World Kinect Corporation (NYSE:WKC) Q1 2024 Earnings Call Transcript

World Kinect Corporation (NYSE:WKC) Q1 2024 Earnings Call Transcript April 25, 2024

World Kinect Corporation misses on earnings expectations. Reported EPS is $0.47 EPS, expectations were $0.49. WKC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Goo day and thank you for standing by. Welcome to World Kinect Corporation First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Elsa Ballard, Vice President of Investor Relations and Communication. Please go ahead.

Elsa Ballard: Good evening everyone and welcome to the World Kinect’s first quarter 2024 earnings conference call, which will be presented alongside our live slide presentation. Today’s presentation is also available via webcast on our Investor Relations’ website. I’m Elsa Ballard, VP of Investor Relations and Communications. With me on the call today is Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer. Before I get started, I’d like to review our Safe Harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risk that could cause results to materially differ.

Factors that could cause results to materially differ can be found in our most recent Form 10-K and other reports filed with the Securities and Exchange Commission. We 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 measures. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure is included in our press release and can be found on our website. We will begin with several minutes of prepared remarks, which will then be followed by a Q&A period. At this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Michael Kasbar: Thank you, Elsa and good evening everyone. Given that we just spoke several weeks ago at our Investor Day, I’m going to keep my remarks brief. We had some ups and downs in the first quarter from a profitability standpoint, we also generated very strong cash flow. I will give more color on this in a few minutes. But in the meantime, I’d like to give a high level update on the focus paths we are on today building a more readable and leverageable business model. As you know, we have grown our Aviation and Marine businesses to create diversified scalable platforms that are built to weather the dynamics of the marketplace. Within our land business today, we have a higher proportion of variability in our portfolio.

And we are actively working to grow and scale those parts of the business that we believe are best suited for increased readability and operating leverage. As we scale these readable business activities, and further sharpen the portfolio, we believe this variability will be attenuated and result in more readable and predictable results, improved growth, and solid shareholder return. We’ve been disciplined about exiting relationships or business activities that we believe no longer provide acceptable returns or fit well within our future strategic plans. This is the sharpening the portfolio message we’ve been sharing and a strong example of this is the recently announced sale of Evernote, which we expect to close in the next few weeks. We will continue evaluating our broader portfolio of business activities for further opportunities to drive greater profitability, whether it be by acquiring businesses that can enhance current revenue streams, or exiting certain activities that may not be core will have the DNA to deliver the returns we expect to generate across our entire business platform.

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Q&A Session

And of course, we will continue to simply make our core businesses as strong and as profitable as they can be. We believe we have done a good job to-date of more tightly focusing on our core activities, where we have built industry leading competencies that are strongly valued by our customers and suppliers throughout the world. While it is clear that the most significant opportunities to drive growth and operating leverage may be in our land business, we have core opportunities across the rest of our businesses as well. So, whether it be growing our solid cardlock and retail business activities and land, or our fantastic network of airport fueling operations across multiple continents are new and expanded market opportunities in marine, where the dry bulk tanker container and crew segments are all quite healthy right now, our teams are more focused than ever in driving growth and profitability in these areas and across all of our core businesses, In our sustainability related activities, we are still in early innings, as is the industry.

But we have been building a highly talented team with significant domain expertise, and through carefully matching our talents with the evolving needs of our customers. We believe this revenue stream will blossom over time. Finally, we shared multiple financial targets with you just a few weeks ago. The timing of doing so is no coincidence as our confidence and strategic clarity in where we are headed has improved. And while we have already driven meaningful improvements in many parts of our business, we are fully aligned on the further moves necessary to realize a step change in our profitability and returns which we believe will enable us to meet or exceed the targets we have shared. So, while every quarter is important, we are focusing on building a stronger foundation for the future.

And we look forward to keeping you informed as we continue down this strategic growth plan. And now as promised, I will turn the call over to Ira who will provide an overview of our first quarter results. That’s right, Ira. Keeping my promises.

