Yahoo Finance CVR Partners, LP (NYSE:UAN) Q1 2024 Earnings Call Transcript
CVR Partners, LP (NYSE:UAN) Q1 2024 Earnings Call Transcript April 30, 2024
CVR Partners, LP isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the CVR Partners First Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP&A and Investor Relations. Thank you, sir. You may begin.
Richard Roberts: Thank you, Christine. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2024 first quarter results, let me remind you that this conference call may contain forward-looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release.
As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including a reconciliation of the most directly comparable GAAP financial measures are included in our 2024 first quarter earnings release that we filed with the SEC for the period. Let me also remind you that we are a variable distribution MLP. We will review our previously established reserves, current cash usage, evaluate future anticipated cash needs and may reserve amounts for other future cash needs as determined by our general partner's Board.
As a result, our distributions, if any, will vary from quarter-to-quarter due to several factors, including, but not limited to, operating performance, fluctuations in the prices received for finished products, capital expenditures and cash reserves be necessary or appropriate by the Board of Directors of our general partner. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark?
Mark Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining us for today's first quarter earnings call. The summarized financial highlights for the first quarter of 2024 include net sales of $128 million, net income of $13 million, EBITDA of $40 million, and the Board of Directors declared a first quarter distribution of $1.92 per common unit, which will be paid on May 20 to unitholders of record at the close of the market on May 13. For the first quarter of 2024, our facilities achieved a consolidated ammonia plant utilization of 90%, which was impacted by a 14-day planned outage at our Coffeyville facility in the quarter. Combined ammonia production for the first quarter of 2024 was 193,000 gross tons, of which 60,000 net tons were available for sale and UAN production was 305,000 tons.
During the quarter, we sold approximately 284,000 tons of UAN at an average price of $267 per ton and approximately 70,000 tons of ammonia at an average price of $528 per ton. Relative to the first quarter of 2023, ammonia sales volumes were higher as a result of favorable weather allowing farmers to apply ammonia earlier in the year while UAN sales volumes were lower, primarily due to lower production volumes in the quarter. Prices for the first quarter declined from the first quarter of last year with ammonia prices falling 41% and UAN prices falling 42%. Nitrogen fertilizer pricing for the first quarter remained fairly steady with fourth quarter 2023 pricing and demand for ammonia was strong, driven by favorable weather conditions. Inventory levels across the system remained fairly tight, particularly for UAN, and we remain optimistic at our fertilizer demand for the remainder of the spring planting season which I will discuss further in my closing remarks.
I will now turn the call over to Dane to discuss our financial results.
Dane Neumann: Thank you, Mark. For the first quarter of 2024, we reported net sales of $128 million and operating income of $20 million. Net income for the quarter was $13 million or $1.19 per common unit and EBITDA was $40 million. Relative to the first quarter of 2023, the decline in EBITDA was primarily due to lower market prices for ammonia and UAN. Direct operating expenses for the first quarter of 2024 were $56 million. Excluding inventory impacts, direct operating expenses decreased by approximately $6 million relative to the first quarter of 2023 primarily due to lower natural gas and electricity costs. During the first quarter of 2024, we spent $5 million on capital projects, which was primarily maintenance capital.
We estimate total capital spending for 2024 to be approximately $46 million to $49 million, of which $33 million to $35 million is expected to be maintenance capital. We anticipate a significant portion of the profit and growth capital spending planned for 2024 will be funded through cash reserves taken in 2023 and 2024. We ended the quarter with total liquidity of $108 million, which consisted of $65 million in cash and availability under the ABL facility of $43 million. Within our cash balance of $65 million, we had $13 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of $40 million and had net cash needs of $20 million for interest costs, maintenance CapEx and other reserves.
As a result, there was $20 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $1.92 per common unit. Looking ahead to the second quarter of 2024, we estimate our ammonia utilization rate to be between 95% and 100%. We expect direct operating expenses, excluding inventory impacts, to be between $50 million and $55 million and total capital spending to be between $15 million and $20 million. With that, I'll turn the call back over to Mark.
