PBF Energy Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. PBF Energy is a holding company that consolidates PBF Energy Company LLC and PBF Logistics LP (PBFX). The business operates five U.S. refineries, with approximately 900,000 barrels per day of combined capacity, and a logistics segment.
Financial and operating performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $6.43 billion | $7.65 billion | $18.21 billion | $20.89 billion |
| Net income | $86.3 million | $192.5 million | $306.1 million | $522.0 million |
| Net income attributable to PBF Energy shareholders | $69.5 million | $179.6 million | $266.4 million | $482.1 million |
| Diluted EPS | $0.57 | $1.50 | $2.20 | $4.16 |
| Consolidated gross margin | $186.1 million | $315.0 million | $677.9 million | $960.5 million |
| Operating income | $151.9 million | $286.3 million | $526.0 million | $804.3 million |
| Operating cash flow | Not provided by quarter in the filing text | $432.2 million | $720.2 million |
Q3 crude and feedstock throughput averaged 850,900 barrels per day, versus 888,400 a year earlier. Gross refining margin, a company-defined non-GAAP measure, was $8.27 per throughput barrel ($8.87 excluding special items), compared with $9.37 ($9.25 excluding special items). For the nine-month period, gross refining margin was $9.45 per barrel ($8.21 excluding special items), versus $9.90 ($8.80 excluding special items). The filing reports consolidated gross margin of $2.38 per throughput barrel in Q3 2019 versus $3.86 in Q3 2018.
Cash, debt and liquidity: Cash and equivalents were $536.3 million at September 30, 2019, down from $597.3 million at year-end 2018. Reported long-term debt was $2.064 billion, compared with $1.931 billion at year-end. PBFX had $283 million drawn on its revolving facility; PBF Holding reported no revolver borrowings at period end. Total liquidity was approximately $2.123 billion, including cash and availability under PBF Holding’s facility; PBFX separately had $212.2 million of available revolver capacity. Working capital was $1.291 billion. Management said liquidity and operating cash flows should cover the next 12 months’ needs, including the planned acquisition, subject to market conditions.
For the nine months, investing cash outflow was $593.5 million, including $309.0 million of capital expenditures and $282.6 million of turnaround costs. Financing cash inflow was $100.3 million, including $132.5 million of PBFX unit proceeds; dividends paid were $107.6 million. Cash declined by $61.0 million over the period.
Changes versus the prior comparable periods
- Q3 revenue fell 15.9%; nine-month revenue declined 12.9%, primarily reflecting lower hydrocarbon prices. Earnings and operating income also declined substantially.
- Management attributed weaker underlying refining results to less favorable crude differentials, lower throughput and unplanned downtime at Toledo and Chalmette in Q3. Nine-month throughput was also affected by planned turnarounds and unplanned downtime.
- Operating expenses increased 2.9% in Q3 and 6.3% for the nine months; depreciation and amortization rose in both periods, reflecting investment, turnarounds and accelerated amortization.
- Operating cash flow declined to $432.2 million from $720.2 million for the nine-month comparison, while investing outflow increased to $593.5 million from $419.8 million, largely reflecting higher capital and turnaround spending.
Outlook, unusual items and risks
- Unusual items: Q3 2019 included a $47.0 million noncash inventory lower-of-cost-or-market charge and a $33.1 million Torrance land-sale gain. Q3 2018 included a $54.8 million inventory benefit, a $43.8 million land-sale gain, a $7.8 million tax receivable agreement gain and a $44.6 million railcar-return charge. For the nine months, the inventory adjustment was a $277.0 million benefit in 2019 and a $300.5 million benefit in 2018. These items materially affect comparisons.
- Capital spending: Management expected 2019 net capital expenditures of $625–$675 million, excluding PBFX and potential Martinez acquisition spending; PBFX expected $31–$35 million. Much of the planned refinery turnaround spending had occurred in the first half.
- Martinez acquisition: PBF agreed to acquire Shell’s Martinez refinery and related logistics assets for $900 million–$1.0 billion in cash, plus inventory and working capital and possible earn-out payments. Closing was expected in Q1 2020, subject to approvals and other conditions; management expected to use cash and debt. Completion, integration, financing and realization of expected benefits remain risks.
- Dividends: PBF declared a $0.30-per-share dividend after quarter end and said it intended to continue quarterly payments at that level, but future dividends remain at the board’s discretion. PBFX declared a $0.52-per-unit distribution.
- Other risks and contingencies: Results remain sensitive to refining margins, crude differentials, commodity prices, outages, RIN and emissions-credit costs, and counterparty performance. RFS costs were $31.6 million in Q3 and $92.0 million for the nine months. PBF reported $373.5 million of Tax Receivable Agreement liabilities and estimated future annual payments of approximately $30–$65 million over the next five years, declining thereafter. Environmental remediation, regulatory matters and litigation are ongoing; outcomes and potential losses are not always estimable. Management did not expect identified matters to materially affect results, but noted uncertainty.
Most important facts for investors to verify
- Whether refining margins, throughput and refinery reliability improve, particularly after turnaround activity and unplanned downtime.
- How much of reported earnings reflects inventory valuation changes and asset-sale gains versus recurring operating performance.
- Whether planned capital spending and the Martinez purchase can be financed without materially weakening liquidity or increasing leverage.
- The development of RIN, environmental and remediation costs, and the timing and ultimate cost of material legal or regulatory matters.
- Whether operating cash flow supports dividends, debt service and acquisition funding under less favorable commodity-market conditions.