Q1 2024 PBF Energy Inc Earnings Call

Participants

Colin Murray; Vice President, Investor Relations; PBF Energy Inc

Matthew Lucey; President, Chief Executive Officer, Director; PBF Energy Inc

Karen Davis; Chief Financial Officer; PBF Energy Inc

T. Paul Davis; Senior Vice President, Supply, Trading and Optimization; PBF Energy Inc

Thomas Nimbley; Chief Executive Officer; PBF Energy Company LLC

Roger Read; Analyst; Wells Fargo

Ryan Todd; Analyst; Piper Sandler & Co

Manav Gupta; Analyst; UBS

Matthew Blair; Analyst; TPH & Co.

Paul Cheng; Analyst; Scotiabank

Joe Laetsch; Analyst; Morgan Stanley

Jason Gabelman; Analyst; Cowen

Presentation

Operator

Good day, everyone, and welcome to the PBF Energy first quarter 2024 earnings conference call and webcast time. (Operator instructions) This conference is being recorded and it is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

Colin Murray

Thank you, Abby. Good morning and welcome to today's call. With me today are Matt Lucey, our President and CEO; Karen Davis, our CFO, and several other members of our management team. Copies of today's earnings release and our 10-Q filing, including supplemental information, are available on our website.
Before getting started, I'd like to direct your attention to the Safe Harbor statement contained in today's press statements in our press release and those made on this call that express the Company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws.
There are many factors that could cause actual results to differ from our expectations, including those we describe in our filings with the SEC. Consistent with our prior periods, we will discuss our results today excluding special items in today's press release, we describe the non-cash special items included in our quarterly results.
The cumulative impact of these items increased fourth quarter results by an after-tax amount of approximately $900,000 or $0.01 per share, primarily related to a change in the fair value of contingent consideration associated with the Martinez acquisition and our share of St. Bernard renewables, LLC, lower cost or market inventory adjustment, which were partially offset by an adjustment to the gain on the formation of SPR.
Also included in today's press release is further guidance information related to our expectations for the second quarter throughput for any questions on these items of follow-up questions, please contact Investor Relations after the call for reconciliations of any non-GAAP measures mentioned on today's call. Please refer to the supplemental tables provided in today's press release. I'll now turn the call over to Matt Lucey.

Matthew Lucey

And thank you, Colin, and good morning, everyone, and thank you for joining our call. While the markets early in the quarter reflected somewhat typical seasonal weakness, industry maintenance and increasing consumer demand through the quarter helped strengthen the markets as we progress from the mild winter into spring. With that backdrop, Toledo and Delaware City refineries underwent significant turnarounds beginning in late February and in early March, we completed the Toledo turnaround in mid-April.
The Delaware City FCC is in the midst of start-up today, despite the impact of the turnaround in Toledo, we did benefit from attractive Syncrude pricing, which improved our capture rate in the quarter. That said, Syncrude differentials have now normalized operations have shown that where, as planned, with no significant issues during the quarter, we do have a turnaround plan for the fourth quarter at Schulman, our West Coast refining system was impacted by the carryover of issues from Q4.
Capture rates were negatively impacted by higher price inputs flowing through the system Terra, our turnaround work has begun at Martinez on the hydrocracker and other associated units. We expect to complete this work in the second quarter and should have a clear operational runway for the remainder of the year.
For the West Coast, we continue to see strength in demand for our products across all operating regions and inventories remain tight. We ended the quarter in a net cash position. The completion of our balance sheet transformation 2023 provides PBF with the ability to deliver shareholder returns across market cycles, cycles and the flexibility to take advantage of market opportunities should they appear we continued to demonstrate our commitment to returning cash to shareholders with approximately $125 million of share repurchases in the first quarter.
In addition, our Board of Directors approved the payment of our regular quarterly dividend of $0.25 per share. Longer term, we continue to be constructive on global refining market on the global refining market. Global Capacity, including new additions and refined product demand, remain tightly balanced. New capacity additions are needed to keep pace with growing global demand and also capacity shutdowns and conversions, geopolitics and the associated disruptions in historic trade flows continue to create tension in the market does accruing to the US refiners, specifically coastal US refiners such as PBF in this environment, PBF should contain jet continued, generating strong earnings, free cash flow and promoting long-term value for our shareholders.
Before turning the call over to Karen, I'd like to take an opportunity to publicly introduce and welcome our new Head of Refining. Mike Boguski, our previous head of refining Steve stage is set to enjoy a well-deserved retirement after a long and successful career. Mike joins us with over 30 years of refining experience, and we are excited that he is bringing his deep expertise and new perspectives to PBF operations our focus remains on the safe and reliable operations of all our assets, and we believe Mike will help us to elevate our performance across the system.
With that, I'll turn it over to Karen.

