PBF Energy Inc. (NYSE:PBF) Q4 2023 Earnings Call Transcript

PBF Energy Inc. (NYSE:PBF) Q4 2023 Earnings Call Transcript February 15, 2024

PBF Energy Inc. misses on earnings expectations. Reported EPS is $-0.41 EPS, expectations were $0.08. PBF isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone, and welcome to the PBF Energy Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. At this time, all participants are placed in a listen-only mode, and the floor will be open for your question following management’s prepared remarks. [Operator Instructions] Please note this conference is being recorded. It is now my pleasure to turn the floor over to, Colin Murray of Investor Relations. Sir, you may begin.

Colin Murray: Thank you, Kat. Good morning, and welcome to today’s call. With me today are Matt Lucey, our President and CEO; Karen Davis, our CFO and several other members of our management team. Copies of today’s earnings release and our 10-K filing, including supplemental information, are available on our website. Before getting started, I’d like to direct your attention to the Safe Harbor statements contained in today’s press release. Statements in our press release and those made on this call that express the company’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we describe in our filings with the SEC.

Consistent with our prior periods, we will discuss our results today, excluding special items. In today’s press release, we describe the special items included in our quarterly results. The cumulative impact of the special items increased fourth quarter results by an after tax amount of approximately $700,000 or $0.01 per share, primarily relates to a change in the fair value of contingent consideration associated with the Martinez acquisition and a benefit related to a change in the tax receivable agreement liability, offset by a decrease to our gain on the formation of SBR and our share of the SBR lower cost of market inventory adjustment. Also included in today’s press release is further guidance information related to our expectations for the first quarter of 2024.

For any questions on these items or follow-up questions, please contact Investor Relations after the call. For reconciliations of any non-GAAP measures mentioned on today’s call, please refer to the supplemental tables provided in the press release. I’ll now turn the call over to Matt Lucey.

Matthew C. Lucey: Good morning, everyone, and thank you for joining our call. As we closed the box on last year, PBF achieved its second best financial year in 2023. Over the course of the year, we further enhanced equity value by reducing our debt by over $700 million and we returned $640 million directly to shareholders through dividends and share buybacks. The company was able to purchase $150 million of our shares in the fourth quarter. I’m pleased to announce our Board of Directors has approved an incremental $750 million share repurchase authorization. This resets our program just over a $1 billion of remaining capacity. We ended the year with our balance sheet transformation complete and our strongest financial position ever.

As we look at the quarter, the West Coast operations had clear challenges. Operations outside the West Coast were reasonable. Our East Coast and Gulf Coast systems performed well in their respective markets, with capture rates broadly in-line with prior quarters. While Toledo operated well, the Mid-Con market was certainly challenging. At times, gasoline cracks were at or near negative numbers. This phenomenon in the Mid-Con during the fourth quarter is not new and somewhat of a return to normal seasonality. Importantly, we’ve seen a recovery in the Mid-Con product cracks as February began. Our West Coast system underperformed largely to our overlapping planned and unplanned maintenance activities. This was an unfortunate convergence of circumstances where we had both assets undergoing maintenance.

While not the plan, it was the reality. In Q4, we completed a major FCC turnaround at Torrance. And as mentioned last quarter, we experienced unplanned flexicoker downtime at Martinez. The FCC was delayed getting restarted and the coker work rippled through Martinez operations. The delayed restart of Torrance and the unplanned Martinez work costs us approximately $100 million in loss profit and an additional $32 million in operating expenses. And looking at our tariff sheets, you’ll see that on West Coast, we consume less heavy crude as a percentage of input, which increased costs. Our production yielded less high value products, notably gasoline. As a result of the delays in downtime, we did build high priced crude inventory, which will be consumed in the first quarter.

Again, while Q4 was clearly disappointing in California, I believe our West Coast system will be significant contributors to our results in 2024 as it has demonstrated over the last few years. Looking ahead to Q1 across the system, we have a Hydrocracker turnaround in Toledo beginning this month, and a FCC turnaround on the East Coast beginning in March. With industry maintenance across the refining space increasing, we have seen significant improvements in our market cracks in February. Indeed, the outlook for 2024 is constructive, and we are focused on positioning our assets to perform to their potential. Global refining capacity, including new additions and refined product demand remain tightly balanced. The refining industry has not been able to sustain product inventory builds and balances remain tight to historical levels with growing demand.

