LXU - Earnings call transcript Q2 2019

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Operator

Greetings and welcome to the LSB Industries Second Quarter 2019 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Kristy Carver, Senior Vice President and Treasurer. Thank you, you may begin.

Kristy Carver

Matt. you, Thank everyone. Good morning,

Please and on Chief the President because performance. Mark expectations And actual of could they statements. a me Financial today current And Manufacturing; on results include call call Officer; company's John our guarantees Officer. cause Chief Executive materially. statements our variety Vice Cheryl these Behrman, that Diesch, today's and will Joining Maguire, forward-looking are are to note our of based not are the intent, projections, future differ of Executive factors

will please and for statements call Investors further release this section include the the results. forward-looking regarding reconciliations As references of to results, in lsbindustries.com information reference non-GAAP non-GAAP of results website, our GAAP press to

to over go the like turn remarks. opening I'd to for and call ahead time, this Mark At

Mark Behrman

provides everyone. Industries. fourth Kristy, of our in row, our which interest quarter. this better. plants could performance you, good Thank X delivered quarter and a Page glad operating of for in that you appreciate strong participate on We're more averaged presentation of XXXX. detail morning X highlights your I'll LSB operations on-stream that momentarily, the get running but an at rate into We XX% the John point and our ammonia second a will call was out morning, during quarter plant in our XX%, the or

the rate reliability of years. fact, ammonia quarters, leadership In on-stream in the the averaged which across and investments over we've last X X reflects for the positive changes past plants, XX% made the few impacts we've

environmental culture throughout company of XX We reflects years' only We safety their the to that but over the all to compared for strong and thank level by also we've the much for instilled their as plant several is health the performance not a plant measured and in excellence improvement owe a record. credit processes, manufacturer make achievement and procedures operational significant this performance the past LSB commitment the ongoing strong months. at employees operating continued efforts. by best-in-class of Our last chemical to that our rates them

respect significantly from the in the news gas good natural in again, inordinately later With costs. good million at of our still factor high quarter, will our wet posted is, range earnings Cheryl last second The in the of weather with a second we and X for year's Page for the revenues call. quarter. of $XX.X very results quarter to up and multiyear and was EBITDA results adjusted call. million, Cheryl $XXX.X pricing once indicated end more last depicts provide fertilizer trends the color financial the

through have reduced weather can farmers of over prior sharply to see, region use Southern wet past a The prices ammonia. several of extended inventory ammonia market. the by the Plains period planting, months agricultural you of buildup As of amount in dropped as U.S. the main ammonia the significantly applied result the corn

respectively. and which HDAN we to during from quarter that last temporary same relative quarter part of higher was modestly XX%, a XX% X% by the down due situation. second With to XXXX second of pricing large in the UAN for the pricing both ammonia imports, agricultural believe higher and year XXXX, was lower, is said, time

quarter line last per black slide, a continuous price the year since in $XXX the hit metric when X, price Tampa from see due since of levels the been the of had ammonia Slide reflects ammonia decline can impacts. fourth you As on distribution to decline the that up Tampa The ton. the have a XXXX it in building on inventory November weather channel elevated

rolled the floor Plains demand strong should as as We believe over has price. in market has in and the price ammonia ammonia July's business, soft Fortunately, as price, for a to later, the be discuss August several Tampa agricultural I'll fall. factors that Tampa pricing Southern the for hit been hasn't pricing due for our

fund of notes many projects you to secured as we've margin-enhancing million issued saw, Lastly, several we in an additional identified. June in $XX senior

projects of plants, the return rate is or we the these control. meet operating end payback. its our our pleased our were exceed in targeted on across are and we once run of outside weather with X rates markets All is facilities. hurdle Obviously, What of effects our our again how and our control and

an approximate quarters. is plants ammonia averaged the We our have for not for That last rate coincidence. XX% X now a on-stream

over have have taken made improvements for operating Rather, I'm ammonia are The industrial on-stream and level to confident achieve operating and and the to of done. years in despite evidenced performance, volumes improved saying many quarter, investments EBITDA several further targeted rates. means still deliver we to generated consistent we've the make by EBITDA significant was combined our generated improved actions by by we've We past performance dropping fertilizer plants no we the that prices. the sales conditions the of second level highest over years, in five challenging in these and

an some weather fertilizer years. many in has the fertilizer business, of always impact past on worst weather our the the While season included

for increasingly are confident later in profitability. the call. balance discuss stronger conditions, We we I'll under deliver our that can weather the of normal more significantly outlook XXXX

their performance second on update our will quarter, an our John current more and John? detail plants into provide the about initiatives. of in status operational go the Now