Mark Pytosh: Thanks, Dan. In summary, we are pleased with our first quarter results. Taking into account the planned outage in Coffeyville, we had good production from our facilities and experienced solid early demand for ammonia for spring pre-plant application due to favorable weather conditions. We believe market conditions are steady, and we expect to see strong demand continuing for nitrogen fertilizer for the spring 2024 planting season. In addition to the early spring movement of fertilizer in March, we have seen improved planting conditions in the Southern Plains with more moisture, which has led to higher demand for nitrogen fertilizer in Kansas, Oklahoma and Texas. Overall, grain market conditions have been volatile, but comparable to fourth quarter levels as the USDA is forecasting 90 million acres of corn will be planted in the spring of 2024, a 5% decrease compared to 95 million acres in 2023.
Planned soybean acres are estimated to be $86.5 million in 2024, up 3% from 2023 levels of $84 million. Yield estimates for corn are increasing from 177 to 181 bushels per acre, and soybean yield estimates are increasing from 51 to 52 bushels per acre. The USDA is now projecting grain inventory carryout levels to be approximately 17% for corn and 10% for soybeans, resulting in inventories near the 10-year averages. Grain prices are comparable to last quarter prices with July corn at $4.50 per bushel and soybeans at nearly $11.90 per bushel. These grain prices, coupled with current fertilizer prices support attractive farmer economics, which should bode well for nitrogen fertilizer demand for the remainder of spring 2024. We believe that the length of this upward demand cycle will, in large part, be driven by grain prices staying at elevated levels, and we see fundamentals for grains remaining steady.
Geopolitical risks remain high and represent a wildcard for the nitrogen fertilizer industry with meaningful fertilizer production capacity residing in countries across the Middle East North Africa and Russia. We are closely monitoring developments in the Middle East that could impact energy and fertilizer markets, and we expect the remainder of 2024 will be another period of higher than historical volatility in the business. Natural gas prices in Europe have remained flat since our last earnings call in the $7 to $9 per MMBtu range due to lower industrial demand and a warmer-than-expected winter. While the cost to produce nitrogen fertilizer in Europe has remained lower than in 2023, it is still at the high end of the global cost curve, particularly compared to the U.S. with natural gas prices at below $2 per MMBtu since December of 2023.
We do not believe that the structural natural gas market issues in Europe have been resolved and will likely remain in effect over the next 2 years. At our Coffeyville facility, we are working on detailed engineering studies on the potential to utilize natural gas as an alternative feedstock to pet coke and expect to have them completed later this year. If this project is approved by the Board and successfully implemented, it could give us the ability to choose the optimal feedstock mix and be the only nitrogen fertilizer plant in the U.S. with that flexibility. We also continue to evaluate brownfield development projects at both of the production facilities that could be attractive targeted capacity increases to our existing footprint. The Board elected to continue reserving capital that we expect to spend over the next 2 to 3 years, and we'll be focused on improving reliability and redundancy at the 2 plants that could provide better production rates and lower downtime in the future.
We expect to begin spending capital on these projects in the second half of 2024. The union strike that began at our East Dubuque facility in October ended in late February and hourly workers began returning to operate the plant in early March. We wanted to thank our East Dubuque supervisory team and personnel from other CVR facilities for their excellent efforts in keeping the facility operating safely and reliably for 139 days during the strike. On March 18, CVR Energy, our parent company filed an 8-K stating that, among other things, it was evaluating potential strategic transactions, including potential options with respect to CVR Partners. At this time, there's nothing for us to report about CVR Energy's plans, if any. The first quarter continued to demonstrate the benefits of focusing on reliability and performance.
In the quarter, we executed on all of the critical elements of our business plan, which include safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors and communities. Prudently managing cost being judicious with capital, maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint. In closing, I would like to thank our employees for the excellent execution achieving 90% ammonia utilization for the quarter while safely completing the 14-day outage at Coffeyville. Solid operating performance and delivery on our marketing and logistics plants resulted in a distribution of $1.92 per common unit for the first quarter. With that, we are ready to answer any questions, Christine.
Operator: [Operator Instructions] Our first question comes from the line of Rob McGuire with Granite Research. Please proceed with your question.
See also
15 States With the Lowest Property Taxes in the US and
25 Richest Billionaires in Real Estate Industry.
To continue reading the Q&A session, please click here.