Disruptions in historic trade flows and patterns are creating tension in the market that is accruing to U.S. refiners, specifically coastal U.S. refiners such as PBF. With this favorable market backdrop, PBF should continue delivering strong earnings and free cash flow and generating long-term value for our shareholders. On the regulatory front, we are pleased to report that we have reached an agreement with the Bay Area Air Quality Management District. On a path forward with regards to Regulation 6-5, which will achieve the mutual goal of lowering particulate emissions. Consistent with expectations, we’re able to reach a settlement where we will comply with Rule 6-5 without any mandated incremental investment when the rule goes into effect in July of 2026.

Additionally, we do not expect any material changes to our operations or product yield as a result of the regulation. As we saw from activity earlier in the quarter, combined markets will continue to be volatile. The global refining system and PBF in particular will be nimble and adapting to market conditions. The focus will be, as always, on maintaining consistent operations, coupled with disciplined, rigorous capital allocation. Before turning the call over to Karen, I want to take a moment to publicly thank all of PBF’s employees for operating safely. Last year, PBF recorded its best year in our history from a personal safety perspective. This is across all segments of our business, including our employees and the contractors who work in our facilities on a daily basis.

The achievement of the lowest lost time incident rate in our history is a testament to the focus of each and every person in the company in executing their daily routines with the utmost professionalism and care. With that, I’ll turn it over to Karen.

Karen B. Davis: Thank you, Matt. For the fourth quarter, we reported an adjusted net loss of $0.41 per share and adjusted EBITDA of $117.2 million. For the full-year 2023, PBF reported adjusted net income of $11.32 per share and adjusted EBITDA of more than $2.6 billion. Cash flow from operations for the quarter was just under $306 million including a working capital benefit of $59 million. Consolidated CapEx for the fourth quarter was approximately $233 million which includes $221 million for refining, corporate and logistics and approximately $12 million in final payments related to SBR construction cost. For full year 2023, consolidated CapEx was approximately $1.2 billion which includes approximately $312 million to complete the SBR facility.

On a go forward basis, capital expenditures for SBR will not be reflected in PBF’s consolidated numbers. We continue to demonstrate our commitment to shareholder returns through our quarterly dividend and share repurchase program. In 2023, we paid over $105 million in dividends and repurchased approximately $533 million of PBF shares. Dividends paid in the fourth quarter totaled more than $30 million reflecting the 25% increase in the quarterly dividend rate announced last quarter. In the fourth quarter, we repurchased $150 million of PBF stock, more than 3.3 million shares. Since the program was introduced in December of 2022 through yesterday or in just over a little year’s time, we have completed approximately $740 million in total share repurchases, more than 17.6 million shares.

We have reduced our total share count to just under 120 million shares. During our third quarter call, we commented that our work to fortify our balance sheet was largely complete. Over the past three years, we have reduced debt by over $3.4 billion which in turn reduced our annual interest expense by over $200 million. In addition, we eliminated the overhang of our environmental credit payables by reducing the liability by $900 million and we retired our Inventory Intermediation Agreement at a cost of $268 million. These efforts, which totaled nearly $4.8 billion had enhanced our equity value and produced a balance sheet with investment grade level credit metrics. One comment on our outstanding environmental payables. At year end, our RINs liability was fully committed.

With the reduction achieved in 2023, we have brought down the balance to near what we would consider the upper range of normal. As a reminder, the current balance represents PBF’s commitment across a number of environmental credit programs, not just RINs. Now that we are in the business of generating credits through SBR, we are going to actively manage our consolidated positions in order to take advantage of market pricing and structure and to reduce our overall costs. Individual components may shift based on our commercial strategy, but we expect that maintaining this balance in the $200 million to $400 million range is appropriate over the long-term. Over the course of 2024, you can expect the $430 million that was outstanding at year-end to be reduced to this range over the coming quarters.

The balance may fluctuate depending on market conditions and commercial strategy. We ended the quarter with almost $1.8 billion in cash and approximately $1.3 billion of debt. Also of note, the final payment of the Martinez earn out, which we expect to play in April, now stands at approximately $21 million down from last quarter’s estimate of nearly $95 million. Sustainable dividends and share repurchases are important components of our overall long-term capital allocation and shareholder return objectives. Maintaining our firm financial footing and strong balance sheet remain priorities. To the extent our operations continue to generate cash beyond the needs of the business and the requirement to continuously invest in our assets, a greater percentage of that cash should be available for shareholder returns.

As always though, we will look at all opportunities allocate capital through the lens that directs cash to the option that generates the greatest long-term value for our shareholders. Operator, we’ve completed our opening remarks and we’d be pleased to take any questions.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from Roger Read with Wells Fargo. Please proceed.

