PBF Energy (NYSE:PBF), one of the top refiners in the U.S., reported a mixed bag of Q4 2019 earnings on Feb. 13. On the bright side, adjusted earnings topped analysts' estimates. On the other hand, they were also down sharply from the prior year. Unadjusted figures, though, showed big year-over-year improvement.
The market wasn't sure whether this was good or bad, sending shares down, then up, then finishing the week about where they started.
By the numbers
|Metric||Q4 2019||Q3 2019||Q4 2018||% Change YOY (Decline)|
|Revenue||$6.3 billion||$6.4 billion||$6.3 billion||Flat|
|Net income (loss)||$53.0 million||$69.5 million||($353.8 million)||N/A|
|Adjusted earnings per share (diluted)||$0.60||$0.66||$1.03||(41.7%)|
|Cash from operations||$501.3 million||$459.6 million||$117.7 million||325.9%|
PBF's flat year-over-year revenue was par for the course in the energy industry. Many oil and gas companies have been reporting slight year-over-year top line declines in Q4. The drop in adjusted earnings isn't surprising, either. Prices for refined products and petrochemicals fell in the last three months of 2019, and declines in crude oil prices weren't enough to salvage refining margins.
But PBF has refineries across the country, and its performance varied by region. For example, on the East Coast, PBF's largest region, production and throughput were up from Q4 2018 by 8.5% and 7.8%, respectively, more than offsetting a 4.6% slide in gross refining margin (a metric that excludes special items).
Conversely, gross refining margins improved in the West Coast and Gulf Coast regions by 40.5% and 3.6% over the prior year, respectively, although production and throughput declined slightly in both areas. Production and throughput were both flat from Q4 2018 in the Mid-Continent region, but gross refining margin there was down by a painful 47% year over year. Luckily, the Mid-Continent is the company's smallest region, which lessened the impact of the poor performance.
Considering how mixed PBF's performance was, it's not hard to see why the market basically left shares unchanged.
What management had to say
In a press release, CEO Tom Nimbley expressed satisfaction with the quarter's results, and optimism that macroeconomic trends were moving in the company's favor:
We ended 2019 with strong results. By strategically advancing maintenance into the first half of 2019, we gave ourselves a clear runway for the second half of the year and into 2020.
Looking forward, our outlook remains positive. The turmoil we experienced in January should begin to subside as we move past the market disruptions and into seasonally higher demand. We have started to see impacts of the [International Maritime Organization] marine fuel regulation change, and we expect those to become more apparent as the market continues to adapt to the new realities of lower-sulfur product demand and shifting appetites for various qualities of feedstocks. Finally, PBF Energy successfully completed the acquisition of the Martinez refinery and we welcome our newest employees and assets to the PBF family.
Management offered first-quarter and full-year guidance for 2020. Its guidance includes throughput from the 157,000 barrel per day (B/d) Martinez refinery in the West Coast region, which PBF acquired on Feb. 1. With the acquisition, PBF increased its companywide throughput capacity to more than 1 million B/d.
Management expects Q1 throughput to be up, with the new West Coast production capacity offsetting a steep Mid-Continent decline due to a turnaround at the company's Toledo refinery:
Management expects to complete the Toledo turnaround by the end of Q1; for the full year, it expects Mid-Continent throughput between 135,000 B/d and 145,000 B/d. The midpoint projections for the company's other regions represent single-digit improvements, with the exception of the West Coast, where thanks to the new Martinez refinery, annual throughput is expected to average between 290,000 B/d and 310,000 B/d.
Pricing, production, and PBF
Ultimately, PBF's success or failure depends on a lot of factors outside of its control: the price of the crude oil it buys, the sale prices its refined products can command, and the macroeconomic factors that control those prices. While it's good that the company's throughput looks set to increase, that won't mean much if it can't generate sufficient margins from its operations.
And prices are volatile right now, with a lot of unknowns affecting the market, including global crude supply and demand, the COVID-19 virus, and the new low-sulfur maritime fuel regulations that took effect at the beginning of the year.
President Matt Lucey alluded to this on the Q4 earnings call: "[I]f the prices move, our actions move with them, and so the market, I would say -- and sort of across the spectrum -- is twisted in knots on everything as a result of what's going on in the world. And we react, and so does the rest of the world."
PBF seems to be doing a good job managing the factors that are within its control, and thus outperformed expectations in Q4 2019. But whether it performs well in the near term is going to depend on how these unknowns shake out. Investors should be prepared for a bumpy ride, and may want to wait to jump in until there's a little bit more clarity in the energy industry.