John Diesch

XX% plants quarters. I the rate good The on-stream Thank past you, in Mark, Mark am quarter second as and with combined ammonia the performance was our XX%, have operating average and the pleased second quarter. of X our for morning. averaged for mentioned,

With upcoming our plants be reliability for these for rates we'll sustain to year's on-stream turnarounds, are able the as this our planned and confident improvements are improve as ammonia improve downstream being the upgrades plants. we well that and of

is The very operating well. ammonia El plant Dorado

August, a mainly for catalyst are include heat which cleaning inspections, and We changes. planning will exchanger XX-day turnaround

our acid for a increase and we we XXXX. of new next completing We nitrate We plant planned our three where nitric cycle recently year sulfuric planned turnaround the capacity. plant to will in acid reliability plant turnaround then which July, high-density significantly in turnarounds plant go we'll October, by successful that to ammonia with of September the converter, completed ammonium in the a installation have production a in our DMWX and for plant with additional adding be expect the

Our prior ammonia plant is also well. operating very

nitric include We begin upgrades have vessel There flare been will turnaround where our prior acid installation catalyst planning plant, and mid-September to a our in at we improve The equipment and start-up of in while turnaround the for inspections, that be facility. installed reliability reliability an additional changes, and in materially of extensive will turnaround, urea reliability of production are the turnaround those this when improve that restart after and reactor expect adding urea nitric the capacity. will expect new the ammonia. significantly in electrical numerous in of during projects and overall of The acid will number which and we we put service plants. that be plant improve urea will a efficiency to

confident come improved a on-stream out to are we reliability higher with turnaround that of will significant this time. We that expect lead we to

plant. running review outside improve Cherokee -- we very of to Like that urea to our plant prior, well. The reliability operation brought expertise operability in ammonia is

in acid expect next ends A for on-stream planned will in in made be as this operated turbine the completion performance-improving projects to time case. second outside be scheduled lead turnaround the for recommendations plant for Baytown that replace our at turnaround will capacity as XXXX. We is to XXX% September, late review nitric quarter. scheduled of to The project expanded tie well

as our the on are plants trading concentrating of midst at all the at in at We particularly supervisory level, shift change. communications

from supervision levels. training also to manager line have started leadership plant We

addition, operating continues all maintenance best-in-class run overhauled and performance. space. the The efficiency goal operating In to procedures our programs or training plants improved procedures, being for the maintenance restructured our and safety, and in operating natures or chemical are

for will the I Cheryl call XXXX quarter. turn discuss results to Now the second to over the financial

Cheryl Maguire

Pryor volumes UAN followed This our planting. UAN delayed XX%. to volumes in for particularly XX% million Page and embargo, UAN good and the respectively, to of facility of Oklahoma, X case resultant $XXX.X as was in quarter the second and which and $XXX.X days, by whereas in days of the congestion second to XX weather quarter during our a quarter, UAN the further presentation our as statement million compared decreased for summary quarter-over-quarter, by volumes delay the from net XXXX. a volumes a X facility in XXXX, weather Thanks, out increased ultimately Ag provides In system. we inordinately resulted the in John, to for XXX% clear were operations for total our the consolidated of XXXX. shipment Pryor second the for X QX everyone. $X.XX, XXXX of reviewing sales ammonia operations sales quarter morning, impacted wet QX of out In stronger business, preventing the experienced of HDAN, of rail increased another

forgo made serve Pryor of the we Southern of production ammonia capitalize market, Plains which the favor window Additionally, of to early of in the out a selling is ammonia market decision opportunity demand on facility. quarter the in to in strong primary we UAN our