Roger Read: Hey, thank you and good morning. I guess, Matt, you kind of hit on it in some of your opening comments, with the IEA out today with a bucket of cold water over the oil and gas industry. But I was just curious how you see demand as you look across your nationwide approach? Obviously, we’ve had some pretty rainy weather in California. We’ve had the snowstorms in the East Coast. But looking through those items, how do things look on the demand side?

Matthew C. Lucey: I think they look reasonable, obviously. You touched on it, in regards to the seasonality and weather and when it’s, really wet in California, people generally don’t go out. If it’s really cold in the Gulf Coast, people don’t know how to drive. And, indeed we just had some weather here in the northeast. That certainly impacts it. But that’s seasonal, I think going into the remainder of the year, I’m fairly pleased where I was much more cautious on the soft landing going back over the last couple of years. Overall GDP and the economy look pretty constructive.

Roger Read: Okay. And then, as a follow-up on the share let’s call it cash returns to shareholders, whichever method it takes, comment made about having an IG quality balance sheet. Is there anything you’re doing different until you would you receive an IG rating or you have what you have and we should look at it as that’ll be a, oh, I don’t know, let’s call it a nice feather in your cap or something like that, but doesn’t really alter the way you think about things or it will help you down the road and the way we should think about total returns for the company?

Matthew C. Lucey: I’ll make a couple of comments and then ask Karen to comment in terms of doing anything differently, I don’t think so, we would maintain the balance sheet that we’re having today because it’s the right thing to do, and there are a number of benefits, some of which we’ve already gotten in terms of trade credit. We have market participants that can see through the rating agencies. I was born of the credit world, meaning that’s where I began my career in banking. And the credit agencies are going to be slower, and that’s just a reality. That’s not news to us. We have good relationship with each of them. I think we’re going to continue to demonstrate that indeed we have a market leading balance sheet on any credit metric someone wants to pull up.

So, we’re operating our business, as we would if the credit rating agencies didn’t exist. We do want recognition for what the reality is, but that will take some time. Karen, I don’t know if you had any other comments.

Karen B. Davis: Just would add that our goal of achieving investment grade rating is based not only on the obvious benefits of reducing our weighted average cost of capital and certain other expenses, but we also think it might give us access to a greater or broader base of shareholders, those that are on investment grade rating as sort of confirms that the underlying fundamentals are strong and that will be appealing we think to long-term investors.

Roger Read: I would agree with that. Great. I’ll turn it back. Thanks.

Operator: Your next question comes from John Royall from JP Morgan. Please proceed.

John Royall: Good morning. Thanks for taking my question. So, my first question is just a clarification, I think on the RIN liability, and appreciate that it’s very much dwindling at this point. But, I think Karen mentioned the $200 million to $400 million target range. Is that apples-to-apples with the $50 million to a $100 million you gave on the last call? And if so, could you just bridge us from one range to the next? I feel like I may be missing something there, but if you could just help us with that change in the number? Thanks.

Karen B. Davis: Last year or last quarter in the guidance we gave, we talked in terms of number of RINs that we thought would be represented in that liability. I think now we’re viewing the environmental credits liability more holistically and including things like cap and trade and whatnot. So that is a, so our range now we’re expressing in terms of dollars and inclusive of all of our credit programs.

John Royall: Okay. That’s helpful. Thank you. And then, just on SBR, on an adjusted basis, I think, you lost about $20 million if we did those adjustments correctly. And, that’s coming off a nicely positive result in, 3Q. I know you had a catalyst change, but anything else to call out there? And how should we think about the first quarter for RD?

Matthew C. Lucey: Nothing has changed. A couple of positive developments have come down the path in regards to as we’ve gotten into Q1, we expect for all of Q1 that we’ll get our actual low carbon score in regards to our feedstocks, we expect that will come in Q1 and actually applied to the whole quarter. So, that’s a positive development. We are also expecting to in quarter one, be able to be, spec into Europe. That requires approved feedstocks. So, that’s not only a regulatory check the box, but it also requires that you have approved feedstocks going to that. That will take a little bit longer to get into our system where we’ll be able to fully arb into Europe, but both of those are very positive developments in looking forward. Looking back, obviously, the catalyst change was impactful in Q4 as we talked about on our last call, and then there was noise around some LCM charges and other things in the financials.

John Royall: Thank you.

Operator: Your next question comes from Doug Leggate from Bank of America. Please proceed.