Karen Davis

Thank you, Matt, and good morning. For the first quarter, we reported adjusted net income of $0.85 per share and adjusted EBITDA of $301.5 million earnings per share included a benefit of $0.04 per share related to a reduction in our effective tax rate to approximately 21% due to the exercise of employee stock options during the quarter.We expect our effective tax rate to return to the normalized range of 24% to 26%.
Also included in the PBF. results is an $800,000 loss related to our equity investment in St. Bernard renewables. Stand-alone EBITDA for SBR after backing out the lower of cost or market adjustment was approximately $4 million. We completed a catalyst change and some optimization work in Q4, allowing us to produce an average of 18,000 barrels per day of renewable diesel in the first quarter, we expect similar production levels in the second quarter.
Cash flow from operations for the quarter was approximately $293 million. Excluding a working capital headwind of approximately $278 million. The main drivers of the working capital headwind relate to cash outflows of approximately $100 million due to the tightening of our hydrocarbon net payable position, which was magnified by the impacts of our turnaround activities during the quarter.
There was also a payout of accruals related to employee compensation of $110 million, a payments under the tax receivable agreement of $45 million and approximately $25 million of other items in the aggregate Consolidated CapEx for the first quarter was approximately $285 million, which includes refining, corporate and logistics. Full year 2024 guidance remains in the $800 million to 850 million range, which includes about 50 million of discretionary strategic CapEx.
We continue to demonstrate our commitment to shareholder returns by returning approximately $155 million to shareholders in the first quarter which included dividends and share repurchase. Since the repurchase program was introduced in December of 2022. Through the end of the first quarter, we have completed approximately $814 million in share buybacks. This represents over 14% of our outstanding shares at the beginning of the program. We have reduced our total share count to approximately 119 million shares as of March 31, 2024.
We ended the quarter with over $1.4 billion in cash and approximately $1.2 billion of debt. Also of note, the final payment of the Martinez earnout now stands at approximately $19 million, and we expect this payment will be made in the second quarter. Maintaining our firm financial footing and strong balance sheet remain priorities. To the extent our operations continue to generate cash beyond the needs of the business and the requirement to continuously invest in our assets, a greater percentage of that cash should be available for shareholder returns.
Sustainable dividends and share repurchases are important components of our overall long-term capital allocation and shareholder return objectives. As always, we will look at all opportunities to allocate capital through the lens that directs cash to the option that generates the greatest long-term value for our shareholders.
Operator, we've completed our opening remarks and we'd be pleased take questions.

Question and Answer Session

Operator

(Operator instructions)
Roger Read, Wells Fargo.

Roger Read

Yes, thank you. Good morning. I guess if we could maybe this is a question for the new refining guy and welcome Mike crude differentials, we've been hearing a lot about sort of tighter light heavies out there. You're going to get probably the opposite of that on the West Coast. Just curious how you're looking at crude availability, how much WCS you could run on the West Coast and then how that maybe shakes out across Gulf Coast and East Coast?

Matthew Lucey

Yes, I'll start, Roger. And I think we've disclosed on previous calls that we think we're going to be able to run about 40,000 barrels a day and through our refineries on the West Coast on it, but it's way early days. Obviously, the all the press is reporting that the pipeline is getting up and running, but the ship hasn't been loaded yet. And indeed, we are getting inbounds on a daily basis and we'll simply go into our calculations as we calculate the economics around all available crudes, but incremental crude to the West Coast is going to be directionally positive.
There have been some gyrations in the crude market as Pemex is given different signals at different times over the last couple of weeks, couple of months. But broadly speaking, crude differentials are very, very attractive at the moment, Paul, you are making the comment?

T. Paul Davis

I think you said it pretty much right in the Gulf Coast had some gyrations because of Pemex's moves. But currently we see and actually pretty attractive high light heavy spread on crudes mainly in the Gulf Coast. We're seeing tightening in Canada, obviously, with the sale process of TMX. But in general, we see pretty constructively IWO.

