World Kinect Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 31, 2025

Key Takeaways

  • Positive Sentiment: Our aviation business delivered Q2 volumes up 2% and gross profit up 8% year-over-year, with strong summer travel momentum expected to continue into Q3.
  • Negative Sentiment: The land segment saw a 7% volume decline and 17% drop in gross profit due to UK and Brazil divestitures and North American market softness, prompting further exits and portfolio restructuring.
  • Negative Sentiment: Marine gross profit fell approximately 26% year-over-year due to an unexpected transaction tax settlement and weakness at certain physical inventory locations, with Q3 profit forecast to remain lower.
  • Neutral Sentiment: The company recorded about $487 million in non-GAAP adjustments, including $367 million of goodwill impairment in Land and $32 million of asset impairments in Marine, reflecting strategic asset streamlining.
  • Positive Sentiment: Generated $28 million in operating cash flow and $13 million in free cash flow, increased the quarterly dividend by 18%, returned $64 million to shareholders year-to-date, and holds over $1 billion of liquidity with just $415 million net debt.
AI Generated. May Contain Errors.
Earnings Conference Call
World Kinect Q2 2025
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good day, everyone, and welcome to the World Kinetic Corporation Second Quarter twenty twenty five Earnings Conference Call. With us today are Michael J. Caspar, Chairman and Chief Executive Officer Ara Amburn, President and Chief Financial Officer and Braulio Medrano, Senior Director, FP and A and Investor Relations. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

Operator

Please note, this event is being recorded. Now it's my pleasure to turn the call to Raul Medrano, Senior Director, Director, FP and A and Investor Relations. Please go ahead.

Speaker 1

Thank you, Carmen, and good evening, everyone. Welcome to WorldConnect's Second Quarter twenty twenty five Earnings Conference Call, which will be presented alongside our live slide presentation. Today's presentation is also available via webcast on our Investor Relations website. I'm Prahlou Medrano, Senior Director of FP and A and Investor Relations. With us on the call today is Michael Kasbar, Chairman and Chief Executive Officer and Ira Burns, President and Chief Financial Officer.

Speaker 1

And now I'd like to review our safe harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward looking statements that are subject to a range of uncertainties and risks that could cause actual results to materially differ. Factors that could cause results to materially differ can be found in our most recent Form 10 ks and other reports filed with the Securities and Exchange Commission. We assume no obligation to revise or publicly release the results of any revisions to these forward looking statements in light of new information or future events. This presentation also includes certain non GAAP financial measures.

Speaker 1

A reconciliation of these non GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our website. We will begin with several minutes of prepared remarks, which will then be followed by a question and answer period. At this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasvar.

Speaker 2

Thank you, Bralia. Good evening, everyone, and welcome to our call today. I'd like to start by noting that our global commercial business and general aviation fuel and services platform continues to perform very well. Demand for commercial and business aviation fuel and services remains strong, particularly in Europe, where our operated and inventory airport locations have continued to deliver strong results. With the strong summer travel season underway, we expect this momentum to continue into the third quarter.

Speaker 2

The past few months have also been a period of meaningful transformation for WorldConnect. Despite continued macroeconomic headwinds, we are making deliberate and necessary moves to streamline our portfolio. This is reducing structural complexity and allowing us to focus and sharpen execution in the parts of our business that offer the greatest opportunity for sustainable value creation in the medium and long term. Consistent with this strategy that we have outlined in prior earnings calls, we have scaled down exposure or exited underperforming activities that have exhibited earnings volatility and refocused our capital and team to strengthen our capabilities in businesses and geographies that deliver recurring revenue and higher economic value. Our transformation accelerated recently with the sale of our UK land operations, following a similar divestiture of certain Brazilian assets in late twenty twenty four, and continues with the ongoing refinement of the remaining portfolio of activities in our land segment.

Speaker 2

The land segment that you've seen experienced another challenging quarter. In an environment of continued global economic uncertainty and demand weakness in parts of our North American liquid fuels business, we are making difficult but necessary choices to reshape our business around core markets that represent opportunities for a more predictable and more consistent earnings contribution. Aside from the impact of a discrete item that affected second quarter results, which Ira will describe shortly, our Global Marine segment delivered full results generally in line with expectations, despite competitive market conditions. From a capital deployment standpoint, we continue to follow a balanced approach. During the second quarter, we took another step forward in our commitment to delivering shareholder value by increasing our quarterly dividend, an action that reflects both our confidence in the business and the strength of our cash flow generation capabilities.

