Calumet Specialty Products Partners, L.P. Reports Second Quarter 2018 Results

Source Press Release
Company Calumet Specialty Products Partners, L.P. 
Tags Hedging, Capital Spending, Financial & Operating Data, Strategy - Corporate
Date August 09, 2018

Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT) (the "Partnership," "Calumet," "we," "our" or "us"), a leading independent producer of specialty hydrocarbon and fuel products, today reported results for the second quarter ended June 30, 2018, as follows:

  Three Months Ended June 30,    Six Months Ended June 30, 
  2018    2017    2018    2017 
  (Dollars in millions, except per unit data) 
Net income (loss)  (51.9)    9.6    (56.7)    3.4 
Limited partners' interest basic and 
diluted net income (loss) per unit 
(0.65)    0.12    (0.71)    0.04 
Adjusted EBITDA  78.9    101.6    153.9    180.3 
                               

The Partnership's $51.9 million Net loss for the second quarter 2018 included $58.2 million of debt extinguishment costs. Excluding this impact, Net income for the second quarter 2018 would have been $6.3 million, and net income per unit would have been $0.08 per unit.

For detailed information on Adjusted EBITDA and a reconciliation of Adjusted EBITDA to the nearest comparable GAAP measure for the periods presented above, please see the sections of this release entitled "Non-GAAP Financial Measures" and "Reconciliation of Net Income (Loss) To EBITDA, Adjusted EBITDA and Distributable Cash Flow."

Management Commentary"

Calumet delivered another quarter of strong performance," said Tim Go, Chief Executive Officer of Calumet. "The results as reported were the third highest over the last three years even without the contribution of assets we divested last year.  Our core specialty business was driven by continued growth in Finished Lubricants and strengthening demand for our Solvents business, which was offset by unplanned maintenance activity and the continued upward trajectory of crude prices.  Our fuels business performed very well and had continued improvement across our portfolio, including record quarterly throughput volume at our Great Falls refinery. In addition, our self-help initiatives continue to allow us to capture value and enhance company-wide performance. Adjusting for the impact of divestitures from our portfolio, our results improved over 7% compared to underlying performance in the year-ago period."

Go concluded, "We remain committed to advancing our strategic priorities, which include reducing our leverage and growing our profitability. In the second quarter we fully redeemed our secured notes, meaningfully reducing our debt burden and lowering our interest expenses by $46 million per year. In addition, we started up a new isomerate unit at our San Antonio refinery, and the naphtha project at our Great Falls refinery, both of which will drive value enhancement and increase margin capture for our fuels segment in the second half of the year. Lastly, in June we increased our exposure to WTI-Midland based crudes from 6.5 kbpd to 10.5 kbpd to take advantage of wider crude differentials. As we move into the second half of the year, we will continue to seek out opportunities to enhance our yields, further reduce costs and expand our margins as we work to drive value for all of our unitholders."

Specialty Products Segment | Results Summary

  Three Months Ended June 30, 
  2018    2017 
  (Dollars in millions, except per barrel data) 
Specialty products segment gross profit  88.0      103.0   
Specialty products segment Adjusted EBITDA  53.7      67.1   
Specialty products segment gross profit per barrel  37.12      41.87   
Specialty products TTM Adjusted EBITDA Margin  12.5    14.2 
Specialty products quarterly Adjusted EBITDA Margin  14.0    19.6 

The specialty products segment gross profit of $88.0 million and Adjusted EBITDA of $53.7 million were down compared to $103.0 million and $67.1 million in the year-ago period, respectively. Specialty products segment gross profit per barrel of $37.12 decreased approximately 11.3% compared to $41.87 in the year-ago period. Performance was driven by continued growth in the high-margin Finished Lubricants division and strengthening demand in the Company's solvents business, which was more than offset by unplanned maintenance activity, a shift in sales mix, and rising crude prices across the quarter. The specialty segment quarterly Adjusted EBITDA Margin results of 14.0% declined compared to 19.6% in the year-ago period, driven primarily by higher crude prices and the impact on sales mix due to a strong rebound in lower-margin solvents sales volumes.

Fuel Products Segment | Results Summary

  Three Months Ended June 30, 
  2018    2017 
  (Dollars in millions, except per barrel data) 
Fuel products segment gross profit  35.4      40.7   
Fuel products segment Adjusted EBITDA  25.6      34.0   
Fuel products segment gross profit per barrel  5.09      3.92   

Fuel products segment gross profit of $35.4 million and Adjusted EBITDA of $25.6 million decreased compared to the as reported figures from the year-ago period. However, excluding the impact of the Superior refinery divestiture, quarterly Adjusted EBITDA results represent a 320% improvement to last year's underlying performance results. Gross profit per barrel of $5.09 marked an increase of 29.8% relative to the year-ago results, driven by the over 28% improvement in the benchmark Gulf Coast 2-1-1 crack spread, and widening crude differentials, offset somewhat by the impacts of unplanned maintenance in the quarter.

Partnership Liquidity

As of June 30, 2018, the Partnership had total liquidity of $381.5 million, comprised of $38.8 million of unrestricted cash and availability under the revolving credit facility of $342.7 million. As of June 30, 2018, Calumet had a $373.6 million borrowing base, $30.8 million in outstanding standby letters of credit and $0.1 million outstanding borrowings. The Partnership believes it will continue to have sufficient liquidity from cash on hand, cash flow from operations, borrowing capacity and other means by which to meet its financial commitments, debt service obligations, contingencies and anticipated capital expenditures.

