World Kinect Q3 Marine Profits Slump to Least Since 2021

The firm saw a profit margin on its Q3 bunker sales of $3.06/mt, down from $9.96/mt a year earlier and from $4.70/mt in Q2. Image Credit: Ship & Bunker / Data Credit: World Kinect

Marine fuel profits at World Kinect -- the world's second-largest bunker supplier, previously known as World Fuel Services -- sank to the lowest level since the end of 2021 in the third quarter of this year.

The firm saw income from marine operations of $12.4 million in the third quarter of this year, down from $48.1 million a year earlier and from $19.8 million in Q2, it said in a results statement on its website. The company is the world's second-largest seller of marine fuels after Bunker Holding.

Gross profit from the marine segment was $34.6 million in Q3, down from $74.8 million a year earlier and from $42 million in Q2.

The firm sold 4.1 million mt of bunker fuel in Q3, its lowest total since the second quarter of 2020. The figure was down from 4.8 million mt a year earlier and from 4.2 million mt in the previous quarter.

That left a profit margin on its Q3 bunker sales of $3.06/mt, down from $9.96/mt a year earlier and from $4.70/mt in Q2, and the least since the fourth quarter of 2021.

Between the fourth quarter of 2014 and the third quarter of this year, the company saw an average income from marine operations of $2.52/mt.

In a call with analysts last week, CFO Ira Birns cited 'weakness in a few physical locations' as being behind the drop in volumes.

CEO Michael Kasbar expanded on that slightly, saying there was temporary disruption at two locations in Europe and one location in the US.

"It is all generally resolved, three particular locations, three different stories," Kasbar said.

"One of them had a disruption – two of them had some short-term disruptions and one of them had some other issues during the quarter.

"95% of that is now behind us, and we don't expect to get impacted from any of those issues in a material way in the fourth quarter."

Gibraltar is a key European location for World Fuels, and the suspension of bunkering operations there for about a week in August is likely to be one of the disruptions being referred to.

World Kinect saw significant growth from its bunker business last year as the war in Ukraine drove prices to record highs. The company saw its strongest margins in Q2, and they have since declined from these record levels but remain above historical averages.

Analyst Call

"While gross profit is down from last year's record levels, marine working capital efficiencies remain exceptional with no real net working capital investment regardless of the market price environment," Birns said in the analyst call.

"For the fourth quarter, we expect a modest sequential increase in gross profit.

"And while marine margins should remain well ahead of historical averages, we expect marine gross profit to be down year-over-year.

"Again, this is due to the comparison to the fourth quarter of 2022, when bunker prices and market volatility were considerably higher."

Birns added that some of the loss in marine volumes was part of a conscious strategy of the firm ridding itself of less profitable business.

"One of the things we've done in Marine over the last couple of years is rationalise some lower-margin business that historically we may have been doing for the sake of volume," he said.

"Our volume numbers year-over-year are impacted by both a bit more of that as well as the impact of the market itself.

"I would say we're at a level now that is stable with possibly some opportunities to pick up some additional volume next quarter.

"I don't see it dropping materially more from the level that we found ourselves at in Q3."

Rising interest rates are part of the reason for cutting back on lower-margin business, Birns added.

"Our guys are always after additional business with existing customers, new business with new customers, but they have to hit the hurdle rates that we ascribed to them in order for that to make sense to all of us," he said.

"And those hurdle rates have increased in this interest rate environment, right, which again, has resulted in us walking away from some business that maybe we might have entertained 18 months ago.

"So it's a combination of both of those factors that you described."