Speaker 2

In a time of market complexity, our ability to generate consistent and sustainable cash flow allows us to reinvest in our highest performing platforms, while also returning capital to shareholders in a disciplined and meaningful way, without sacrificing the pursuit of strategic growth opportunities. In summary, while we are navigating a challenging macro environment, we continue investing in our most resilient and rateable platforms, while shedding assets and exiting business activities that no longer meet our return and runway thresholds. This is increasing our focus on operational discipline and portfolio selection. While there's more work to do, I'm proud of the progress we've made so far and confident in our ability to continue to drive medium and long term value for our shareholders. With that, I'll turn it over to Ira for more detail on the quarter.

Speaker 3

Thank you, Michael, and good evening, everyone. Before I review our second quarter operating results, I'd like to walk through several GAAP to non GAAP adjustments recorded during the second quarter. Reconciliations are as always on our Investor Relations website and today's webcast presentation. Our second quarter non GAAP adjustments totaled approximately $487,000,000 or $373,000,000 after tax. The most significant adjustment relates to a non cash intangible asset impairment totaling $367,000,000 within our Land segment, $359,000,000 of which is related to goodwill and $8,000,000 related to other intangible assets in Land.

Speaker 3

The goodwill impairment was driven by our reassessment of the remaining business activities within Land and the related revisions to our long term forecasts. As part of our disciplined capital allocation strategy, we continue to actively shed underperforming assets and streamline business activities that fall short of our return thresholds, enabling us to concentrate our operational focus on core activities with leverageable platforms, stronger returns and the most significant growth opportunities. Dollars 82,000,000 of the non GAAP adjustments relate to the sale of our UK land business that we completed in April. A significant portion of this overall adjustment, approximately $55,000,000 relates to non cash unrealized foreign currency translation losses previously included within shareholders' equity. In our Marine segment, we recorded a $32,000,000 asset impairment in the second quarter related to a physical inventory location that no longer aligns with our long term strategic objectives.

Speaker 3

The remaining $6,000,000 in non GAAP adjustments principally consists of additional restructuring charges associated with the company wide transformation, which we began in the first quarter. More specifically, these charges relate to an initiative to streamline our global finance back office operations to enhance scalability and better support our medium and long term strategic objectives. Now let's turn to our second quarter operating results. And as a reminder, the following results exclude the impact of the non GAAP adjustments that I just reviewed. On a consolidated basis, second quarter total volume was $4,200,000,000 that's down 3% year over year and consolidated gross profit declined 5% from last year's second quarter to $232,000,000 That's below the guidance range provided last quarter.

Speaker 3

While weaker than expected results in Land were largely offset by stronger results in Aviation, consolidated gross profit came in below the range provided last quarter due largely to an unexpected unfavorable transaction tax settlement in our Marine business. While gross profit did decline 5% year over year, as a result of numerous strategic actions taken over the past year, adjusted operating income actually increased 11% year over year, demonstrating our continuing focus on improving our overall operating performance and returns. In the second quarter, our aviation volume was 1,900,000,000 gallons, that's up 2% year over year. Aviation gross profit was $138,000,000 that's an increase of $10,000,000 or 8% year over year. This increase is principally attributable to our airport locations in Europe and our business in general aviation activities.

Speaker 3

Partially offsetting these increases is the impact of the Avanoak sale, which was completed during the second quarter of last year. As we look to the seasonally strong third quarter for Aviation, we expect Aviation gross profit to be up meaningfully year over year, driven principally by our on airport operations in Europe, but also a recent increase in government activity as well. In the second quarter, land volumes declined 7% year over year, primarily due to the impact of the sale of our UK and Brazil land businesses and also the strategic exit of certain North American operations in late twenty twenty four, as well as some softness in parts of our liquid fuels business in North America. Land gross profit was $67,000,000 in the second quarter, that's down 17% year over year, again principally related to The UK sale and the exit of certain North American land operations in the 2024, but also the impact from lower volumes in parts of our core liquid fuels business in North America that I just mentioned. Looking at the entire Land business, the results we forecast in the beginning of the quarter simply did not materialize.

Speaker 3

This is due in part to the volume pressure I just mentioned, but also macroeconomic factors which impacted our power business in Europe and even our sustainability related products and service business activities. Looking ahead to the third quarter, we expect sequential seasonal improvement in land performance. However, year over year gross profit will remain lower, reflecting similar dynamics to those experienced in the second quarter, namely the impact of our portfolio changes and continued market challenges in parts of the business. We remain focused on proactively evaluating and addressing any remaining under underperforming activities within the Land segment, and we remain confident in our ability to further reshape our Land business, which should drive improved returns and margins and a much clearer growth trajectory. In the second quarter, Marine volumes declined 7% year over year, while gross profit decreased approximately 26%.

