After a few years of trying to revive the foundering master limited partnership, Calumet Specialty Products Partners (NASDAQ:CLMT) management has built a better business that can get more cash out of its smaller and more focused footprint. Now management thinks it can take those efforts one step further with a new round of operational improvements.
Will this new round of improvements finally allow the company to get back to paying a distribution to its investors? (It is, after all, a master limited partnership.) Let's look at management's progress thus far and whether investors can expect a payout anytime soon.
Calumet Specialty Products: By the numbers
|Metric||Q3 2018||Q2 2018||Q3 2017|
|Revenue||$104.3 million||$945.5 million||$127.7 million|
|Adjusted EBITDA||$54.3 million||$78.9 million||$95.7 million|
|Net income (loss)||($16.5 million)||($51.9 million)||($23.6 million)|
|Limited partners' interest in net income per share||($0.21)||($0.65)||($0.30)|
|Distributable cash flow||$10 million||$36.5 million||$40.2 million|
After Calumet sold its Superior, Wisconsin, refinery and its Anchor oil services businesses in recent quarters, the company's revenue and EBITDA results were expected to decline considerably from this time last year. The benefit, though, was that selling these assets freed up enough cash to pay off some of its most expensive bonds. That's why the company was able to produce worse revenue and EBITDA figures but a better net income result versus this time last year.
Management also noted that this quarter was heavily impacted by maintenance and downtime for its production facilities. So this quarter was worse on paper, and we can reasonably expect better results in the upcoming quarter.
The real highlight of the quarter was management's plans for another round of what it calls "self-help" initiatives to improve profitability. When CEO Tim Go took the helm in 2016, his first priority was taking an extremely inefficient business and finding ways to get more from its existing asset base. That three-year program concludes at the end of the year, and so far it has delivered $170 million in higher EBITDA for the business.
As this plan was implemented, management has found new ways to improve profitability. And now, beginning in 2019, it wants to squeeze out another $100 million in EBITDA over the next three years.
What management had to say
On the company's conference call, Go went into further detail on where management thinks it can improve profitability across the business:
We are setting a goal to deliver an additional $100 million in EBITDA over the next three years beginning in first quarter '19. This program has been built bottom-up as each of our newly created business units presented their strategic plan to enhance profitability to our board. There are numerous initiatives that support this goal, but I'll highlight a few of the biggest contributors.
For example ... our new ERP [enterprise resource planning] system is helping us identify new opportunities for both transportation efficiencies as well as supply-chain opportunities; de-bottleneck projects at both Shreveport and Princeton, which should improve reliability and utilization; improvements in our product mix and finished lubricants, as we rationalize lower-margin SKUs; new product development in specialty oils and waxes, including the introduction of our new Versastique products and the commercialization of our Biosynthetic Technologies renewable estolides; increased material margin and solvents supported by raw materials flexibility projects; fuels-upgrades projects focused on upgrading intermediate feedstocks in the higher-margin finished products, such as naphtha and gas oils at Great Falls, San Antonio, and Shreveport; and reduced SG&A [selling, general, and administrative expenses] through improved capabilities enabled by our new ERP system.
Our leaders and their teams worked very hard building the foundation of phase 2 of this program, and we remain confident in our ability to deliver on our new $100 million profitability goal by year-end 2021.
You can read a full transcript of Calumet's conference call here.
Even with all this progress, a lot is left to be done
It is hard to understate the job Go has done turning this company around. Calumet was on the brink of bankruptcy when he started three years ago, and he has done a great job squeezing out as many operational efficiencies as he can to get back to some semblance of profitability and trim its onerous debt load.
But as much progress as he and his team have made, there is still a lot more work to be done. The business is still hemorrhaging cash to interest payments that make it close to impossible to turn a significant profit. Any cash that the company generates over the next couple of years will almost certainly go toward debt reduction, so investors hoping that Calumet will finally start paying a distribution sooner rather than later will likely be very disappointed.