Q2 2025 World Kinect Corp Earnings Call
Carmen: Good day, everyone, and welcome to the World Kinect Corporation second quarter 2025 earnings conference call. With us today are Michael J. Kasbar, Chairman and Chief Executive Officer Ira Birns, President and Chief Financial Officer, and Braulio Medrano, Senior Director of FP&A and Investor Relations. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please note this event is being recorded. Now it's my pleasure to turn the call to Braulio Medrano, Senior Director of FP&A and Investor Relations. Please go ahead.
Good day everyone and welcome to the world kinetic Corporation, second quarter 2025 earnings conference call.
And burns president and Chief Financial Officer and Rio Medrano, senior director fpna, and investor relations. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to participate. You will need to press star 1, 1 on your telephone. You will then hear a message. Advising. Your hand is raised.
To withdraw your question simply press star 1 1 again.
Please note this event is being recorded.
Now is my pleasure to turn the call to Brown, medano senior director fpna and investor relations. Please go ahead.
Braulio Medrano: Thank you, Carmen, and good evening, everyone. Welcome to World Kinect's second quarter 2025 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 Braulio Medrano, Senior Director of FP&A and Investor Relations. With us on the call today is Michael Kasbar, Chairman and Chief Executive Officer, and Ira Birns, President and Chief Financial Officer. 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-K and other reports filed with the Securities and Exchange Commission.
Thank you, Carmen, and good evening, everyone. Welcome to World Kinect's second quarter 2025 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 Ali Medrano, Senior Director of FP&A and Investor Relations.
With us on the call today is Michael Caspar chairman and chief executive officer and Ira Burns, president and Chief Financial Officer.
Braulio Medrano: 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. 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 Kasbar.
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 10K 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. 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 Kasbar: Thank you, Braulio. 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. The past few months have also been a period of meaningful transformation for World Kinect. 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.
Michael Kasbar: Thank you, Bia. 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.
The past few months have also been a period of meaningful transformation for World connect despite continued macroeconomic. Headwinds, we are making deliberate and necessary moves to streamline our portfolio.
Michael Kasbar: 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 2024, and continues with the ongoing refinement of the remaining portfolio of activities in our land segment. The land segment, as 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.
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 2024, and continues with the ongoing refinement of the remaining portfolio of activities in our land segment.
Michael Kasbar: 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. 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.
The land segment that you've seen experienced in other 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 I will describe shortly, our Global Marine segment, delivered for results. Generally in line with expectations despite competitive market conditions
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.
Michael Kasbar: 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.
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 discipline and meaningful way without sacrificing the pursuit of strategic growth opportunities.
In summary, what? 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.
Ira Birns: Thank you, Michael, and good evening, everyone. Before I review our second quarter operating results, I'd like to walk through several GAAP and 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 million or $373 million after tax. The most significant adjustment relates to a non-cash intangible asset impairment totaling $367 million within our land segment, $359 million of which is related to goodwill and $8 million related to other intangible assets in land. The goodwill impairment was driven by our reassessment of the remaining business activities within land and the related revisions to our long-term forecasts.
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. Total the proximately 487 million or 373 million after tax.
The most significant adjustment relates to a non-cash intangible asset impairment totaling $367 million within our land segment.
$359 million of which is related to goodwill, and $8 million related to other intangible assets in land.
Ira Birns: 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. $82 million 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 million, relates to non-cash unrealized foreign currency translation losses previously included within shareholders' equity. In our marine segment, we recorded a $32 million asset impairment in the second quarter related to a physical inventory location that no longer aligns with our long-term strategic objectives. The remaining $6 million in non-GAAP adjustments principally consist of additional restructuring charges associated with the company-wide transformation, which we began in the first quarter.
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 in the most significant growth opportunities.
82 million is a 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 million relates to non-cash unrealized foreign currency translation, losses, previously included, within shareholders equity.
In our marine segment, we recorded a 32 million asset impairment in the second quarter related to a physical inventory location that no longer aligns with our long-term strategic objectives.