Speaker 3

While the volume decline was primarily related to ongoing global trade related uncertainty, the decline in gross profit was primarily related to an unfavorable transaction tax settlement recorded in the second quarter and weaker performance at certain Marine physical inventory locations in The U. S. In our core resale business, while volumes declined year over year, our team did a great job keeping gross profit generally flat despite what remains a quite competitive market environment. As we look to the third quarter, we expect Marine gross profit to be down year year, considering continuing weakness in certain physical and interior locations in particular. As we look to the third quarter and with the backdrop of the related second gross profit comments shared a moment ago, we expect consolidated gross profit to be in the range of $252,000,000 to $262,000,000 Moving on to expenses, consolidated operating expenses were $173,000,000 in the second quarter, which is below the guidance range we provided last quarter and down 10% year over year.

Speaker 3

As we look ahead to the third quarter, we expect operating expenses to be in the range of $185,000,000 to $189,000,000 down again year over year, driven in part by our recent divestitures, but also our ongoing efforts to further streamline our cost structure. We continue to maintain a disciplined approach to cost management and are actively pursuing further opportunities to streamline operations and enhance profitability, including the finance initiative I mentioned earlier. Interest expense, that was $26,000,000 in the second quarter, that's down about 7% year over year and consistent with the guidance provided last quarter. For the third quarter, we expect interest expense to be in the range of $25,000,000 to $28,000,000 Our second quarter adjusted effective tax rate was 11%, which was lower than anticipated going into the second quarter. This was driven in large part by the sale of The UK business as well as this quarter's goodwill impairment, which was largely related to our U.

Speaker 3

S. Entities and impacted our global income mix. At this stage, we expect our adjusted effective tax rate for the full year to be in the range of 20% to 22%, which implies higher more normalized quarterly rates in the second half of the year. During the second quarter, we generated operating cash flow of $28,000,000 and free cash flow of $13,000,000 increasing our year to date operating and free cash flow to $143,000,000 and $113,000,000 respectively. This strong cash flow performance has enabled us to return approximately $64,000,000 to shareholders, dollars 45,000,000 through share repurchases and $19,000,000 in dividends in the first half of the year.

Speaker 3

This is evidence of our continued commitment to allocating a meaningful portion of our cash flow to buybacks and dividends to maximize shareholder value. With only $415,000,000 of net debt currently and more than $1,000,000,000 of available liquidity, our balance sheet remains strong and liquid, enabling us to actively pursue an expanding pipeline of investment opportunities. We believe we have growing opportunities to accelerate growth in our core business activities through additional reasonably valued strategic and synergistic investments. In closing, I'd like to leave you with a few thoughts. Aviation clearly continues to shine with second quarter gross profit up 8% year over year, driven by strong performance at our on airport operations in Europe and our business in general aviation activities and a strong summer season is underway.

Speaker 3

Aside from the impact of exiting certain markets and activities, land clearly underperformed our expectations going into the quarter, but contributions from our core activities were generally stable year over year. We are continuing to refine the land portfolio, placing a greater focus on core ratable activities with the strongest returns and greatest medium and long term growth opportunities. We believe these efforts position the land segment for improving performance looking forward. Marine's second quarter results were generally in line with expectations, while impacted by some weakness in certain physical inventory locations, our core resale profitability remained stable year over year despite competitive market conditions. Operating expenses came in below guidance for the second quarter and declined meaningfully year over year, reflecting our continued discipline in driving operating efficiencies, including our latest initiative intended to streamline back office operations and finance, which should pay nice dividends going forward.

Speaker 3

We generated $28,000,000 in operating cash flow and $13,000,000 in free cash flow during the second quarter and we raised our quarterly dividend by 18% and we have returned approximately $64,000,000 to shareholders through share repurchases and dividends year to date. While macroeconomic and market conditions impacted portions of our business in the second quarter, we continue to take decisive steps to reshape our portfolio and focus on our most resilient, ratable and higher return core activities that will support medium and long term value creation. Our transformation initiatives are ongoing and we continue our disciplined approach to managing costs. With a clear strategy, we remain committed to disciplined execution, operational efficiency and delivering sustainable returns for our shareholders. Thank you.

Speaker 3

I would now like to turn the call back over to our operator Carmen to begin the Q and A session.

Speaker 4

Thank you.

Operator

Thank you so much. And as a reminder, if you do have a question, simply press 11 on your telephone and wait for your name to be announced. To remove yourself, press 11 again. Our first question is from Ken Hoexter with Bank of America. Please proceed.

Speaker 4

Hey, Ira and Michael. Good afternoon.

Speaker 3

Hey, Ken.

