Financial Performance Overview

World Kinect, a global energy management company, has reported its financial results for the three and nine months ended September 30, 2024. The company operates in three reportable segments: aviation, land, and marine.

For the three-month period, World Kinect’s consolidated revenue decreased by 14% to $10.5 billion, compared to $12.2 billion in the same period of 2023. This was driven by decreases in revenue across all three segments. Gross profit also declined by 5% to $268.1 million, primarily due to lower performance in the land segment.

However, the company was able to reduce operating expenses by 6%, which helped offset some of the revenue and gross profit declines. Income from operations was $72.3 million, relatively flat compared to the prior year period. Net income attributable to World Kinect was $33.5 million, or $0.57 per diluted share, compared to $34.9 million, or $0.58 per diluted share, in the third quarter of 2023.

For the nine-month period, World Kinect’s consolidated revenue decreased by 9% to $32.4 billion, again driven by declines in the aviation and land segments. Gross profit decreased by 7% to $767.5 million. However, the company was able to reduce operating expenses by 4%, leading to income from operations of $180.7 million, down from $213.3 million in the prior year period.

Net income attributable to World Kinect for the nine months was $169.2 million, or $2.82 per diluted share, compared to $87.7 million, or $1.41 per diluted share, in the same period of 2023. The significant increase in net income was primarily due to a $96.0 million gain recognized on the sale of the Avinode business during the second quarter of 2024.

Segment Performance

Aviation Segment The aviation segment saw revenue decrease by 13% to $5.2 billion in the third quarter and 10% to $15.7 billion in the first nine months of 2024. This was driven by lower average fuel prices and a slight decline in volumes. However, the segment was able to increase gross profit by 3% in the nine-month period, due to stronger physical inventory-related profitability in the core commercial business.

Income from operations in the aviation segment increased by 17% in the third quarter and 20% in the first nine months, as the segment was able to reduce operating expenses through lower general and administrative costs and compensation expenses related to the Avinode divestiture.

Land Segment The land segment experienced a 21% decrease in revenue to $3.2 billion in the third quarter and a 14% decrease to $9.9 billion in the first nine months. This was driven by lower average fuel prices and a slight decline in volumes. Gross profit in the land segment declined by 16% in the nine-month period, primarily due to unfavorable market conditions in North America and Brazil, as well as lower profitability in the natural gas and power businesses.

Income from operations in the land segment decreased by 52% in the third quarter and 64% in the first nine months, as the decline in gross profit was only partially offset by lower operating expenses.

Marine Segment The marine segment saw a 7% decrease in revenue to $2.1 billion in the third quarter, but a 0.4% increase to $6.8 billion in the first nine months. Gross profit in the marine segment increased by 7% in the third quarter, but decreased by 5% in the nine-month period, primarily due to reduced market volatility.

Income from operations in the marine segment increased by 21% in the third quarter, but decreased by 17% in the first nine months, as the decline in gross profit was only partially offset by lower operating expenses.

Restructuring and Exit Activities

In November 2023, World Kinect approved and began implementing a restructuring plan (the “2023 Restructuring Plan”) to realign its operational focus, simplify the business, and improve its cost structure. As part of this plan, the company identified and eliminated open positions, closed other positions, and decided to shift future investments away from underperforming businesses.

During the first half of 2024, World Kinect continued to assess potential initiatives, resulting in additional severance and other compensation cost-related restructuring charges of $2.4 million. The company also decided to cease operations at one of its subsidiaries in Brazil, resulting in a $3.3 million write-off of VAT credits.

In total, World Kinect recognized $9.6 million in restructuring charges related to the 2023 Restructuring Plan, composed of severance and other compensation costs. The company estimates the plan will result in approximately $21.9 million in annualized compensation-related savings. The restructuring activities were completed in the second quarter of 2024.

Liquidity and Capital Resources

World Kinect’s liquidity, consisting primarily of cash and availability under its Credit Facility, fluctuates based on factors such as the timing of receipts from customers and payments to suppliers, changes in fuel prices, and the company’s financial performance.

As of September 30, 2024, the company believes its cash and cash equivalents, along with available funds from its $1.5 billion Credit Facility, are sufficient to fund its working capital and capital expenditure requirements for at least the next twelve months.

In June 2023, World Kinect issued $350 million of 3.250% Convertible Senior Notes due 2028, which provide an additional source of liquidity. The company also has accounts receivable programs under Receivables Purchase Agreements (RPAs) that allow it to sell a specified amount of qualifying accounts receivable and receive cash consideration.

During the nine months ended September 30, 2024, World Kinect generated $139.6 million in net cash from operating activities, a decrease of $127.2 million compared to the same period in 2023. This was primarily due to decreases in accounts payable, accounts receivable, and inventory, as well as lower cash flows from derivative activities, partially offset by an increase in net income adjusted for non-cash items.

Net cash provided by investing activities was $98.9 million, compared to net cash used of $77.4 million in the prior year period. This was driven by $200.1 million in net proceeds from the Avinode sale, partially offset by capital expenditures and the issuance of notes receivable.

Net cash used in financing activities was $162.6 million, compared to $140.4 million in the prior year period. This was primarily due to repurchases of common stock, payments of deferred consideration related to prior acquisitions, dividend payments, and net repayments under the Credit Facility.

Outlook and Analysis

World Kinect’s financial performance in the third quarter and first nine months of 2024 was mixed, with declines in revenue and gross profit across most segments, but the company was able to offset some of these declines through cost-cutting measures.

The aviation segment has been a bright spot, with increased profitability driven by stronger physical inventory-related performance and lower operating expenses. This suggests the company’s efforts to rationalize lower-return business activities in this segment are paying off.

However, the land segment has been a drag on overall performance, with significant declines in gross profit due to unfavorable market conditions and lower profitability in the natural gas and power businesses. The marine segment has also faced headwinds from reduced market volatility.

World Kinect’s restructuring efforts appear to be on track, with the company completing the 2023 Restructuring Plan in the second quarter of 2024 and realizing estimated annualized savings of $21.9 million. This should help improve the company’s cost structure and profitability going forward.

The company’s liquidity position remains strong, with sufficient cash and available credit facilities to fund its operations and strategic investments. The issuance of the Convertible Notes and the use of RPAs provide additional sources of liquidity.

Looking ahead, World Kinect will need to continue focusing on improving performance in its land and marine segments, while maintaining the momentum in aviation. The company’s ability to navigate macroeconomic challenges, such as inflation and interest rate hikes, will also be crucial.

Overall, World Kinect’s financial results for the first nine months of 2024 were mixed, with some bright spots offset by challenges in certain business areas. The company’s restructuring efforts and liquidity position provide a solid foundation for future growth, but execution will be key to driving improved and more consistent financial performance across all segments.