Ira Birns: 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 $4.2 billion. That's down 3% year over year. And consolidated gross profit declined 5% from last year's second quarter to $232 million. That's below the guidance range provided last quarter. 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.
The remaining $6 million consists of non-GAAP adjustments, principally additional restructuring charges associated with the company-wide transformation that 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 4.2 billion. That's down, 3% year-over-year and Consolidated gross profit declined, 5% from
Last year's second quarter to 232 million. That's below the guidance range provided last quarter.
Ira Birns: 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 1.9 billion gallons. That's up 2% year over year. Aviation gross profit was $138 million. That's an increase of $10 million or 8% year over year. This increase is principally attributable to our airport locations in Europe and our business in general aviation activities. Partially offsetting these increases is the impact of the Avenove sale, which was completed during the second quarter of last year.
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 1.9 billion. Gal, that's up, 2% year-over-year. Aviation gross profit was 138 million. That's an increase of 10 million or 8% year-over-year.
Principally attributable to our airport, locations in Europe and our business in general aviation activities.
Ira Birns: 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 2024, as well as some softness in parts of our liquid fuels business in North America. Land gross profit was $67 million in the second quarter.
Partially offsetting. These increases is the impact of the aveno 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 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. Additionally, the strategic exit of certain North American operations in late 2024, as well as some softness in parts of our liquid fuels business in North America, contributed to this decline.
Ira Birns: 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 fourth quarter of '24, but also the impact from lower volumes in parts of our core liquid fuel 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. 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.
Land grows profit was 67 million 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 fourth quarter of 24. But also the impact from lower volumes in parts of our core liquid fuel business in North America that I just mentioned
Looking at the entire land business, the results we forecast at the beginning of the quarter, simply did not materialize. 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.
Ira Birns: We remain focused on proactively evaluating and addressing any remaining 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%. 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 US. 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.
Looking ahead to the third quarter, we expect sequential seasonal Improvement in land performance. However, year-over-year growth profit will remain lower reflecting similar Dynamics to those experiences. 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 underperforming activities within the land segment and we remain confident in our ability to further reshape our land business, which should drive improved returns in margins. And a much clearer growth trajectory
In the second quarter marine volumes decline 7% year-over-year while growth profit decreased approximately 26%.
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 US.
Ira Birns: As we look to the third quarter, we expect marine gross profit to be down year over year considering the continuing weakness in certain physical inventory locations in particular. As we look to the third quarter and with the backdrop of the related segment gross profit comments shared a moment ago, we expect consolidated gross profit to be in the range of $252 million to $262 million. Moving on to expenses, consolidated operating expenses were $173 million in the second quarter, which is below the guidance range we provided last quarter and down 10% year over year. As we look ahead to the third quarter, we expect operating expenses to be in the range of $185 to $189 million, down again year over year, driven in part by our recent divestitures, but also our ongoing efforts to further streamline our cost structure.
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 profits to be down Euro and continuing weakness, in certain physical and interior locations. In particular as we look to the third quarter. And with the backdrop of the related segments growth profit comments here in a moment ago, we expect Consolidated gross profit to be in the range of 252 million to 262 million,
Moving on to expenses Consolidated, operating expenses were 173 million in the second quarter, which is below the guidance range we provided last quarter and down 10% year-over-year.
Ira Birns: 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 million 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 million to $28 million. 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 US entities and impacted our global income mix.
As we look ahead to the third quarter, we expect operating expenses to be in the range of 185 to 1989 million down again year-over-year, uh, driven in part by our recent domest. 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 million 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 to 28 million.
Our second quarter adjusted effective tax rate was 11%, which was lower than anticipated going into the second quarter.
Ira Birns: 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 million and free cash flow of $13 million, increasing our year-to-date operating and free cash flow to $143 million and $113 million, respectively. This strong cash flow performance has enabled us to return approximately $64 million to shareholders, $45 million through share repurchases, and $19 million in dividends in the first half of the year. This is evidence of our continued commitment to allocating a meaningful portion of our cash flow to buybacks and dividends to maximize shareholder value.
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 us 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 and more normalized quarterly rates in the second half of the year.
This strong cash flow. Performance has enabled us to return approximately 64 million to shareholders, 45 million through share repurchases in 19 million in dividends in the first half of the year.
Ira Birns: With only $415 million of net debt currently and more than $1 billion 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. 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.
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 million of net debt currently and more than $1 billion 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 up 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-air airport operations in Europe, and our business in general aviation activities.
And the strong summer season is underway.
Ira Birns: We are continuing to refine the land portfolio, placing a greater focus on core rateable 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 second quarter results were generally in line with expectations, while impacted by some weakness in certain physical inventory locations, our core resale profitability remains 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. We generated $28 million in operating cash flow and $13 million in free cash flow during the second quarter, and we raised our quarterly dividend by 18%.
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 rateable 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 second quarter results were generally in line with expectations, while impacted by some weakness. In certain physical inventory locations, our core resale profitability remains stable year-over-year despite competitive market conditions.
Operating expenses came in below guidance for the second quarter and the client meaningfully year-over-year reflecting our continued discipline in driving operating efficiencies including our latest initiative intended to streamline back office operations in finance which should pay nice dividends going forward.
Ira Birns: And we have returned approximately $64 million 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, rateable, 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. I would now like to turn the call back over to our operator, Carmen, to begin the Q&A session.
We generated 28 million in operating cash flow, in 13 million in free cash flow during the second quarter. And we raised our quarterly dividend by 18% and we have returned approximately 64 million dollars 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 rateable 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.
Braulio Medrano: Thank you.
Thank you. I will now like to turn the call back over to our operator, Carmen to begin the Q&A session.
Carmen: Thank you so much. And as a reminder, if you do have a question, simply press star 11 on your telephone and wait for your name to be announced. To remove yourself, press star 11 again. Again, that is star 11 if you do have a question. One moment, please. Our first question is from Ken Hoekster with the Bank of America. Please proceed.
Thank you. Thank you so much. And as a reminder, if you do have a question, simply press star, 1, 1 on your telephone and wait for your name to be announced to remove yourself press star, 1 morning again.
Again, that is star 11. If you do have a question, one moment please.
Our first question is from Ken hogar with the Bank of America, please proceed.
Ken Hoexter: Hey, Ira and Michael. Good afternoon. Yeah, so just I guess thinking about the land, you know, disappointment here, I know you've worked on shedding 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? It sounded like when you wrap up comments, you kind of talked about repeatable, ratable business. And maybe just delve into that a little bit.
Hey Ron Michael uh, good afternoon. Um so just uh I guess thinking about the the land uh you know disappointment here and I know you've you've worked on uh shutting out stuff assets. Are there more assets that that you can look to get rid of how much more room do you have? And and what specific areas would you would you focus on? It's kind of like when you wrap up comments you kind of
Talked about repeatable routable business that maybe just delve into that a little bit.
Ira Birns: Yeah, look, there are parts of that business that remain that are still rateable, meaning, you know, easily easy to forecast, you know, easier to explain expected performance to someone like yourself and, you know, and other members of the investment community. There are other pieces of the business that are not as simple. You know, the 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 know, you would hope for in the fourth and first quarter didn't happen. So we're not, you know, in that business anymore. And, you know, we already told the story about Brazil.
Ira Birns: So I won't get into any specifics, but there are clearly additional parts of the business that, you know, we're seriously looking at to either find ways to better optimize assets that support parts of the business that require, you know, for example, many trucks on the road. Or there may be activities that, you know, simply don't make sense anymore. And we'll, you know, when we get to that point and make that decision, we'll certainly let you know. But there's certainly more to be done.
Ira Birns: And that's an area we're spending a tremendous amount of time as we realize that, you know, we haven't had a lot to brag about in terms of the numbers that we've 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. I think Mike may have something to add.
