World Fuel Services' Bunker Business Has A "Long-Term Role Within the Portfolio"

WFS CEO Michael Kasbar: Credit - World Fuel Services

Despite market chatter to the contrary, World Fuel Services Corporation's (WFS) [NYSE:INT] bunker business will continue to play a long-term role in the firm's portfolio alongside their Land and Aviation segments, CEO Michael Kasbar has said.

Tough market conditions over multiple years for both the shipping and marine fuel industries has meant WFS' net margin has tumbled in recent years.

"For calendar year 2014 net margin was $3.50/mt – they generated an income of $90 million from volumes of 25.7 million mt. For 1Q 2017 that has dropped to a net margin of $1.22/mt – a net income of $8.3 million for the period from sales 6.8 million mt," 2020 Marine Energy's Adrian Tolson commented to Ship & Bunker.

"I think it indicates that there is still cost rationalization to be done, despite optimism for the WFS model post 2020."

Separately, several industry sources have also speculated to Ship & Bunker that the tough conditions mean the world's biggest bunker player may be looking to call time on its founding enterprise.

But if Kasbar's comments during WFS' latest earnings call are any indication, the gossip is well wide of the mark.

"We just really have to focus on being the most efficient provider, and being that omni-channel provider... that's really what we're about. Marine is certainly a part of it. I think it has a long-term role within the portfolio - it's not going to go away," he said.

Efficiency

In terms of improving that efficiency, WFS has made no secret of its recent cost savings initiatives, and Kasbar explained they "have allowed us to consolidate and streamline operations in order to adapt to the current market dynamics."

While some may dismiss the comment as being vague management talk, it is a statement most definitely backed up by the numbers.

As Ship & Bunker previously reported, 1Q 2017 volumes were down 11 percent year-over-year, a dip the company explained was due to a reduction in "low margin, low return activity in Asia."

The reality of this can be seen in what is perhaps the more telling sequential picture; 4Q 2016 volumes of 7.6 million metric tonnes (mt) and a gross profit for the period of $33.5 million, compared to 1Q 2017 volumes of 6.8 million mt and a gross profit of $33.6 million.

"This is significant and there is a very positive take away to it," industry veteran Steve Leonard told to Ship & Bunker.

"Despite the 11 percent dip in volumes sequentially they achieved the same gross profit, evidence that they are adhering to their promised operational discipline of pushing away low margin business."

And the fact that those giving a more cursory glance to WFS' financials might jump to the wrong conclusion did not escape Kasbar's attention.

"Ironically, we are probably, if you look at the level of professionalism in our operation, we are healthier than we ever have been. Ok, it doesn't necessarily show that in the numbers, but just in terms of where our organisation is at," he said.

Elsewhere in Marine, Kasbar also spoke positively of the "fresh pair of eyes" that John Rau is bringing to the segment, who until January was focused solely on the company's Aviation segment having joined WFS from American Airlines in 2011.

"If you look at marine, and now John Rau leading marine coming out of the aviation industry, there's a lot of similarities … and he is doing, I think, a tremendous job in terms of really looking at that business with a fresh pair of eyes," he said.