Speaker 4

So just, I guess, thinking about land disappointment here. I know you've worked on shutting out some assets. Are there more assets that you can look to get rid of? How much more room do you have? And what specific areas would you focus on?

Speaker 4

It sounded like when you wrap up comments, kinda talked about repeatable, ratable business. I'm maybe just delve into that a little bit.

Speaker 3

There are parts of that business that remains that are still ratable, meaning easily easy to forecast, easier to explain expected performance to someone like yourself and other members of the investment community. There are other pieces of business that are not as simple. UK was an example where it was heavily dependent on weather, and if it didn't get cold in the winter, the pop that you would hope for in the fourth and first quarter didn't happen. So we're not in that business anymore and we already told the story about Brazil. So I won't get into any specifics, but there are clearly additional parts of the business that we're seriously looking at to either find ways to better optimize assets that support parts of the business that require, for example, many trucks on the road, or there may be activities that simply don't make sense anymore.

Speaker 3

And when we get to that point and make that decision, we'll certainly let you know. But there's certainly more to be done and that's an area we're spending a tremendous amount of time as we realize that we haven't had a lot to brag about in terms of the numbers that we shared in land, but we think we have many, many opportunities to begin improving that more and more as we continue down this path of analyzing every piece of the business and figuring out what the right answer for the future is. Think Mike may have something to add.

Speaker 2

Yeah, Ken, just to give a little bit of color, agree 100% with Ira's comments, but certain trade activities, certain wholesale activities, some smaller subscale activities, some of the acquisitions, good businesses, but again, can you scale them? Can you get operating leverage on them? Some of the heavy logistics activities, that I have made reference to really looking at digging into all of those pieces of the puzzle to understand the real true return, allocations and digging deeper into those. And again, having fewer activities where we could get the focus, reduce overall cost in terms of shared services and the likes are really trying to get a hyper focused business there on the areas that we really see are sizable or are clearly growing. So again, really trying to reduce and sharpen the portfolio.

Speaker 2

So some of those activities that for a while we're fine, but realizing that, if we're not gonna be able to supersize them, it's go big or go home and just taking a closer look at all of those smaller activities. So I don't think there's anything large, but really again, trying to sharpen the focus.

Speaker 4

Let me ask one follow-up, but with three parts, right? You can hit on each of the businesses and land, marine aviation and talk about kind of how we should think about third quarter, you talked about aviation profit being up by government activity. What's driving the government activity? In Marine, you talked about profit being down in third quarter gross profit. Is that just shipping coming back, container shipping?

Speaker 4

What's key, you know, dynamic dynamic and then same for land? Thanks.

Speaker 2

So, if we look at it just walking across, you know, all three of them, you know, aviation, you know, we've got, I think the preeminent independent aviation fuel services platform in the world. That's taken four decades to build. And we've got a phenomenal fuel and services platform. And we've made all of the right moves there. So we go from strength to strength there.

Speaker 2

And the government activity is largely aviation denominated. So our global platform is a great way for us to basically expand and flex into areas where you've got both commercial, governmental and our business aviation platform, our services or trip support activity. All of these have taken a lifetime to basically put together. It's not easy to do, not easy to get into these locations. And we've got all of that, with some of the acquisitions that you've seen over the years, they've dovetailed very nicely.

Speaker 2

John Rao and the team have done a phenomenal job in terms of developing, that aviation global aviation fuel and services platform and the services part of it is critical. So, large part of the government activity historically and currently is aviation dominated. There is a good amount of land activity and marine activity. So they work out quite well. Our Marine business, it's a spot business.

Speaker 2

The team has done a phenomenal job in terms of creating efficiency in that market. We've got good physical capability there. So that business, we like and then land, we've focused it on The US and it's looking at the core activities of the large diesel gasoline markets and really just trying to trim that to the areas that we're really gonna lay our claim to. And then Ira and the rest of the team in terms of corporate and looking at some of the efficiencies of the back office that I think is extremely encouraging and something that is permanent annuity in terms of dealing with some of those efficiencies and back office that you've seen our ability to manage OpEx. So those are the things that we're focused on.

Speaker 2

We've got, I think the preeminent global network in terms of energy services for marine and aviation. The land piece we've shrunk to focus. The US market is still the largest market in the world. We've added some additional talent there. So we feel good.

Speaker 2

It's been a long haul, obviously. And you're seeing the returns come back to shareholders and the focus on that. But aviation, very strong global platform, marine, solid business, really focused on optimization and land, really trying to get a much narrower focus on that.

Speaker 3

So Ken, Mike nailed that, but I just want to add one comment about land. Because your original question was about the moves sequentially or the guidance that we gave at least year over year. So two stories to land. I said clearly that land would be down in the third quarter. From a gross profit perspective, that's true.

