What happened?
Shares of Macquarie Infrastructure Corporation (MIC) are down 25.8% at 12:28 p.m. on April 3, following the after-hours announcement yesterday that the company was suspending its dividend due to severely reduced demand for aviation fuel and energy services at two of its three main businesses. The company is acting to preserve cash so long as the coronavirus pandemic keeps the travel industry on hold.
So what
Macquarie's dividend cut shouldn't be a big surprise to anyone who follows its core business. The company operates three different segments, including an aviation business that provides jet fuel, terminal, and hangaring services for general aviation, energy services and distribution in Hawaii, and bulk liquid storage terminals.
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The first two have seen big declines over the past month. In the press release announcing the dividend suspension, the company said that aviation fuel sales fell 80% by the end of March, while the 85% reduction in visitors to Hawaii had reduced demand for gas -- mainly propane and natural gas -- by 60%.
Now what
While two of the company's three segments are down significantly (and could remain down for some time to come), Macquarie's bulk liquids terminaling business is booming. The company can store up to 48 million barrels of refined petroleum products, agricultural liquids, chemicals, and vegetable oils, and the sharp reduction in consumer and industrial demand for these products has led to a big increase in the demand for storage.
According to its most recent presentation, 39% of its storage capacity is crude oil, and 34% was refined fuels. With fuel consumption cratering, that storage should be in high demand for the foreseeable future.
But the boost the company should see in this segment won't be enough to make up for the steep drop in demand from its other two businesses. In the fourth-quarter earnings announcement, management set 2020 guidance for $575 million to $600 million in EBITDA -- earnings before interest, tax, depreciation, and amortization -- and was counting on 61% of that coming from the aviation and Hawaii energy services businesses. Those segments are likely to lose money while the downturn persists.
The company drew $874 million from two revolving credit facilities, and to repay and cancel the revolving credit facility at its aviation subsidiary, in order to stay within the covenants on some of its other debt. Management says it should have "no immediate need" for additional capital and that the $300 million in cash on the balance sheet prior to the credit drawdowns, plus operating cash generated, will be sufficient to meet its 2020 financial obligations.