XX%, ammonia As Mark net were ammonia mentioned, markets XX% higher our into offset at selling due respectively. with down year-over-year. was by ammonia than year-over-year production our decline prices agricultural material net from volume and volume the to industrial Tampa slightly year a industrial XX%, benchmark HDAN sales selling price. UAN This were Net resulting in increasing of prices increase last higher in a and partially improved facilities.

applications versus the to slightly related were mining volumes lower year. Sales prior

sales rates the impacts quarter industry. a lower quarry are customer the increased of approximately on-stream period mining the to profit we second time same overall and continuing higher reduce and our to of improved end-use as on more million $XX.X by However, the efforts construction costs lower-coal year. the last gas sales, versus net result production diversify in Gross focusing markets

was and of newly tax During million. states, tax XXXX, were deferred an in increase adjustments benefit second tax liabilities laws the changes. the The to by from enacted of in state enacted income on in benefit resulting changes primarily the due assets tax the the $X.X quarter certain law

rates you close compared the bridge product of Slide primarily to to Please increased XXXX customers, us and adjusted on due year-over-year XX Slide from logistics, for XXXX to further of onetime year for of on enabling $XX.X consolidated our costs income on on our measures versus rates season volumes results noncash for the million Operating Sales EBITDA I well year-over-year, on-stream beginning cost QX XXXX higher to adjusted of X. product due million. to same proximity improved absorption the placement bridges our resulting for part prior planting refer moving. started on-stream and period EBITDA period. on improved the quarter adjusted the strategic $XX.X the non-GAAP QX million will reconciliation X large period, EBITDA the quickly clarity of EBITDA to and $XX.X quarter, during as page to enhancing sales when fixed our to give time as capitalize improved in further To in year. information second last of incurred for demand

to we lost we up volume sales make first the Additionally, much were of the able quarter. in

natural favorable approximately by expansion impacts, the XXXX, other we facility. the gas Dorado higher as damages had XX% driven pursue ammonia as Lower coming during El to locked needs caused approximately quarter. higher continue work gas in we costs legal EBITDA, quarter second performed million our subcontractor recovery than by of fees, primarily were of $X.X million contributed these into our $X.X the prices of Offsetting at to

impacting selling metric lower Tampa metric our approximately EBITDA Net a ton pricing, for largely industrial $XXX year-over-year a selling lower higher selling ton net $XX due decreased which year, versus XXXX to ammonia product. tons $X.X approximately last agricultural benchmark prices to $XXX down were metric for the prices ammonia for approximately million, quarter in by same offset prices a slightly as

adjusted the We challenging despite EBITDA, the patterns our we with higher end range the the quarter. at last pleased with our of are million for earnings call, weather $XX.X indicated is on results of which most

each the markets. of we for Turning outlined our have to profit gross margins X, Page

margins represent the mentioned turnaround quarter, last should underlying amortization cash and, excludes of presentation true this each expenses market. and depreciation, As therefore,

despite year-over-year. a Overall, higher of benchmark profit the last margins for volumes XX% our sales year. gross on XX% was on same presented approximately sales We robust, profit percentage remained quarter and XXXX. prices, lower lows. XXXX product. gross steady Industrial this were while improvement remained versus gross related volumes at by by from XXXX mining to very Agricultural This product's to environment, Higher margins industrial XX. to second statements profit primarily pricing have the grew quarter overall driven to of prices Slide quarter XX% agricultural the agricultural as products second Tampa production from recover low in for in quarter offset selling continue the and and second back reconciled sales ammonia Tampa financial the

