was reversed out to your $0.81 adjusted number, correct?

[Ira Birns:]

That’s correct. It’s part of that adjustment. End of Q&A

[Operator:]

[Operator Instructions] And Mr. Kasbar, there are no further questions at this time. I will now turn the call back to you for closing remarks.

[Michael Kasbar:]

Thanks very much for your support and interest in our company. We remain very positive in terms of our outlook on 2015 and look forward to talking to you next quarter.

[Operator:]

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation.