Units of midstream master limited partnership Genesis Energy (NYSE:GEL) fell roughly 11% at the open on Aug. 5. They quickly regained some ground, sitting at a roughly 4% decline at 10 a.m. EDT, but by 10:30 a.m. they were heading back toward a loss of 10% again. The big news was the company's earnings release. Investors were not pleased.
Commenting on the quarter, CEO Grant Sims' first statement in the partnership's earnings release was: "As we said in our first quarter call, we believed Genesis, and most other energy and industrial companies, would be facing generational economic headwinds from the widespread demand destruction resulting from shutting down large portions of the world's economies to slow the spread of Covid-19. This turned out in fact to be the case, especially for us in our Sodium Minerals and Sulfur Services segment." That's an honest appraisal, which is nice to see, but still not what any investor really wants to hear.
It only takes a couple of stats to highlight the pain Genesis is feeling. For example, cash flow from operations fell nearly 25% year over year in the second quarter. Adjusted EBITDA fell roughly 25%. And the midstream player's highlight that it covered its distribution by 2.7 times only helped to point out that it cut the payment 73% in the first quarter. Genesis was also forced to discuss debt covenants, which generally only happens when there's a risk, or at least a fear among investors, that key metrics will fall short of the minimum targeted levels. But the biggest problem was probably that the news release stressed that the outlook remains uncertain, at best. Investors really don't like uncertainty, especially when it involves a struggling company.
Genesis believes that it has done what it needs to do to survive the current energy industry downturn. Whether that's true or not will only unfold over time. However, it is very clear that it has made a lot of hard calls, including trimming capital spending and materially reducing the distribution. That said, investors are obviously not happy here and the post-earnings price decline is just one more indication of that. Units are down around 70% so far in 2020.