To better optimize, uh, that are optimized assets that support parts of the business that require, you know, for example, many trucks on the road, um, or uh, there may be activities that, you know, simply don't make sense anymore. And we'll, you know, we're when we get to that point and make that decision, we'll certainly, uh, let you know, but there's certainly more to be done. Uh, and that's an area. We're spending a tremendous amount of time is we realize that, you know,
Michael Kasbar: Yeah, Ken, just to give a little bit of color, you know, I agree 100% with Ira's comments. But, you know, certain trade activities, certain wholesale activities, some, you know, smaller subscale activities, you know, with some of the acquisitions, you know, good businesses, but again, can you scale them? Can you get operating leverage on them? You know, some of the, you know, heavy logistics activities that Ira made reference to, really looking at digging into all of those pieces of the puzzle to understand the real true return allocations and, you know, digging deeper into those. And again, having fewer activities where we can get the focus, you know, reduce overall cost, you know, in terms of, you know, shared services and the like. So really trying to get a hyper-focused business there on the areas that we really see are sizable or are clearly growing.
we we've, we haven't had a lot to bring about in terms of the numbers that we shared in land. But we think we have many, many opportunities to be getting 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, uh, for the future is, I think Mike may have something to add. Yeah, I can't just to give a little bit of color, uh, you know, agree. 100% with Irish comments, but you know, certain trade activities, certain wholesale activities, some um, you know, smaller sub-scale activities, you know, uh, with uh, some of the Acquisitions, uh, you know, good businesses but again, um, can you scale them? Can you get operating leverage on them? Uh, you know, some of those, you know, heavy Logistics activities, uh, that I have made reference to really looking at digging into all of those pieces of the puzzle, to understand the real true return, uh, allocations and, you know, digging deeper into those. And again having few
Michael Kasbar: So again, you know, really trying to reduce and sharpen the portfolio. So some of those activities that, you know, for a while were fine, but, you know, realizing that if we're not going to be able to, you know, supersize them, it's, you know, go big or go home and just taking a, you know, a closer look at all of those smaller activities. So I don't think there's anything, you know, large, but really, again, trying to sharpen the focus.
Ken Hoexter: Let me ask one follow-up, but with three parts, right? If you can hit on each of the businesses and, you know, land, marine, and aviation and talk about kind of how we should think about, you know, third quarter, you know, you talked about aviation profit being up by government activity. You know, what's driving the government activity? And marine, you talked about profit being down in third quarter, gross profit. You know, is that just, you know, shipping coming back, container shipping? What's the key, you know, dynamic? And then same for land.
Teamwork committees where we could get the focus, uh, you know, reduce overall cost, you know, um, in terms of, you know, shared services. And, uh, the likes are really trying to get a hyper focused business there, um, on the areas that, uh, we really see our our sizable or are clearly clearly growing. So again, um, you know, really trying to reduce and sharpen the portfolio. So some of those activities that, you know, for a while we're we're fine. But, you know, realizing that, um, if we're not going to be able to, um, you know, super sized them, it's, you know, it's go big or go home and, uh, just taking a, you know, a closer closer. Look at all of those smaller activities. So, I don't think there's anything, you know, uh, large, but really, again, trying to sharpen the focus.
Let me ask what 1.
Follow up. But but with 3 parts, right? If you can hit on each of the businesses and, you know, land Marine Aviation and talk about kind of how we should think about, you know, third quarter, you know, you talked about Aviation profit, um, being up by by government activity. You know, what's, what's driving, the government activity and Marine you talked about, uh, product being down in in third quarter, gross profit, um, you know,
Michael Kasbar: 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, you know, we've got a phenomenal fuel and services platform. And we've made, you know, all of the right moves there. So we go from strength to strength there. And, you know, the government activity is largely aviation denominated. So our global platform, you know, is a great way for us to basically expand and flex, you know, into areas where you've got both commercial, governmental, and our business aviation platform, our services, our trip support activity. You know, all of these have taken, you know, a lifetime, you know, to basically put together. You know, not easy to do. You know, not easy to get into these locations.
