Calumet Specialty Products' Management Discusses Q1 2012 Results - Earnings Call Transcript

Call Start: 13:24

Calumet Specialty Products Partners, L.P. (CLMT)

Q1 2012 Earnings Call

May 2, 2012 01:00 p.m. ET

Executives

Bill Anderson – Vice President of Marketing

Jennifer Straumins – President and COO

Pat Murray – CFO

Bill Grube – CEO

Analysts

Darren Horowitz – Raymond James

Brian Zarahn – Barclays Capital

Kelly Krenger – Bank of America Merrill Lynch

Eric Seeve – GoldenTree

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2012 Calumet Specialty Products Partners L.P. Earnings Conference Call. My name is Christie and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions]

I’d now like to turn the call over to Mr. Bill Anderson, Vice President of Marketing. Please proceed sir.

Bill Anderson

Thank you, operator. Good afternoon, and welcome to Calumet Specialty Products Partners investors call to discuss our first quarter 2012 financial results. During this call, Calumet Specialty Products Partners, L.P. will be referred to as the Partnership or Calumet. Also participating in this call will be Jennifer Straumins, our President and COO, Pat Murray, our CFO and Bill Grube, our CEO. Following the presentation, we will hold the line open for a question-and-answer session.

During the course of this call, we will make various forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management as well as assumptions made by them, and in each case based on the information currently available to them. Although our management believes that the expectations reflected in such forward-looking statements are reasonable, neither the Partnership its general partner nor our management can provide any assurances that the expectations will prove to be correct.

Please refer to the Partnership’s press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results that could cause them to differ from our forward-looking statements made on this call.

I will now turn the call over to Jennifer Straumins.

Jennifer Straumins

Thank you, Bill. We are very pleased with our results for the first quarter of 2012. On net income of $51.9 million, we have reported quarterly adjusted EBITDA of $69.7 million and quarterly distributable cash flow of $39.2 million. We continue to focus on our operations to meet demand for our specialty products and to better benefit from the widening crack spreads driven by heavy Canadian and Bakken crude differentials to NYMEX WTI.

While this has been beneficial to our profitability, the increased volatility in these differentials has cost us to leave hedge accounting under U.S. GAAP. For the crude oil portion of our cracks spread hedges for our superior refinery. Pat Murray will discuss the impact on our income statements later in this call.

Economically, we expect to continue to benefit from these wider differentials in the second quarter of 2012. On April 18, 2012, we declared a quarterly cash distribution of $0.56 per unit for the quarter ended March 31, 2012 on all outstanding units. The distribution we paid on May 15 to unit holders of record as of the close of business on May 4 and represent a 5.7% increase over the fourth quarter 2011 and a 17.9% increase over the first quarter 2011.

I’ll now turn the call over to Pat Murray for a review of our financial results.

Pat Murray

Thank you, Jennifer. Net income for the first quarter of 2012 was $51.9 million compared to $4.2 million for the same period last year. These results include $26 million of non-cash unrealized derivative gains as compared to $0.4 million of non-cash unrealized derivative losses in the first quarter of 2011.

We believe the non-GAAP measures of EBITDA, adjusted EBITDA, and distributable cash flow are important financial performance measures for the Partnership. EBITDA and adjusted EBITDA, as defined by our debt instruments, were $90.2 million and $69.7 million respectively for the first quarter 2012 as compared to $26.4 million and $34.7 million respectively for the same quarter in 2011.

The Partnership’s distributable cash flow for the first quarter was $39.2 million as compared to $18.2 million for the same period last year. The increase in adjusted EBITDA quarter-over-quarter was due primarily to a $37.4 million increase in gross profit and $9 million of increased realized derivative gains. Partially offset by a $7.6 million increase in selling, general and administrative expenses and a $4.5 million increase in transportation expense.

We encourage investors to review the section of our earnings press release found on our website entitled non-GAAP financial measures and the attached tables for discussion and definitions of EBITDA, adjusted EBITDA, and distributable cash flow, financial measures, and reconciliations of these non-GAAP measures to the comparable GAAP measures.

Gross profit by segment for the first quarter of 2012 for specialty products and fuel products was $66.5 million and $17.8 million respectively compared to gross profit of $47.9 million and a loss of $1 million respectively for the same period in 2011.

The increase in specialty products segment gross profit of $18.6 million quarter-over-quarter was due primarily to a 29.4% increase in sales volume, 9.5% increase in the average selling prices per barrel, partially offset by a 12.8% increase in the average cost of crude oil per barrel and higher operating costs, largely repairs and maintenance.

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