Roger Read

Okay. Appreciate that. And then the other follow up on the follow up I'm sorry, SBR. with the performance thus far, if you could kind of compare that to what you what you expected and what you kind of look at for Q2, like what you've seen to date and how that's been coming along?

Matthew Lucey

Yeah. I think the SPR on it once was to assess how SVR doing on it has to be tethered by the market. So a few yield compared SVRs performance today compared to the actual performance of what would have taken place a year ago, a very different market. We haven't been operations yet a full year, but here's one zone SVR one, maybe most importantly, we cannot be more pleased with the partnership that we have with SPR with E&I that's going well.
I think both partners are adding value. Our interests are aligned and both both partners are committed to making sure that SPR is up for success we absolutely believe we're in the right spot to deliver best financial performance for our D. being in the Gulf Coast, having access at different grades of feedstocks and having optionality on where we can deliver deliver products. We are pleased that we got the provisional CI. score this quarter that will improve our financial performance going forward. But in regards to how is the unit running year, I would say is running fine.
There's been some lessons learned. I think there's a number of opportunities in front of us, just small iterative improvements that will make small Internet of the impacts. But when you compile them all together, I think it will be significant. So I think SBR is set up to be a top quartile renewable diesel manufacturer in the U.S. with feedstock flexibility and product disposition flexibility. Clearly the market is off, rents have come down, LCFS credits are down and that really drives profitability. There but the reality is for the weaker players in our D. and certainly bio players, they're probably cash flow negative. And so how long does it take the market to flush all that through time will tell.

Roger Read

Thank you for that. I'll turn it back.

Operator

Ryan Todd, Piper.

Ryan Todd

Thanks. Maybe starting out with one on the on cash flow and the balance sheet. I mean, last year, a significant portion of your free cash flow generation, I think probably somewhere around $1.3 billion went to the balance sheet in the form of environmental liability reduction and closure of the JV and inventory agreement.
As we think about 2024, can you talk about what, if any, kind of remaining coal there are on the balance sheet, whether it's environmental remediation or liabilities or anything like that that could have on the impact on cash generation and what that might mean for incremental shareholder return returns this year?

Karen Davis

Sure, Mark, and good morning, Ryan. Thanks and thanks for the question. And I think we've said we feel like the balance sheet cleanup is done. There really aren't any additional on initiatives that we're looking forward to on. I think one thing that we all noticed in this quarter was that there was a significant working capital headwind on a lot of that relates to turnarounds.
Turnarounds can create a lot of noise in working capital on depending on the units involved during turnarounds. We see crude slates changing. We produce more intermediates that we either sell or we store and consume them later. We produce less higher-value products and in sometimes we have to go out and buy finished products to fulfill contractual obligations.
So in addition to impact and capture these factors oftentimes have different payment terms, which change the timing of payments and collections. And we've been in a pretty heavy turnaround period starting back in the fourth quarter on the West Coast, where as Matt mentioned, we we had to consume some higher price through into the first quarter and we also paid for them.
Then then and now we've had the Delaware and Duquesne Toledo turnarounds in the first quarter, completing in the second quarter and the and the Martinez turnaround in the second quarter. So as we come out of those, we would expect these sort of turnaround related headwinds will begin to reverse and we're going to see some positive free cash flow generation, which would be available for shareholder returns.

Ryan Todd

Thanks. And maybe maybe a follow-up on some of your earlier comments on SBR. I appreciate the kind of the commentary on operations. Can you maybe talk about what what type of is that mix of even running up to this point? And how might that change in the coming months? And what impact could that have on profitability going forward?

Matthew Lucey

Yeah. The biggest thing with that is the provisional CI score, whereas before it was predetermined. So it it predispose what feedstock, Syria, Iran, because of that, you weren't getting full credit for products. But now essentially we have an open opaque and I'm not going to make any comments on what we're going to run because we're going to run the most economic grades available, whether that's a fab grease, tallow or vegetable oil. We've been pleased with our access to the feedstock market. And so as the market develops, we're going to just make sure we get the most economic rates and we're not limited or constrained you now and any respect.

Ryan Todd

Okay. Thank you.

Operator

Manav Gupta, UBS.