Is that just, you know, shipping coming back, container shipping, what, you know, what's what's the key, you know, Diamond Dynamic and then same for for land.
So if, if we look at it just walking across, you know, all 3 of them, you know, Aviation, you know, um, we've got, um, I think the preeminent independent aviation fuel Services platform in the world. Uh, that's taken for decades to build. Um, and, you know, we've got a, um, phenomenal, uh, Fuel and services platform, um, and, uh, We've made, you know, all of the Right Moves there. So we go from strength to strength there. Um, and, you know, the government activity, um, is largely Aviation denominated. Uh, so our Global platform, you know, is a great way, uh, for us to basically expand and flex um you know, into areas where you've got both commercial uh governmental and our business Aviation platform our services or trip support uh activity. You know, all of these have taken, you know, a lifetime
Michael Kasbar: And we've got all of that. You know, with some of the acquisitions that you've seen over the years, they've dovetailed very nicely. You know, John Rau and the team, you know, have done a phenomenal job, you know, in terms of developing, you know, that global aviation fuel and services platform. And the services part of it is critical. So, and, you know, a large part of the government activity historically and currently, you know, is aviation dominated. There is a good amount of land activity and marine activity. So they work out quite well. You know, our marine business, you know, it's a spot business. The team has done a phenomenal job in terms of creating, you know, efficiency in that market. We've got, you know, a good physical capability there. So that business, you know, we like.
you know, to basically put together, um, you know, not easy to do, um, you know, not easy to get into these locations and we've got all of that, um, you know, with some of the Acquisitions that you've seen over the years, they've dubbed, Tales, uh, very nicely, you know, John Ralph and the team, you know, have done a phenomenal job, you know, in terms
Michael Kasbar: And then land, you know, 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 going to lay our claim to. And then, you know, Ira, you know, and the rest of the team in terms of, you know, corporate and looking at some of the efficiencies of the back office, that I think is extremely encouraging and something that is, you know, permanent, you know, annuity, you know, in terms of, you know, dealing with, you know, some of those efficiencies in back office that you've seen, you know, our ability to manage OPEC. So, you know, those are the things that we're focused on.
Michael Kasbar: You know, we've got, you know, I think the preeminent global network in terms of, you know, energy services for marine and aviation. The land piece we've shrunk to focus, you know, the US market is still the largest market in the world. You know, we've added some additional talent there. So, you know, we feel good. It's been, you know, it's been a long haul obviously, but, you know, and you're seeing the return come back, you know, 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.
And it's looking at, you know, the core activities of the large diesel gasoline markets, uh, and really just trying to trim that to the areas that we're really going to, uh, lay our, our claim to, um, and then, you know, Ira, you know, and the rest of the team in terms of, you know, corporate, uh, and looking at some of the efficiencies of the back office that I think is extremely encouraging and something that is, you know, permanent, you know, annuity, you know, in terms of, you know, dealing with, you know, some of those efficiencies and back up is that you've seen, you know, our ability to manage Opex. Um, so, um, you know, those are the things that we're focused on, uh, you know, we've got, you know, I think the preeminent Global Network in terms of, you know, Energy Services for marine and Aviation, uh, the land piece we've shrunk to focus, you know, the US market is still the largest market in the world, um, you know, we've added some additional Talent there.
Ira Birns: So again, Mike nailed that, but I just want to add one comment about land because your original question was about, you know, the moves, you know, sequentially or, you know, the guidance that we gave at least, you know, year over year. So two stories for land. You know, I said clearly that land would be down in the third quarter. From a gross profit perspective, that's true. 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.
So, you know, we feel good, it's been, you know, it's been a long haul obviously. Uh, but, you know, and you're seeing the Returns, come back, you know, uh, to shareholders in the focus on that. But, um, Aviation very strong Global platform Marine solid business, uh, really focused on optimization and land. Uh, really trying to get a much narrower narrower, focus on that.
So Ken Mike, Mike nailed that, but I just want to add 1 um 1 comments.