Financial Guidance

Full-Year 2018 Capital Spending Forecast

Through the second quarter of 2018, total capital spending was $34.3 million, primarily related to maintenance and turnaround activity.  For the full-year 2018, the Partnership continues to anticipate total capital expenditures to come within range of its previously stated annual guidance of $80 to $90 million.

Third Quarter 2018 Timing Expectations

West Griffin, Executive Vice President and Chief Financial Officer of Calumet concluded, "We will file our quarterly earnings on time this quarter, and we anticipate filing our earnings results on time on a go forward basis, as we believe that the bulk of the issues that previously delayed our filings are now behind us."

2018 Renewable Fuel Standard ("RFS") Compliance Impact Forecast

The Partnership records its outstanding Renewable Identification Numbers ("RINs") obligation as a balance sheet liability. This liability is marked-to-market on a quarterly basis to reflect the market price of RINs on the last day of each quarter. The Partnership expects its gross estimated annual RINs obligation, which includes RINs that are required to be secured through either blending or through the purchase of RINs in the open market, will be up to 85 million RINs for the full-year 2018, excluding the potential for any hardship waivers that may or may not be granted by the U.S. Environmental Protection Agency ("EPA") to any of the Partnership's fuel refineries at a later time. Calumet expects to be able to satisfy a portion of its 2018 gross RINs obligation through internal blending efforts.

Operations Summary

The following table sets forth information about the Partnership's combined operations from continuing operations. Facility production volume differs from sales volume due to changes in inventories and the sale of purchased fuel product blendstocks such as ethanol and biodiesel and the resale of crude oil in the Partnership's fuel products segment.

  Three Months Ended 
June 30, 
  Six Months Ended 
June 30, 
  2018    2017    2018    2017 
  (In bpd)    (In bpd) 
Total sales volume (1)  102,484    141,154    95,298    135,343 
Total feedstock runs (2)  98,704    136,552    91,637    134,370 
Facility production: (3)                       
Specialty products:               
Lubricating oils  13,755    15,914    11,904    15,539 
Solvents  7,726    8,239    7,854    7,794 
Waxes  1,172    1,373    1,205    1,425 
Packaged and synthetic specialty products (4)  2,458    2,551    2,448    2,559 
Other  2,087    1,341    1,898    1,692 
Total  27,198    29,418    25,309    29,009 
               
Fuel products:               
Gasoline  21,135    37,225    19,501    37,395 
Diesel  27,993    34,787    25,534    33,904 
Jet fuel  2,705    5,306    3,223    6,030 
Asphalt, heavy fuel oils and other  20,869    33,699    18,909    31,569 
Total  72,702    111,017    67,167    108,898 
Total facility production (3)    99,900    140,435    92,476    137,907 

(1)        Total sales volume includes sales from the production at the Partnership's facilities and certain third-party facilities pursuant to supply and/or processing agreements, sales of inventories and the resale of crude oil to third-party customers. Total sales volume includes the sale of purchased fuel product blendstocks, such as ethanol and biodiesel, as components of finished fuel products in the Partnership's fuel products segment sales. 
  The decrease in total sales volume for the three and six months ended June 30, 2018, as compared to the same periods in 2017, is due primarily to the divestiture of the Superior Refinery in November 2017 and decreased production at the Shreveport refinery and certain third-party processing facilities as a result of maintenance activities. 
(2)        Total feedstock runs represent the barrels per day ("bpd") of crude oil and other feedstocks processed at the Partnership's facilities and at certain third-party facilities pursuant to supply and/or processing agreements. 
  The decrease in total feedstock runs for the three and six months ended June 30, 2018, as compared to the same periods in 2017, is due primarily to the divestiture of the Superior refinery in November 2017 and decreased production at the Shreveport refinery and certain third-party processing facilities as a result of maintenance activities. 
(3)        Total facility production represents the bpd of specialty products and fuel products yielded from processing crude oil and other feedstocks at the Partnership's facilities and at certain third-party facilities pursuant to supply and/or processing agreements. The difference between total facility production and total feedstock runs is primarily a result of the time lag between the input of feedstocks and production of finished products and volume loss. 
  The change in total facility production for the three and six months ended June 30, 2018, as compared to the same periods in 2017, is due primarily to the operational items discussed above in footnote 2. 
(4)        Represents production of branded and packaged specialty products including the products from the Royal Purple, Bel-Ray and Calumet Packaging facilities. 

Derivatives Summary

The following table summarizes the derivative activity reflected in the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows for the three and six months ended June 30, 2018 and 2017:

  Three Months Ended 
June 30, 
  Six Months Ended 
June 30, 
  2018    2017    2018    2017 
  (In millions)    (In millions) 
Derivative loss reflected in cost of sales  (2.1)    —    (2.1)    — 
Derivative loss reflected in gross profit  (2.1)    —    (2.1)    — 
               
Realized loss on derivative instruments  —    —    (2.1)    (4.9) 
Unrealized gain on derivative instruments  0.8    1.3    2.8    11.9 
Total derivative gain (loss) reflected in the unaudited 
  condensed consolidated statements of operations 
(1.3)    1.3    (1.4)    7.0 
Total loss on commodity derivative settlements  —    —    (2.1)    (4.9) 
                               

Webcast Information

A conference call is scheduled for 9:00 a.m. ET on August 9, 2018 to discuss the financial and operational results for the second quarter 2018. Investors, analysts and members of the media interested in listening to the live presentation are encouraged to join a webcast of the call with accompanying presentation slides, available on the Partnership's website at .  Interested parties may also participate in the call by dialing (866) 584-9671 and entering the passcode 3296895. A replay of the conference call will be available a few hours after the event on the investor relations section of the Company's website, under the events section and will remain available for at least 90 days.

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