Manav Gupta

Guys, my question is a little bit on the refining macro. We have seen some pullback in refining cracks obsolete. We saw that last year. Also light trucks came in and then completely rebounded. Went the other way. I'm just trying to understand, is it a repeat of last year. What are you seeing out there or the inventory market still pretty tight Russia situation, so your near and medium term outlook for both gasoline and diesel markets?

Thomas Nimbley

Well, thanks, Manav, it's Tom on in terms of what we're seeing in the market. And I think we kind of really look at seasonal shift into, you know, gasoline season from coming out of first quarter going from winter to summer gasoline, which so far in the in the beginning of driving season, the gasoline market has been the leader of refining margins. Fiscal it did have a know a pullback in terms of a warm winter and then ultimately kind of some stability, which has kind of come into the market in terms of maybe even call it complacency on.
As you mentioned, there's been lots of disruptions in the diesel market, but the rate of change in terms of just trajectory on inventories has flattened from a perspective of where it's been in the past. So a little bit of the fear of sort of the driving of price needing to do solutions for distillate has been solved in the sort of near term. But now at this point, we're going to be looking at a stronger gasoline market, which will clearly be affecting yields where refiners have incentive to produce more gasoline, less distillate.
And certainly as we go through driving season at that point, what you know, the baton will be passed back to distillate for market leadership and you'll be sitting there was what we would think would be a reasonable setup going into the second half of the year or particularly in the fourth quarter as it relates to a knees.

Manav Gupta

Perfect. My quick follow-up is, and this is a commendable. What you have done with Martinez refinery is delivering an excellent performance. When you acquired this refinery 18, there was a little bit of an earn-out. So I'm not sure where you are in that process. Are there any more earn-out payments due at this point for the Martinez asset that you bought.

Thomas Nimbley

Completely behind us, but enough. So we did make our last payment. I think, Kevin, you mentioned that, but yes, so that is completely out.

Manav Gupta

Thank you so much.

Operator

Matthew Blair, TPH.

Matthew Blair

Thank you and good morning. Can you talk about the moving parts on capture as we move into the second quarter here? You mentioned that Tom in the Mid-Con likely to see tighter crude differentials, which would be a headwind. And then the West Coast, I think there should be some tailwinds from just rolling off that higher cost inventory from Q1. Are there any other big moving parts that we should consider here?

Matthew Lucey

I don't think so. I mean, you have to watch crude differentials every day that certainly impacts our business in a material way, and there's been some volatility there. But no, I wouldn't call anything out.

Matthew Blair

Sounds good. And then we would have thought that the East Coast, Q2 throughput guidance might have been a little bit higher. It sounds like that Del City turnaround was still a factor in April or any other reasons why that the throughput outlook for the East Coast in the second quarter is in a little bit stronger?

Matthew Lucey

I would just said that literally today, Dell cities coming out of turnaround and startup. And I can assure you we're going to be incentive to go and blow, which I believe we will be we will be, but we had a major turnaround on the cat cracker. We have on the East Coast and some ancillary equipment beyond that. So certainly April was impacted because yes, and all of April was was impacted essentially there. And so now we have a clean runway of get the unit up and we'll be able to go.

Matthew Blair

Great. Thanks for your comments.

Operator

Paul Cheng, Scotiabank.

Paul Cheng

Sorry, good morning. If Matt or maybe Pat or Mike, a total nameplate capacity is still at 180 because essentially in the recent years that that facility even with our terminal one like in the second quarter, you're still running at around 80%. Is that the way one way going forward? Or is that something akin to your ability to run at a higher rate, I assume you're not the economics because economics should justify called London a higher rate. That's the first question.
And secondly, I think for Karen, you mentioned that first quarter the West coal. So you get carry from the fourth quarter high inventory pies or high inventory, a high price inventory impact. Could you quantify for us that how big is that impact Thank you.

Thomas Nimbley

Yes, in regards Toledo, um, I don't think you should have Toledo down 180,000 barrels a day. It simply doesn't run that high. Mike incidentally, ran Toledo going back over 20 years ago through predecessor companies, like any other comment on Toyota?

Matthew Lucey

Yes, I think you agree one eight is a high number and it just came out of the turnaround, and it's well set up to run real strong throughout the rest of the quarter and the rest of the year.

Karen Davis

And as for the on the West Coast carryover effects. I don't think we have quantified that specifically, but it was just one of the components of the lower capture rate there.