Uh, to about land because, you know, your original question was about, you know, the moves, you know, sequentially or, you know, uh, uh, you know, the guidance that we gave at least, you know, year-over-year, the two stories to land, you know, I I said clearly that land would be down in the third quarter from a gross profit perspective. That's true. Most of that relates to the fact that we've exited Brazil, the UK, and then some activities in the U.S.
Ira Birns: Similar to my message on, you know, our consolidated gross profit earlier being down year over year, but operating income being up 11%, right? So, you know, 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's going. And of course, that's the number we're trying to drive in the right direction as much as we can.
Michael Kasbar: And then the last comment I'll make, Ken, on the land piece, natural gas, power, sustainability. You know, our natural gas business is a nice business in the US. That's been, you know, a good producer for us. The power business, listen, power, we all know the electrification of the economy. That's going to continue to grow at 50% or more. You know, our participation model is the name of the game. And that's something that, you know, we're understanding that geography is important because these markets do behave differently in different areas. We've got the benefit of a global platform. So some work to be done there. But, you know, obviously, the dynamic between the molecule and the electron is extremely important. You know, you need to for renewables, you've got to have some amount of power, and there's a dynamic there. And then sustainability.
Those businesses weren't very profitable, actually, some of them were losing money. Um, we don't normally give guidance on the operating results of the segment we're talking about GP, but while, uh, gross profit will be down for those reasons. The operating income coming out of land should be pretty consistent, with last year. Um, similar to my message on, you know, our Consolidated gross profit earlier being down year-over-year, but operating income being up 11%, right? So, um, you know, we're we're seeing a drop in GP as we've exited a lot of activities. The more important number to focus on uh is where the operating profits going. And of course, that's the number we're trying to drive uh in the right direction. Uh as much as we can.
Michael Kasbar: You know, and when I say power, that's solar. It could be, you know, looking at balancing for power providers and power users. And again, it's our advisory, our brokerage, our merchant, and our services, and some of our digital. And then sustainability within carbon. You know, that is something that, you know, 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. You know, states have got different activities. It's complicated, the carbon accounting. So the operational integration that we're providing for our clients is another part of the service.
And then the last comment, I'll make Ken, um, on the land piece natural gas, power sustainability. Um, you know, our natural gas business is a nice business in the US. Um, that's been, you know, a good producer for us, the power business. Um, listen power. We all know the electrification of the economy that's going to continue to grow at 50% or more. You know, our participation model is the name of the game. Uh, and that's something that, you know, we're we're understanding. The geography is important because these markets do behave differently in different areas. We've got the benefit of a, of a global platform. Uh, so some work to be done there, uh, but, um, you know, obviously, the dynamic between the molecule and the electron is extremely important. Uh, you know, you need to for Renewables you've, you know, you've got to have some amount of power and there's a dynamic there and then sustainability um, you know, and when I say power, that's solar
Uh, it could be, uh, you know, looking at balancing for, uh, Power providers and power users. And again, it's our advisory. Our brokerage, our merchants, and our services, and some of our digital and then sustainability within, uh, carbon. Um, you know, that is something that, you know, has been highly, uh, politicized, but it's not going away. I mean, there is going to be a continuing market for that. Uh, people, uh, you've got mandates that are coming through regard
Michael Kasbar: We're a solutions provider and selectively working that energy provisioning of energy, you know, 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 cost. It's not their core competency. It's complicated. That's continuing, you know, to be the value that we provide to both buyers and sellers. And it's really sharpening our participation model. So I feel pretty good about where we are. And in any case, hopefully that gives you a little bit of color.
Ira Birns: Good color. Thanks, guys. Enjoy the afternoon.
And sellers, and it's really, uh, sharpening our participation model. So, um, feel feel pretty good about where we are. And, um, any case, uh, hopefully that gives you a little bit of color
Carmen: Thank you. And as a reminder, if you do have a question, simply press star 11 to get in the queue. Our next question is from Justin Jenkins with Raymond James. Please proceed.
Good color. Thanks guys. Enjoy the afternoon.