August outlook of illustrates and HDAN based UAN average product forward Keep This average result the ton due on price, average ton with $X.XX slightly in and the on approximately somewhat shown are XXXX, typically to forward lower. ammonia of $XXX spring has per trend compares EBITDA third ammonia, buildup prices be a inventory cost for based our natural July annual That continued whereas we as metric by a UAN and ammonia ammonia our Looking natural high prices. and combined or for market and and quarter price, average MMBtu is X. third page to movement paying Tampa in quarter applications, continued of Gulf seasonality, us prices and is natural averaging the the a pricing quarter ammonia third for in caused $XX impacting channel. third region, the turn movement with that volume in variability, sales HDAN lowest has have trend selling metric from estimated which of quarter. weather, current current the is or be of the the overall mind distribution -- to the Tampa Tampa in quarter XXXX UAN has versus HDAN ton in sales HDAN UAN XXXX quarters hedged. gas for movement our for a and for the the pricing EBITDA ammonia impact expected of our XXXX. of U.S. to average the inventory of have that gas $XXX of significant downward quarter Tampa expected and please spot expected resulted ammonia agricultural Page current to Tampa the prices with to third prices gas fall to the per prices selling net Also higher, to

both as With locked compared has feedstock per $X.XX have at prior Increased we MMBtu. been respect a headwind. gas year of approximately to gas net imports in needs cost, for approximately to products QX our natural XX% our for

facility are Dorado at Pryor well we scheduled our a XX-day starting As mid-September. undergo turnaround XX-day as a a reminder, turnaround in facility at El to as our in August

down most Additionally, work approximately ammonia in El of will the NuStar our the pipeline that That out X be transports mid-July. of ammonia maintenance for that we facility weeks. sell for Dorado began

will up to this we the fourth in sales the third do quarter, in volumes impact make volume sales the expect Although quarter.

lower view lower NuStar pricing and the third the the So as third last turnarounds weeks quarter their along well we Dorado and to be with ton our El depending on XXXX slightly quarter, maintenance, our X with sum given in continued third up with year, expect metric Tampa as Pryor quarter pricing. of ammonia $XXX for per headwinds third planned of than planned on quarter XXXX the at the as adjusted into line a volume sales to ammonia EBITDA of pipeline higher the of of expected result possibly at

XXXX. compared for a includes for to Moving our million the receivable outline which flow. $XX.X accounts of XX. of XXXX result XX, includes Page $XX.X capital Cash a as application cash of free of higher provided operations was delayed approximately Operating period We quarter the first higher June working from season. the flow as draw same to fertilizer cash million

sulphuric accrued as change X payables to a is million to a to reliability months suppliers which to approximately coming acid the approximately expenditures gas Full were into led million higher XXXX. expenditures maintenance we XXXX related which severance investments year relates gas are million, the $XX.X related that payables. well first expected and overall addition, $X.X converter, maintenance and in the change our higher as of capital of cost $XX be In timing for financed. of in to had predominantly Capital

quarter end of our ended us credit $XX million liquidity on Page We XX million giving over our $XX of the revolving the XXXX. QX cash total in availability and of approximately $XXX at structure capital outlines million. with facility,

facility our undrawn. Additionally, is credit

issuance senior raised proceeds the approximately million quarter notes XXXX, the secured liquidity XX, on $XX total through at of of been the Excluding the second of have June $XX.X million. end would

senior to $XX Mark several secured million notes million and unloading opportunities. to mentioned $XX tack-on debt loading As gas approximately tank capital our earlier, existing earmarked plant we fund to enhancement margin and improvements, opportunities, storage including facilitate issued with of

approximately of XX in fully will which million expect months. completed, over these we EBITDA the incremental investments be will result when million $XX $X We to annual believe next

end discount with cost associated at $XXX Total outstanding and the unamortized including debt was debt. quarter our issuance approximately million,

outstanding We million dividends. unpaid million, stock $XX $XXX of preferred approximately and also had including approximately in accrued

wrap turn Mark I'll back Now it to over up. to

Mark Behrman

you, Thank Cheryl.

