While Calumet Specialty Products Partners (NASDAQ:CLMT) is a master limited partnership (MLP), it makes its money quite differently than most companies that use that corporate structure. Instead of primarily operating pipelines, processing plants, and storage facilities that generate rather stable fee-based income, Calumet operates refineries and manufacturing facilities that have direct exposure to volatile commodity prices.

Given its business model, the company's earnings have fluctuated wildly over the years. That volatility finally caught up with Calumet last year, after it had gotten itself deep in debt due to its unpredictable cash flow, as well as some unwise investments -- so deep in debt that it had no choice but to stop paying a distribution. This situation led the company to refocus its attention on how it makes money, with its goal to bolster the areas that have less direct exposure to commodity-price volatility.

Following the money trail

In many ways, Calumet Specialty Products Partners is similar to a refining company, since it produces gasoline, jet fuel, and asphalt as well as higher-value specialty products like lubricants and waxes. Overall, it operates three business segments: oilfield services, specialty products, and fuel products. Here's a snapshot of the financial performance of these segments since the start of 2015:

A chart of Calumet Specialty Products Partners' quarterly earnings by segment since 2015

Data source: Calumet Specialty Products Partners. Chart by author. In millions of dollars. EBITDA = earnings before interest, taxes, depreciation, and amortization.

As the chart shows, the company's most consistent moneymaker over the past few years has been its specialty products segment. In fact, it has supplied 68% of the company's earnings over the last 12 months versus 32% from fuel products, while oilfield services lost money; that's up from a nearly 50-50 split in early 2015.

This outsized portion of profits from specialty products is where the company differs from other refiners, since they typically make the bulk of their money by turning oil into refined products like gasoline and diesel. However, several also operate smaller specialty products businesses that make even higher-valued hydrocarbon-based products. For example, Phillips 66 is one of the largest finished-lubricants suppliers in the U.S., and it also makes waxes and solvents; HollyFrontier is the world's leading producer of pharmaceutical white oils, and makes a range of other specialty products.

While many refiners run a specialty products business alongside their core operations, Calumet Specialty Products Partners is a leader in that industry; it currently operates nine specialty products manufacturing facilities in the U.S. that produce 4,500 products for sale. At its core, this business turns hydrocarbons into higher-valued products that its customers then use to make lubricating oils, solvents, white oils and petrolatums, and waxes.

In addition to making the essential ingredients for those finished products, Calumet also manufactures several packaged and branded products. For example, its Royal Purple brand includes several premium synthetic lubricants for industrial, automotive, and racing applications. Meanwhile, its Bel-Ray brand manufactures high-performance lubricants and greases for the aerospace, food, marine, and military industries. These branded products carry the highest margins and have the least direct exposure to oil-price volatility.

A hand pouring motor oil into a car's engine

Image source: Getty Images.

Putting the emphasis back on specialty products

Calumet Specialty Products Partners' aim is to reduce its direct exposure to commodity prices and the refining sector by shifting its portfolio mix more toward specialty products. This past August, for example, the company took a notable step in that direction by agreeing to sell its Superior, Wisconsin, refinery to Canada's Husky Energy (TSX: HSE) for $435 million.

CEO Tim Go stated that the sale of Superior to Husky was:

... in line with Calumet's strategic vision to become the premier specialty petroleum products company in the world. This transaction provides both financial and strategic benefits for our unitholders, as we further position Calumet to move forward on our stated objectives including strengthening our balance sheet, lowering our leverage, and freeing up capital resources that will allow us to better invest and fund future EBITDA enhancing growth strategies within our core Specialties portfolio. The transaction also reduces our go-forward exposure to commodity pricing and volatility.

As Go noted, one of the benefits from this deal is that it will free up capital that Calumet can reinvest into its specialty products segment. These investments will enable the company to continue launching new products that should allow it to earn higher, more stable margins. In fact, last quarter alone, the company launched three new product lines that it developed in-house. The plan is to continue to organically expand this business so that the MLP can eventually deliver sustainable profit growth.

On the path toward stabilization

Calumet Specialty Products Partners has gotten burned in the past from its direct exposure to commodity prices. The company is working hard to reduce that impact by selling off some of its refining assets, and investing to expand its less sensitive specialty products segment. That should eventually enable the company to generate a more reliable cash flow stream, which is better suited for its MLP structure.

That said, the company still has a long way to go, and even once it reaches its target, it still won't generate the same stable free cash flows enjoyed by most MLPs. Risk-averse investors will want to stay away.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.