CVR Energy Inc. (CVI)

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CVR Energy, Inc. (CVI)

Q1 2011 Earnings Call

May 9, 2011 11:00 am ET

Executives

Jack Lipinski – President and Chief Executive Officer

Ed Morgan – Chief Financial Officer

Stan Riemann – Chief Operating Officer

Stirling Pack – Vice President of Investor Relations

Analysts

Arjun Murti – Goldman Sachs

Rakesh Advani – Credit Suisse

Todd Godfrey – UBS

Graham Mars – Contarian Capital [ph]

Gene Laverty -- Bloomberg

Presentation

Operator

Greetings and welcome to the CVR Energy first quarter 2011 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation (Operator instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Stirling Pack; Vice President of Investor Relations for CVR Energy. Thank you, Mr. Pack, you may begin.

Stirling Pack

Thank you, Kathleen. Good morning, everyone. We very much appreciate you being here for our CVR Energy call this morning. With me today are Jack Lipinski; our Chief Executive Officer, Ed Morgan; our Chief Financial Officer and Stan Riemann; our Chief Operating Officer.

Prior to the discussion of our 2011 first quarter results, we are required to make the following Safe Harbor statement. In accordance with Federal Securities laws, the statements in this earnings call relating to matters that are not historical facts are forward-looking statements based on management’s belief and assumptions, using currently available information and expectations as of this date and are not guarantees of future performance and do involve certain risks and uncertainties, including those noted in our filings with the Securities & Exchange Commission.

This presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures including reconciliation to the most directly comparable GAAP financial measures are included in our 2011 first quarter earnings release that we filed with the SEC yesterday after the close of the market.

With that briefly said, I’ll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

Jack Lipinski

Thank you, Stirling, and thank you all for joining us. From the results we released last night, you can see we had a solid first quarter. Consolidated net income was $45.8 million on net sales of $1.2 billion, and that compares to a loss in the same period last year of $12.4 million on sales of $895 million. Adjusted net income was $45.9 million compared to a $15.6 million loss in the same period a year earlier. Adjusted net income per diluted share was $0.56, versus a loss of $0.18 a share last year.

As always, I’ll speak first and provide some color about the results, then Ed will provide additional financial information, including details about the adjusted net income figures I just mentioned, and after that, Ed, Stan and I will take your questions.

The petroleum segment had an operating income of $105.7 million on net sales of $1.1 billion for Q1 2011. The largest positive impact on our results was the significantly improved market environment we found ourselves in. The biggest negative impact on petroleum segment results was an SEC outage lasting 26 days into January. I mentioned that on our last call. As a result, we were forced to reduce crude runs by 1.9 million barrels. Great margins and good operations followed the outage, allowing us to produce 93% of the quarterly segment operating income, or $98 million, during February and March.

Q1 results also reflect derivative losses on crude oil we bought for line fill and start up inventory obligations for the new Trans-Canada Keystone pipeline. That $7.2 million after tax negative impact from Q1 will be offset in Q2 with a positive impact, as we process these lower cost barrels, and effective April 1, all Keystone barrels have been transferred into our mediation agreement. As I mentioned on our last quarterly call, we expect crude runs to average between 95 and 100,000 barrels a day. We actually ran 98,700 barrels a day.

We also ran 17.2% heavy sour crude in Q1, as compared to 17.3% heavy sours in the same period a year ago. 9X 2-1-1 crack spreads for Q1 averaged $20.99 a barrel. That compared to $8.48 in the same quarter a year ago. In February last year, Group 3 2-1-1 cracks dipped as low a $4.00 a barrel; what a difference a year makes. Last night the 2-1-1 crack stood at $28.49.

The nitrogen fertilizer segment has operating income of $16.8 million on net sales of $57 million for Q1, versus $3 million Q1 2010. The big news came after the quarter closed, with our successful IPO of CVR Partners, LP. We issued 22.1 million common units at $16.00 each. That’s $2.00 over the top of the initial pricing range. We began trading at our MLP on Friday, April 8, under the NYSE ticker UAN. CVR Energy subsidiaries still own the MLP’s general partner, and 69.80% of the common units.

The increased proceeds from our offering allowed us to place additional cash on the MLP balance sheet, which will serve us well as we look to aggressively grow this business. Ed will discuss the details of the new MLP financial structure in his presentation. As part of our growth strategy, a portion of the proceeds from the IPO will be used to expand our UAN plant by almost 50%, to more than one million tons per year.

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