Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- World Kinect Corp (WKC, Financial) reported strong performance in its aviation business, with a near-record 53% operating margin for the quarter.
- The strategic divestiture of the Avinode business enhanced liquidity and created significant economic value.
- The company completed a tuck-in acquisition in business aviation, expanding its bulk fuel distribution network by adding nearly 300 customers.
- WKC generated $68 million in operating cash flow and $53 million in free cash flow during the second quarter.
- Interest expenses continued to decline, with a 15% year-over-year reduction, contributing to improved financial efficiency.
Negative Points
- The land segment experienced weaker-than-expected performance, with a 28% year-over-year decline in gross profit due to unfavorable market conditions.
- Marine gross profit decreased by about 13% year-over-year, driven by lower market volatility.
- The renewable fuels market on the West Coast faced logistics-related issues, impacting volume and margins.
- The percentage of gross profit from low carbon energy decreased to 8% from 12% in the previous quarter.
- The land business faced challenges from an oversupplied natural gas market and pressure on margins in Brazil.
Q & A Highlights
Q: Can you talk a little more about the headwinds in renewable fuels on the West Coast that Ira spoke about for 2Q? And then what you're seeing in terms of the recovery there into the third quarter?
A: There have been logistics-related issues impacting our ability to efficiently push through volume on the West Coast. Pipeline terminals have been slow to convert to renewable diesel, forcing us to use less cost-efficient methods like rail and truck. This has affected both volume and margin. Improvements are expected in a few months as new refineries come online and efficiencies are created.
Q: Can you talk about what's been received in cash on the Avinode sale and when the tax bill will be paid if it hasn't already?
A: We received almost exactly $200 million in May from the Avinode sale. The related tax, expected to be paid in Q3, is about $9 million, resulting in a positive after-tax cash benefit of approximately $190 million.
Q: Can you provide context on the capital outlay for the aviation tuck-in acquisition?
A: The total purchase price for the aviation tuck-in acquisition is around $45 million, with several million dollars deferred. Approximately $40 million will be paid when the transaction closes, expected around the end of the third quarter.
Q: What changed from how you were thinking about the land business when you last reported compared to how it played out over the quarter?
A: In Q1, the largest year-over-year variance was due to weather issues impacting the UK and our nat gas business. In Q2, the situation in Brazil deteriorated further, and we faced new challenges in renewable fuels and nat gas, which were significant enough to impact our results.
Q: Given the problems in the airline industry, is there any impact on Q3 guidance for aviation?
A: So far, there has been no impact from airline industry issues on our Q3 guidance. Our network continues to expand, allowing us to capture market share. We do not expect any significant impact from these issues.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.