Paul Cheng

Thank you.

Operator

(Operator instructions)
Joe Laetsch, Morgan Stanley.

Joe Laetsch

Hey, good morning, team. Congrats on a good quarter. And thanks for taking my questions this morning. So I wanted to ask on throughput in the first quarter. So looked particularly strong to us on the East Coast and Mid-Con I was just hoping you could talk to some of the drivers of the outperformance. I'm just a bit better execution on turnarounds or how how would you think about that?

Matthew Lucey

I look, we were running as to the max where we can grab economics. Like I said, the East Coast was impacted because we had taken turnaround. Obviously, our results would have been much, much better, as you know, had we not had to take turnarounds, but the market is set up, I think very, very well in the East Coast. And I'm very pleased to think for the remainder of the year, we have a clean runway.
And as I said, Toledo, it wasn't as big of a turnaround in Toledo as it was on the East Coast because it was the hydrocracker and a machine that's really configured to make gas more gasoline on. So we were able to have more of our operations going in Toledo and then really benefited from crude pricing, which flowed through the system in the first quarter.

Joe Laetsch

Great. Thanks. And then shifting gears, I just want to go back to the West Coast we've seen some capacity shutdowns recently conversions as well. I was just hoping you could talk to the latest dynamics you're seeing out there on the West Coast from a supply-demand perspective, thank you.

Matthew Lucey

Look you now that the question is supply and demand. And I think demand looks very constructive and supply is constrained on. Obviously, you can bifurcate between diesel and gasoline and diesel will be reasonably supplied with the incentive to deliver renewable diesel into the state or refineries have shut down or converted the manufacturing at similar amount of diesel as to what they were prior to being shut down on the converter refinery to make 100% RD. or SAF. down the road, you're not making any gasoline or any of the other products coming out of it.
So the market, it doesn't fix the supply problem. And we're going to do our part to supply the state as best we can with two of the strongest refineries out there. And I think it's a setup, Dave, also, I know we'll have to attract imports.

Joe Laetsch

Thank you.

Operator

Jason Gabelman, Cowen.

Jason Gabelman

Thank you for taking my questions. On my first question is kind of dovetailing off the last question on the West Coast. You have a hydrocracker turnaround in 2Q. I believe that's more of a diesel making unit than gasoline making unit and obviously gasoline should lead the complex in the second quarter. So you just talk through the turnarounds impact on the ability to capture that gasoline margin on the West Coast in 2Q?

Matthew Lucey

I think your assessment is correct, meaning a smaller impact certainly than the East Coast in the first quarter.

Jason Gabelman

Okay, great. And then the second question is on a comment that was made in the prepared remarks about on potentially increasing the percentage of cash that as is available to shareholder returns. I think in 2023, it looked like about 50% of cash flow from ops and what do shareholder returns on? Is it reasonable based on your comments to assume that that percentage is going to move higher in the near term? And is that right metric to look at when assessing shareholders or returns kind of percentage of CFO or is there another way we should look at it?

Matthew Lucey

I'll make one comment then turn it over to Karen. Just only comment I have made this before and certainly in Europe at conferences. I personally don't like formulas because no one ever tends to stick with them in different markets, you're going to get different answers. And so we're trying to make the best decisions we can based on the market, we just experienced the outlook ahead and the cash that we're generating and trying to drive as much shareholder value as we can as opposed to sticking with a predetermined formula that may or may not we scale.

Karen Davis

And as the infinite number of variables that can impact that Karen was making the comments and I just would add that our goal with respect to share repurchases is to make it sustainable through all market conditions, which is why you saw us continue to repurchase shares this quarter when we did not generate free cash flow. So I think you should look at on our past our track record as an indication of our commitment to the program going forward.

Jason Gabelman

Got it. And just if I could sneak one one more in kind of tied to the shareholder returns and available cash. Can you remind us if there are any on large growth projects that you're pursuing currently or anything that is going to come up in the near term?

Matthew Lucey

No, sir. I reiterate, but the answer is we're not pursuing anything that they want answers.

Jason Gabelman

I understood. Thank you.

Matthew Lucey

I will appreciate your participation on the quarter. Like we said, I think the outlook is quite constructive, and we look forward to continuing to deliver strong returns for our shareholders. Appreciate and have a great rest of the day. Thank you.

Operator

This concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.