sufficient ahead Looking into planted acre, prices than second that planted, with on the and expected bushel application corn the the ammonia, year were half which a acres have mid- fertilizer season the additional yields range. corn the very applied lack to fall anticipate of of current less acres moved industry plant planting heavy per farmers early significant $X At per for don't of providing see those could will prices, mean acres that an season, we for a XXXX-XXXX resources frost. amount impacting

strong for spring could result season all a This fertilizers. also application in

of profitability year-over-year weather-related will distribution product on XXXX. during with of remain John buildup that our past Cheryl Given and impact the we with product and that into El months and discussed, improved channel the I even those turnarounds pricing, and X in dynamics, Dorado along half impacts whatever Pryor from the second at any XXXX facilities the deliver inventory planned lingering anticipate

of area for enhancing rates opportunities identified to fell capital several internal payback we've have and within purpose estimated potential refers that our of expertise, our the These are and rates. low-risk are XX our hurdle of require exceed projects that limited review LSB's profitability. return investment Page that well and periods of

annual collectively based we next when completed, within we months. current mentioned, range these to XX on the the million yield incremental will pricing, to be believe $X fully Cheryl investments which million As $XX in XX expect to EBITDA

our discussed XX improvement we business initiatives that Page last outlines quarter.

are operating our plants operating year, averaged ammonia approximately our to rate outlined show which what improved initiatives, facilities our of continue all we Given we of John across the expect for quarters. have on X an to focus X and XX% average earlier, performance, production on-stream we matching targeting the last the

discussed from As margins sales we as well product page, previous and continue on the opportunities our potential new with enhanced evaluate both volumes to to sales opportunities numerous as and our existing flexibility. expand customers increase

Lastly, operate reduce our chain supply we efforts cost efficiently more to continue and management. through

we improvement, on reduced that While last cost we both there we have are those for the of areas still and significantly the believe in years, are and procurement opportunities over X focused capturing logistics.

to second expect half Over results. financial to of XXXX, these improved the contribute the we initiatives

will the those hope be on Sidoti of New I attending X, York. at in Industrial Part Three the New and August on XX We to Fall Cheryl Conference see attending York IDEAS some conference will August September in you events. be in XX Chicago the Finally, and on Conference Jefferies Advisors' Midwest

That our now your and to prepared we questions. be concludes happy remarks, will take

Operator

[Operator Instructions].

from from Sidoti. Lau question first here Our is Brian

Brian Lau

Joe for on I'm Mondillo.

you River Mississippi talk about the in opening how coming increase pricing? supply could waterways might you the and affect potential expect how up that market with just one, the First into

Mark Behrman

U.S. prior And so pricing. of has the it's low, Gulf from the Well, really to between particular, up Plains Belt, down in pricing prices keeping coming or I the affected season. by ammonia, that artificially any the southern you big Gulf had in or produced problem part coming up pricing Gulf therefore, saw the a disparity in-continent and Corn in during Southern think

really I product and and the -- rivers their late. a with opening customers destinations some up, to of think to there farmers lot product got

lot to still time out of the in within inventory system destinations. we're with a didn't because sitting think product intended I get

Brian Lau

just do All for up, us might there? be coming at kind And then of how remind you're also that the what Pryor turnaround looking forward? could important going to right. you And the plant

Mark Behrman

on let John, detail. of doing I'll too bit give at what of, of detail but... each Yes. go a we're into don't the kind little plants, much We generally

John Diesch

Yes, sure. Thanks, Brian.

pretty consistent. the part, most are For most turnarounds

to in projects You of exchangers a heat do reactor, or as the lot urea capacity the urea improvement probably plant. expect and which cleanings and final that as biggest well of remarks, one reliability my we to tie UAN allowing and increase like inspections things of overall is improve said ends I capacity,

of the probably that's on biggest we think the have project activities. slate I

Mark Behrman

the work identified more been really the of doing that consistency reliability to really that it's plant. the over the years, we're year, the of and X.X Most has last of improve and operations

Brian Lau

is this Or are -- be quantify might how rates there? percentage Okay. or in just any on-stream decrease affects there increase kind to there parts then tough know And of and profitability? any that additional way moving I many too

Mark Behrman

Yes.

run kind close. Cherokee see think yet, I at I parts improved would assumption the our for back prices but of mean Pryor percentage -- are a and as within the to means. that moving prices XX% or as fertilizers. presentation you you a you targets. Dorado we're Tampa we're natural in said, And and lot table a and shows there not what really plant we getting we can sensitivity there I that those El probably And point is plant proxy onstream that of that have notes, investor our the gas ammonia our the XX% XX%, there's the time and at I down quite that plant at of

