Genesis Energy (GEL) Misses Q1 EPS by 22c, Revenues Miss

Genesis Energy (NYSE: GEL) reported Q1 EPS of ($0.02), $0.22 worse than the analyst estimate of $0.20. Revenue for the quarter came in at $620.01 million versus the consensus estimate of $719.55 million.

We generated the following financial results for the first quarter of 2019:

• Net Income Attributable to Genesis Energy, L.P. of $16.0 million for the first quarter of 2019 compared to Net Income Attributable to Genesis Energy, L.P. of $8.0 million for the same period in 2018.
• Cash Flows from Operating Activities of $114.0 million for the first quarter of 2019 compared to $86.3 million for the same period in 2018, an increase of $27.7 million.
• Total Segment Margin in the first quarter of 2019 of $173.6 million.
• Available Cash before Reserves of $95.9 million for the first quarter of 2019, which provided 1.42X coverage for the quarterly distribution of $0.55 per common unit attributable to the first quarter.
• We declared distributions on our preferred units in the form of 364,180 additional convertible preferred units attributable to the first two months of the quarter and a cash distribution of $0.2458 for each preferred unit attributable to the last month of the quarter, which equates to a cash distribution of approximately $6.1 million and is reflected as a reduction to Available Cash before Reserves to common unitholders.
• Adjusted EBITDA of $164.0 million for the first quarter of 2019. Our bank leverage ratio, calculated consistent with our credit agreement, is 5.08X as of March 31, 2019 and is discussed further in this release.

Grant Sims, CEO of Genesis Energy, said, “We are pleased to announce Total Segment Margin of $173.6 million in the quarter which was negatively impacted by several non-recurring events that have or are expected to be resolved in the near future. Despite these challenges, we remain on track with our previously announced guidance for 2019.

During the quarter, our soda ash operations experienced lower production volumes due to unscheduled downtime caused by an electrical transformer failure at one of our production facilities which reduced quarterly segment margin by approximately $5.0 million. The transformer has since been replaced and we are back to running at full capacity. We expect to offset this first quarter negative with higher volumes and stronger pricing in both the domestic and export markets and remain on track for our full year guidance for 2019. The international market supply/demand balance continues to remain tight, and we believe prices are likely to strengthen in the coming years.

Our onshore facilities and transportation segment experienced a negative impact from the Alberta government’s imposed production curtailments, which was reflected in our first quarter with approximately zero volumes moved through our Scenic Station facility in February and March. On a sequential basis, this reduced segment margin by approximately $6.5 million assuming that volumes would have remained the same with the fourth quarter of 2018. Physical volumes resumed in April, albeit below the minimum take-or-pay volumes, but we now expect volumes in May and June to be at or above our minimum take-or-pay volumes. Future spreads indicate a tightening in takeaway capacity thus making rail movements out of Alberta economical. We expect our main customer to utilize pre-paid transportation credits from the first quarter for any over performance in the second quarter with any continued over performance not being reflected in our results until the second half of 2019.

Margin contribution from our marine transportation segment continues to perform at expectations. We remain optimistic that we are at the bottom for the quarterly segment contribution from our entire fleet of assets, and recent strength in near term day rates and utilization rates is reflective of an ever-so-slightly tightening market.

Our refinery services business continues to perform at expectations and we believe it will continue to do so for the foreseeable future.

Turning to our offshore business, during the quarter we saw increased volumes across our asset footprint and we began receiving volumes on Poseidon and CHOPS from production delivered to us by a third party pipeline that has insufficient capacity to directly deliver all of its committed volumes to shore. Given the activity levels in the Gulf of Mexico and our excess capacity and connectivity to multiple markets on certain of our systems, we expect to continue to benefit from this trend for the foreseeable future.

We remain on track to exit 2019 with an additional 40-50 thousand barrels per day, or kbd, relative to the fourth quarter of 2018, from infield development drilling and sub-sea tiebacks, including the LLOG-operated Buckskin prospect. Our team continues to finalize agreements adding incremental, dedicated volumes approaching 80 kbd in 2020 (including Atlantis Phase 3), 70 kbd in 2021 and 150 kbd in 2022 (including Mad Dog 2), none of which requires any capital expenditures by us. We are in early but active discussions regarding incremental volumes that could possibly come in the 2022-2025 time-frame. We believe we are well positioned to capture incremental volumes as we are the only major pipeline operator in the central Gulf that does not have affiliated capacity production to be concerned with and has current significant excess capacity to shore. However, unless and until the parties enter into definitive agreements, there is no guarantee that we will be successful in capturing some or any of these volumes.

Our businesses generated financial results that provided 1.42X coverage to our common unitholders, inclusive of the preferred cash distribution, and a leverage ratio that slightly decreased on a sequential basis. We expect our coverage ratio to be slightly lower in future periods, everything else the same, as we move completely out of the paid-in-kind period on our preferred units. We currently expect for our quarterly distribution rate to remain at $0.55 per common unit for the foreseeable future.

Our outlook for the remainder of 2019 remains unchanged from our previously stated guidance. We continue to enjoy a strong distribution coverage ratio and will use any excess cash flow to repay amounts outstanding under our revolving credit facility or to internally fund potential organic growth opportunities. This coupled with our expected growth from our existing asset footprint, which requires little or no capital, keeps us on track to naturally de-lever our balance sheet. We remain encouraged by our view of the operating environment for our businesses in 2019, especially in the Gulf of Mexico with a number of exciting tie-backs being completed in the second half of the year. As always, 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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