Genesis Energy (GEL) Reports Q3 Loss of $0.15, Revenues Beat

Genesis Energy (NYSE: GEL) reported Q3 EPS of ($0.15), versus $0.20 reported last year. Revenue for the quarter came in at $745.28 million versus the consensus estimate of $742.15 million.

Grant Sims, CEO of Genesis Energy, said, “On October 11, 2018, we completed the sale of our Powder River Basin midstream assets for net proceeds of approximately $300 million inclusive of the $30 million option payment we received in August. We used the net proceeds to reduce the balance outstanding under revolving credit facility. As the terms of our facility requires pro forma credit for this transaction, we were pleased to report our credit agreement leverage ratio at 5.24 times Adjusted EBITDA.

The closing of this transaction coupled with the improving financial performance of our businesses, makes us feel increasingly confident that approaching our leverage target of 4.5 times by the end of 2019 is reasonably achievable.

Turning to our financial results, our businesses continued to perform well in the quarter. We generated recurring financial results that provided for 1.65 times coverage of our sequentially increased distribution.

In the quarter, we were pleased to see the increase in the contribution of our onshore facilities and transportation businesses primarily driven by increasing volumes flowing through our infrastructure in the Baton Rouge corridor in Louisiana. These increased volumes are the realization of the expected growth in this business that we have discussed over the last few quarters. We believe the market fundamentals are intact to see increasing volumes and margin contributions both in Louisiana as well as in Texas over the next several quarters to levels sustainable for certainly the next several years. While the ramp in contribution from our organic growth projects has taken longer than originally anticipated, we are beginning to see the expected results that underpinned these investments.

Even after reflecting the sale of our Powder River Basin midstream assets, we would expect margin contribution from our onshore facilities and transportation segment to increase sequentially in the fourth quarter. This comes from physically handling increased volumes of crude oil discussed above rather than marketing or merchant fees which, for context, contributed less than $1 million for the third quarter.

In our offshore business, we have continued to experience an inordinate amount of scheduled and unscheduled downtime at several of the production facilities connected to our offshore infrastructure. Notwithstanding these short term negatives, longer term we are quite bullish on, and pleased with, the activity in and around our substantial footprint of assets in the Gulf of Mexico. Additionally, we are currently seeing increasing demand for our assets from production that is currently dedicated to 3rd party pipelines but is unable to get to shore due to such competitive pipelines being, in our estimation, oversubscribed. Given our excess capacity and connectivity on certain of our systems, we expect to benefit from this takeaway capacity constraint in future periods.

Our soda ash operations continue to exceed our original expectations when we purchased them a year ago. As we disclosed last quarter, they are on track to produce $165 - $175 million in margin in 2018, up from the original range of $155 - $165 million. Our refinery services business continues to perform at or above our expectations with increased volumes in the quarter.

Margin in our marine segment actually increased slightly on a sequential quarterly basis for the third quarter in a row. We are reasonably hopeful we’ve put in a bottom for the quarterly segment margin from our entire fleet of assets, but we continue to have no expectation of the fundamentals for marine transportation showing any significant improvement through at least the next several years.

We continue to enjoy a strong coverage ratio and remain on our path to naturally de-lever our balance sheet. We intend to be prudent and diligent in maintaining our financial flexibility to allow the partnership to opportunistically build long term value for all stakeholders without ever losing our commitment to safe, reliable and responsible operations.”

For earnings history and earnings-related data on Genesis Energy (GEL) click here.

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