Michael Kasbar: Thank you, Michael. And good evening, everyone. Good job, Mike. Before we begin, please note that our first quarter non GAAP results reflect approximately $1.1 million of pre-tax adjustments to GAAP results. And as you all usually ask, I’ll tell you upfront that effectively all of these adjustments were to land operating expenses. Reconciliations are as always on our Investor Relations website, and also in today’s webcast presentation. Now, let’s go to the first quarter overview. On a consolidated basis, our total volume gross profit and adjusted EBITDA were all down slightly year-over-year. But our continued focus on prudent balance sheet management helped drive strong operating and free cash flow, contributing to a further improvement in our return on capital.

I will now walk through each of our business segments performance for the first quarter. Aviation volume was down approximately 100 million gallons, it’s about 6% year-over-year. This was principally related to recently winding down a specific bulk inventory activity, which had been generating approximately 100 million gallons of volume per quarter with very little related gross profit. This is yet another example of our continuing efforts to sharpen our portfolio, enabling us to focus our efforts on our business activities that are generating solid returns. As you know, in addition to the bulk activity just mentioned, we have been more broadly focused on rationalizing our Aviation portfolio since the first half of last year, with the related volume reduction being completely offset by more profitable business, resulting in improved overall returns.

This focused effort has yielded a 15% year-over-year increase in unit margins and an 8% year-over-year increase in Aviation gross profit. As we look to the seasonally stronger second quarter, we expect an uptick in both Aviation volume and gross profit. While volume is still expected to be down year-over-year, again, driven principally by the wind down at the bulk fuel activity, we expect to narrow the gap considering the very strong demand environment we are currently experiencing in most parts of the world. In the land business, volume increased 2% year-over-year, driven by increased volumes and our natural gas power and retail fuel activities, offset in part by decreased volume in the U.K., as well as in our lower-margin wholesale activities in North America.

The percentage of land volume associated with our nat gas and power business was 41% in the first quarter, that’s up from 37% in Q4 and 36% in the first quarter of last year. Land’s first quarter gross profit declined 12% year-over-year, primarily related to weather-related declines in both our U.K. business, which experienced unseasonably warm weather conditions during the quarter and our natural gas business in the U.S. While nat gas volumes were up year-over-year, warmer weather conditions, declining prices, and reduced market volatility compressed margins when compared to the first quarter of 2023. All these declines were partially offset by increased profitability in our Liquid Fuels business in North America. After a very strong fourth quarter for our sustainability-related product and service offerings, we experienced a moderate year-over-year decline in profitability in these activities as well during the first quarter.

Though our pipeline of opportunities here remain strong and we therefore expect improvement in this area as the year progresses. Looking to the second quarter, while we expect modest sequential improvement in gross profit, we expect another year-over-year decline, driven by many of the factors that impacted our first quarter’s results. As discussed at our Investor Day last month, we remain focused on refining the land business by further sharpening the portfolio of business activities in which we engage, focusing on core margins and of course creating greater operating efficiencies, with a goal of making progress towards land’s medium term, adjusted operating margin target, and driving increasing profitability and returns over time. We believe that the tremendous ongoing efforts by the land team should continue to deliver greater opportunities for improvement over the next few years.

In Marine, volumes were up slightly both sequentially and year-over-year. Gross profit, however, decreased 7%, driven principally by the reduction in market volatility when compared to what we experienced through 2022 and into the first quarter of 2023. Sequentially, however, gross profit was up 10%, demonstrating our team’s continued focus on driving solid returns in the current interest rate environment. As we look to the second quarter, while we expect Marine gross profit to decline sequentially, principally driven by seasonality, year-over-year comparisons start to normalize, as market volatility it tapered off by the second quarter of last year. So, we are expecting second quarter results for Marine to be generally in line with the prior year based on what we’ve seen quarter-to-date.