Brian Lau

Do XX-month benefits. everything in just to loaded back-end ramp to then be XX- slowly kind expected think And completed from that is $XX that those million of on recently me, All announced see million up? Or last one CapEx should projects we is that you $X once to more that window? in right. going

Mark Behrman

the start some we'll next Yes, through I I do second in see year. loaded. that think it's to come of mean back-end half of probably

the and XXXX, And next running. an end are of really we'll everything going by on annualized have of figures then up those beginning maybe basis forward. so year, And

Operator

Geygan here Our next Corp. from JP Value Investment question Global from is

James Geygan

Margins your really referring in margin gross was agricultural I'm segment, impressive. quite to and

I heard environment volumes. that the if on didn't normalized little And to a more we bit? this what effects have absorption you of may on a you higher you where the think were weather, Can to I quantified at attributed cost fixed quarter largely have looked we then production elaborate have internally like? look

Cheryl Maguire

very as guess Ag JP. say on-stream per higher produce, what on the to as the Sure, I is, impacted side. business certainly are well fixed our lower would cost margins much so I of the the the you in fixed by The is time, more ton which we alluded absorption. side the helped margins your industrial cost both that

think than the benchmark the have was I probably to think it's business biggest would lower Tampa $X.XX, price. lower that At I Industrial what we ammonia impact $XX really normal. considered

for industrial made EBITDA the would $X closer quarter. probably would which margins have million to XX%, it additional have XX% So added $X of on million impact, the somewhere the business, to around

Mark Behrman

be probably add XX% were on of may certainly that basis. on I'd Yes. We a be mid-XXs side, margins XX% margin that about presented. heading and towards would the the we north Ag

James Geygan

Okay.

might about your markets and end You a affect talked and and volumes mining talk in that segment? how other from your you markets. mining end Can segment away construction on elaborate shift coal that about towards in

Mark Behrman

coal to and with markets to it's think in our I try somewhat of happened given work been what's a Well, diversify. the customers effort conscious really

and into we're of business product not. some, kind half or ago control markets if XX% going XX% that the it's XX%. bid we of be probably at X and on, of end might so, less the obviously, even point our our is been at It's or have within than coal years least they now, where look today. but We're you might Some

stable So that, that's declining. are the and coal and mining we given production really think markets strategy coal a that more

So is. done diversifying of business job the away I that. the the go where day, a in though, from you think team's the end good But really at really

really, enough I we're lucky servicing And so think, good we've our choice. to of do a a customers. been in sort supplier job of And

out for And well so worked it's us.

James Geygan

forward firmer markets, finally, due product your XXXX, industrial have to on be your believe, higher looking I market to no presumably turnarounds, And agriculture corn where then pricing will where the you into stronger because presumably mining of and Tampa plan pricing. pricing

XXXX, XXXX to feeling good pretty your to production expect quantitatively be thus or to looking business. we qualitatively either far? about compared have from volumes forward might You What

Mark Behrman

think little days to Well, early with no giving I some you we're for so production, you mean outlook that see I XXXX. to XX would on going right? more us Pryor. tell significant it's of a lose be guidance year, should This I amount a or turnarounds, or with

So you product. that can to of XXX figure out, upgraded then XXX and tonnes day a ammonia, we produced we to

we're XX, do missing you can we're to So there, and of going math -- the Pryor. lose XX days ammonia at production

so day XX, days. times a that's XX Dorado, X,XXX, at El X,XXX So

next production that have year. we'll -- have won't we So

of my but I think building nice I On in a comments, track record, XX% not operating we're mentioned we're there yet. average, I that, as top mean, on

mean rates the So extensive that's doing higher next over really about. that see I talked goal I work we've and of John all the year to operating expect would this been year. turnarounds that the

Operator

like the This any to for over closing session. the turn management I'd concludes to question-and-answer back comments. floor

Mark Behrman

Well, I for appreciate interest the you getting everyone's and thank on call.

Operator

This teleconference. concludes today's

time. You participation. for again, may disconnect at your your lines Thank this you,

LSB Industries (LXU) 30 Jul 192019 Q2 Earnings call transcript