Thank you and sorry binder. If you do have a question simply press star 1, 1 to get in the queue
Ken Hoexter: Great. Thanks very much. Ira, I wanted to go back to where you maybe ended your prepared comment thinking about the investment cycle or the opportunities 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? Is it M&A? Is it JVs? All of the above? Just any more color there would be helpful.
Our next question is from Justin Jenkins with Raymond James. Please proceed.
Ira Birns: 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, you know, solid performance and solid opportunity longer term that we are generically referring to as the core. And, you know, we've already talked about, you know, shedding some of the things that don't necessarily have those characteristics. And then from an inorganic standpoint, it's finding investment opportunities that, you know, fit into those buckets that could accelerate growth, maybe fill in a, you know, 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, you know, mostly I would say aviation and land at the moment. And, you know, valuations have gotten a bit better from, you know, the craziness that we've seen in the recent past.
Great. Thanks very much. Uh, I wanted to go back to to where you maybe ended here, prepared, comments thinking about the investment cycle or the opportunity set in in front of you. Here, can you unpack that maybe just a little bit more? What you're thinking of of from an investment standpoint? Is that on the organic side? Is it m&a? Is it JVS all the above? Just just any, any more color that would be helpful.
Not necessarily a JCP, a JV, although you never rule that out. But no, it's obviously investing in the businesses that are, uh, businesses. We feel have you know, solid performance and solid opportunities longer term that we our generically referring to is the core. Uh, and, you know, we've already talked about, you know, shedding some of the things that don't necessarily have those characteristics. Uh, and then from an inorganic standpoint, it's finding investment opportunities that, you know, fit into those buckets that could accelerate growth. Uh, maybe filling up, uh, you know, a market where we may not have the same density. We have in, in in other markets as an example. Uh,
Ira Birns: Interest rates are starting to come down. So, you know, 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 some, you know, some leverageable opportunities in those segments over the next few quarters.
Ken Hoexter: 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?
That could be, uh, Aviation land, theoretically Marine but, you know, mostly I would say Aviation and land at the moment. Uh, and, uh, you know, valuations have gotten a bit better from, you know, the craziness that we we've seen in the recent past, uh, interest rates are starting to come down. So, you know, we did take a bit of a breather as we've been focusing, uh, a lot internally on some of the things that we talked about today. Uh, 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 I'm confident that we'll find some, uh, you know, some leverageable opportunities uh, in in those segments. So over the next few quarters,
Ira Birns: Yes.
Perfect, that's helpful. Second 1 for me, this is just, um, housekeeping 1 on on the Marine segment itself without that text settlement. That that you talked about in 2 Q, would you have otherwise been within your guidance on gross profit dollars?
Ken Hoexter: OK.
Yes.
Okay.
Ira Birns: Yeah, we would have been right in the middle of guidance without that item. It's a good question.
Ken Hoexter: Thank you, guys.
Yeah, we would have been right in the middle of Guidance with with uh, without that uh, that item. It's a good question.
Carmen: Thank you so much. And this concludes our Q&A session for today. I will turn the call back to Michael Kasbar with his final remarks.
Thank you. Yeah.
Michael Kasbar: Well, first and foremost, I want to thank our fantastic global team. We're only here because of what, you know, our great World Kinect 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. Take care. Stay safe. Stay well. Bye-bye now.
Thank you so much and this concludes our Q&A session for today. I will turn the call back to Michael Gasper with his final remarks. Well, first and foremost, I want to thank our fantastic Global team. Uh we're only here because of what um, you know our great world connect team does every day to keep the
Carmen: And with that, thank you so much. And we conclude our conference. Thank you all for participating. And you may now
Wheels of Commerce, uh, energy and transportation moving. So, thank you to, uh, all of you, uh, and to our shareholders. Uh, thanks. Um, and um look forward to chatting to you next quarter. Take care. Stay safe. Stay well, bye. Bye. Now and with that. Thank you so much and we conclude our conference. Thank you all for participating. And you may now disconnect