PBF Energy Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014. PBF Energy operates three U.S. refineries with combined capacity of about 540,000 barrels per day and consolidates PBF Logistics LP (PBFX). Figures below are in U.S. dollars; financial amounts are rounded to millions unless otherwise stated.
Business context and material changes
- In May 2014, PBFX completed an IPO, raising approximately $341 million. PBF LLC retained a 50.2% limited-partner interest and all incentive distribution rights; PBFX’s publicly held units represent 49.8%.
- Three 2014 secondary offerings transferred 48 million PBF LLC units into PBF Energy Class A shares. PBF Energy’s economic interest in PBF LLC rose from 40.9% at year-end 2013 to 90.5% at June 30, 2014. PBF Energy received no proceeds from these secondary offerings.
- Reporting now presents Refining and Logistics segments. PBFX’s revenues are from agreements with PBF subsidiaries and are eliminated in consolidation.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $5,301.7 million | $4,678.3 million | $10,048.2 million | $9,476.1 million |
| Income from operations | $87.9 million | $133.0 million | $348.1 million | $233.1 million |
| Net income | $45.8 million | $107.2 million | $229.1 million | $176.9 million |
| Net income attributable to PBF Energy | $21.0 million | $16.8 million | $98.4 million | $28.2 million |
| Diluted EPS attributable to PBF Energy | $0.29 | $0.61 | $1.54 | $1.08 |
| Gross refining margin per barrel (non-GAAP) | $8.38 | $9.04 | $11.73 | $9.08 |
| Adjusted EBITDA (non-GAAP) | $124.0 million | $138.2 million | $418.9 million | $247.3 million |
- Q2 revenue increased 13.3%, but operating income fell about 34% and consolidated net income declined. Management cited lower crack spreads, unfavorable East Coast crude differentials, higher employee and engineering costs, and unplanned Toledo FCC unit downtime. Parent-attributable income rose despite lower consolidated income, in part because PBF Energy owned a larger share of PBF LLC; weighted-average ownership was 74.8% versus 27.7% a year earlier. The substantially higher share count also contributed to lower reported EPS.
- For the first half, revenue rose 6.0%, operating income increased, and attributable income and EPS improved. Favorable crude differentials and product margins and lower RIN compliance costs helped; lower crack spreads and higher energy and operating costs partly offset the benefit. First-half throughput averaged 450,800 barrels per day versus 453,100.
- Q2 throughput averaged 470,400 barrels per day versus 464,600. Six-month gross refining margin improved, while Q2 gross refining margin weakened year over year. Gross margin, including operating expenses and depreciation, was $124.4 million in Q2 and $424.5 million for the first half.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $166.1 million, versus cash used of $40.2 million in 2013. Working capital absorbed approximately $179 million, primarily reflecting inventory purchases and receivable timing.
- Investing cash outflow was $435.1 million, including $300.0 million net purchases of marketable securities, $125.3 million of property, plant and equipment spending, and $39.4 million of turnaround spending; proceeds from railcar sales partly offset outflows. Financing cash inflow was $509.7 million, including PBFX IPO proceeds and term-loan borrowings.
- Cash and equivalents were $317.5 million at June 30, versus $77.0 million at December 31, 2013. Working capital was $975.9 million, compared with $556.0 million.
- Management reported total liquidity of approximately $853.6 million, defined as cash plus availability under the Revolving Loan. It also reported $275 million available under PBFX’s revolving facility and $241.8 million of remaining Rail Facility capacity.
- Long-term debt was $1,020.6 million and current debt $13.0 million; the debt fair-value note lists $1,033.6 million of total carrying value including catalyst leases. This includes a fully drawn $300 million PBFX term loan and $8.2 million outstanding under the Rail Facility. PBFX’s $299.996 million of marketable securities primarily collateralized its term loan.
- The balance sheet included a $679.9 million tax receivable agreement liability, up from $287.3 million at year-end. PBF Energy estimates payments over the next five years of approximately $12.5 million to $54.9 million annually, declining thereafter; certain events could accelerate payment obligations.
Outlook, management commentary and risks
- Management said available cash and borrowing capacity should cover capital spending, working capital, dividends, debt service and tax receivable obligations for the next 12 months, subject to operating results and market conditions. The filing gives no full-year earnings or margin guidance.
- Expected 2014 net capital spending was approximately $300 million. Planned work includes a 40-day Toledo refinery turnaround in Q4 and continued Delaware City rail-unloading expansion; management expected total rail crude unloading capability to reach 210,000 barrels per day by year-end, subject to railcar deliveries and infrastructure and operating conditions.
- PBF Energy stated an intention to pay a quarterly Class A dividend of $0.30 per share, but future dividends remain at the board’s discretion. A $0.30 dividend was declared after quarter-end. PBFX’s general partner declared a prorated $0.16-per-unit initial distribution; PBFX distributions are not guaranteed.
- Effective July 31, 2014, PBF terminated its MSCG crude acquisition agreement for Toledo without an early termination penalty and began sourcing its own crude needs. The filing also notes a new three-year Toledo catalyst lease entered into in July.
- Key exposures include volatile product and crude prices, narrowing crude differentials, natural gas and RIN costs, refinery outages, counterparty performance and substantial indebtedness. Termination of J. Aron inventory intermediation arrangements could require PBF to finance covered inventory and repurchase stored products.
- Environmental and legal matters include pending appeals over Delaware City crude-barge loading and rail-terminal permits; management warned an adverse outcome could materially harm results. DNREC also sought approximately $529,000 in penalties and cost recovery for alleged Delaware City air-emission violations, which PBF disputes.
- Other risks include PBFX’s dependence on PBF as its customer, minimum-volume commitments, distribution and covenant limits, potential conflicts between PBF and PBFX, and the possibility that flow-through tax distributions may not match PBF Energy’s tax obligations. Management reported compliance with debt covenants and effective disclosure controls.
Important facts for investors to verify
- Whether refining margins, crude differentials and throughput recover after the Q2 decline, and whether Toledo’s planned turnaround or further outages affect results.
- Whether the $300 million capital-spending plan, Delaware City rail expansion and railcar procurement remain on schedule and within budget.
- Actual cash availability, debt levels and covenant headroom, including how PBFX’s secured term loan and collateral securities are managed.
- Cash flows and timing of tax receivable agreement payments, including any potential acceleration or changes in estimated benefits.
- Resolution of Delaware City permit appeals and the DNREC penalty matter, as well as final 2014 RFS requirements and resulting RIN compliance costs.
- Whether PBF Energy and PBFX maintain their stated distribution policies; neither company’s future distributions are assured.