Speaker 3

Most of that relates to the fact that we've exited Brazil, The UK and then some activities in The US. Those businesses weren't very profitable. Actually, some of them were losing money. We don't normally give guidance on the operating results of the segment. We're talking about GP, but while gross profit will be down for those reasons, the operating income coming out of land should be pretty consistent with last year.

Speaker 3

Similar to my message on our consolidated gross profit earlier being down year over year, but operating income being up 11%. So we're seeing a drop in GP as we've exited a lot of activities. The more important number to focus on is where the operating profit is going and of course that's the number we're trying to drive in the right direction as much as we can.

Speaker 2

And then the last comment I'll make Ken on the land piece, natural gas power sustainability. You know, our natural gas business is nice business in The US. That's been a good producer for us. The power business, listen power, we all know the electrification of the economy, that's gonna continue to grow at 50% or more. Our participation model is the name of the game.

Speaker 2

And that's something that, we're understanding that geography is important because these markets do behave differently in different areas. We've got the benefit of global platform. So some work to be done there. But, obviously the dynamic between the molecule and the electron is extremely important. You need to, for renewables, you've got to have, some amount of power and there's a dynamic there.

Speaker 2

And then sustainability, and when I say power, that's solar, it could be, looking at balancing for power providers and power users. And again, it's our advisory, our brokerage, our merchant and our services and some for digital. And then sustainability within carbon, that is something that has been highly politicized, but it's not going away. I mean, there is going to be a continuing market for that. People, you've got mandates that are coming through regardless of what certain countries are doing or certain parts of the world.

Speaker 2

States have got different activities. It's complicated to carbon accounting. So the operational integration that we're providing for our clients is another part of the service where solutions provider and selectively working that energy provisioning of energy for those customers whose core competency is moving goods or moving people or manufacturing. And the energy side is a significant percentage of their operating costs. It's not their core competency, it's complicated.

Speaker 2

That's continuing to be the value that we provide to both buyers and sellers. And it's really sharpening our participation model.

Speaker 4

So, feel

Speaker 2

pretty good about where we are. And any case, hopefully that gives you a little bit of color.

Speaker 4

Good color. Thanks guys. Enjoy the afternoon.

Operator

Thank you. Our next question is from Justin Jenkins with Raymond James. Please proceed.

Speaker 5

Great. Thanks very much. Ira, I wanted to go back to where you maybe ended your prepared comments thinking about the investment cycle or the opportunity set in front of you here. Can you unpack that maybe just a little bit more what you're thinking from an investment standpoint? Is that on the organic side?

Speaker 5

Is it M and A? Is it JVs? All the above? Just any more color there would be helpful.

Speaker 3

Not necessarily a JV, although you never rule that out. But no, it's obviously investing in the businesses that are businesses we feel have solid performance and solid opportunity longer term that we are generically referring to as the core. And we've already talked about shedding some of the things that don't necessarily have those characteristics. And then from an inorganic standpoint, it's finding investment opportunities that fit into those buckets that could accelerate growth, maybe fill it up a market where it may not have the same density we have in other markets as an example. That could be aviation, land, theoretically marine, but mostly I would say aviation and land at the moment.

Speaker 3

And valuations have gotten a bit better from the craziness that we've seen in the recent past. Interest rates are starting to come down, so we did take a bit of a breather as we've been focusing a lot internally on some of the things that we talked about today. But as things are moving in the right direction, there seem to be more opportunities. So we're sinking our teeth into those and I'm confident that we'll find leverageable opportunities in those segments over the next few quarters.

Speaker 5

Perfect, that's helpful. Second one for me is just a housekeeping one on the Marine segment itself. Without that tax settlement that you talked about in 2Q, would you have otherwise been within your guidance on gross profit dollars?

Speaker 4

Yes. Okay.

Speaker 3

Yeah, we would have been right in

Speaker 4

the middle of guidance

Speaker 3

without that item. It's a good question. Thank

Speaker 5

you. Thank

Operator

you so much. And this concludes our Q and A session for today. I will turn the call back to Michael Gaspar with his final remarks.

Speaker 2

Well, first and foremost, I wanna thank our fantastic global team. We're only here because of what, you know, our great World Connect team does every day to keep the wheels of commerce, energy and transportation moving. So thank you to, all of you, and to our shareholders. Thanks. And, look forward to chatting to you next quarter.

Speaker 2

Take care, stay safe, stay well. Bye bye now.

Operator

Bye, Beth. Thank you so much, and we conclude our conference. Thank you all for participating, and you may now disconnect.

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