Ladies and gentlemen, thank you for standing by and welcome to the World Fuel Services 2015 Second Quarter Earnings Conference Call. My name is Scott and I will be coordinating the call for this evening. During the presentation, all participants will be in a listen-only mode. And after the speakers' remarks, there will be a question-and-answer session. And instructions how to ask a question will be given at the beginning of the Q&A session. [Operator Instructions]. As a reminder, this conference is being recorded. And I'd now like to turn the conference over to Mr. Glenn Klevitz, World Fuel's Assistant Treasurer. Mr. Klevitz, you may begin your conference.

Thank you, Scott. Good evening, everyone, and welcome to the World Fuel Services second quarter earnings conference call. I am Glenn Klevitz, World Fuel's Assistant Treasurer, and I will be doing the introductions on this evening's call alongside our live slide presentation. This call is also available via webcast. To access this webcast or future webcasts, please visit our website www.wfscorp.com, and click on the webcast icon. With us on the call today are Michael Kasbar, Chairman and Chief Executive Officer, and Ira Birns, Executive Vice President and Chief Financial Officer. By now, you should have all received a copy of our earnings release. If not, you can access the release on our website. Before we get started, I would like to review World Fuel's Safe Harbor statement. Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information. A description of the risk factors that could cause results to materially differ from these projections can be found in World Fuel's Form 10-K for the year ended December 31, 2014, and other reports filed with the Securities and Exchange Commission. World Fuel assumes no obligation to revise or publicly release 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 as defined in Regulation G. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in World Fuel's press release and can be found on its website. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. And at this time, I would like to introduce our Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Glenn, and good afternoon, everyone. Today we announced second quarter earnings of $29.9 million or $0.42 per diluted share. Although results were significantly impacted this quarter by seasonality in Watson Fuels and low prices coupled with reduced volatility in marine, our core business remains strong and we expect results to materially improve in the third and fourth quarters of this year. We are well positioned financially with continued cash flow generation and our strong and liquid balance sheet. Many on the call today who have been following the marine industry already know how poor the conditions remain overall in the marine marketplace, most specifically in the offshore, dry bulk and container markets. On the fuel side, the market remains oversupplied with inventory levels at historical highs and demand essentially weak. Although we witnessed a slight increase in prices this quarter, fuel prices remained low and volatility dropped significantly. The combination of these factors negatively impacted our price risk management sales activity and offshore specialty business, which was the principal driver of the lower profitability in the marine segment during the second quarter. We did, however, produce record volume with healthy returns in our core business and our current annual run rate is 33.6 million metric tons. I believe that our team did an outstanding job to again gain market share, which should serve us well when the market improves. As we also discussed on last quarter's call, we expected that our land business would be materially affected by the seasonal decline in the Watson Fuels business, which had an outstanding result in the first quarter. Watson generates practically all of their profits during the winter months. So we do not expect that the business will be a major contributor to the segment's overall profitability again until the fourth…

Thank you, Mike, and good afternoon, everybody. Consolidated revenue for the second quarter was $8.5 billion, up 16% sequentially but down 25% compared to the second quarter of 2014. Our aviation segment generated revenues of $3.2 billion. That's up 10% sequentially but down 28% year-over-year. Our marine segment revenues were $2.8 billion, up 21% sequentially but down 21% year-over-year. And finally, our land segment generated revenues of $2.5 billion, up 18% sequentially but down 26% year-over-year. All of these year-over-year declines were due to lower oil prices, offset in part by increased volumes across all three of our business segments. Our aviation segment volume was a record 1.6 billion gallons in the second quarter, up 120 million gallons or 8% sequentially and 170 million gallons or 12% year-over-year. Volume in our marine segment for the second quarter was a record of 8.4 million metric tons, up more than 700,000 metric tons or 10% compared to last quarter and approximately 2.3 million metric tons or 39% year-over-year. The increase in marine volume this quarter resulted from increases in our core resale business, where despite broader profitability issues our team continues to do a nice job growing market share as well as increases in our brokered business, which now represents approximately 13% of total marine volume. Our land segment sold record volume of 1.2 billion gallons during the second quarter, up 56 million gallons or 5% sequentially and 114 million gallons or 11% from the second quarter of 2014. Total consolidated volume was a record of nearly 5 billion gallons, up 8% sequentially and 22% year-over-year. Consolidated gross profit for the second quarter was $190 million. That's a decrease of $25 million or 12% sequentially and $1 million or 1% compared to the second quarter of last year. For the six months…

Thank you [Operator Instructions] And our first question is from Jon Chappell with Evercore. Please proceed.

So Mike, thanks for the detail on the marine side. As you may expect, I just want to dig a little deeper on that. So, first of all, help me or help us understand the market share gains to have that type of volume increase, yet the sizable drop in the gross profit from it. Two questions on the market share. One, was it very competitive kind of pricing or spread environment there that market share was gained at the expense of profitability or was it just normal kind of market share gains? And then the second part of that is, how sticky are these market-share gains? Would we expect the market, the broader shipping markets to get a little bit better, would we expect to see similar volumes or was this potentially temporary, as well as part of the disruption in the market?

Thanks, Jon. So the low price environment is interesting phenomena. Obviously has an enormous impact in the energy space, which has been headline news in terms of all the projects that have been impacted. Our business model is asset light, but we are not completely immune to the impact of pricing. So on the credit side, a lot was made out of O.W. And with that unexpected drop in pricing, that certainly freed up a hell of a lot of credit capacity around the marketplace. So a combination of low pricing and a reduction in the pressure on those credit lines, and there is certainly no lack of competition within the bunkering space from a lot of small independent companies, we of course feel that we have got one of the better platforms, if not the best. So it impacted margin, without question. We are very conservative in terms of our credit disposition. We have got a pretty tight net trade cycle. A drop in volatility meant that we weren't selling risk management products. A number of companies hedged, price dropped. Obviously, that put them on the sidelines. The sentiment is pretty bearish right now. Market is significantly oversupplied. So that's started to come back now. We are seeing an increase in that activity in July. So we're pretty optimistic about some improvement in margin and some increase in activity within the derivative side. In terms of the market share gains, we feel pretty good about it. We have got an incredibly committed organization. All the people in our company, the senior people have pretty much dedicated their lives to this company. I mean this company has got an incredible spirit and a determination to succeed. So our platform we think is solid. We continue to evolve our value proposition. So we feel good about those margin gains and we're pretty determined to grow market share. Obviously, we're not going to be ignoring margin, but we feel positively disposed to that.

And then the other thing I want to ask in that division and I guess this relates to the entire Corporation, but I was always under the impression that the salary and wages line was a huge cost item. Each businesses kind of run with their own P&L in each region and if there was significant upside or downside to the gross profit in those particular regions that would fall out in that main cost line item as well. But it seems that in this particular quarter that cost line item held up pretty well, despite the significant falls in gross profit, especially on the marine side. How do we kind of reconcile kind of comp and how that translates vis-à-vis gross profit increases and decreases?

So, now look, great observation, and Ira and I talked about this. The beauty of our business model is that we have variable cost model, so it was self regulating, and we still have that. I must admit it's not as variable as it used to be. But I think the other dimension is within some of our specialty marketing areas we got a significant amount of gross profit that is not associated to a significant amount of reduction in cost. So, that has really impacted this drop in profitability without an associated drop in compensation expense. So, you live and learn, and you design all sorts of different ways to orient the organization, and we've -- it's something that we reflect on.

Okay. And then, just for my last follow-up, you mentioned building out an M&A team. You obviously have a pretty strong track record of M&A with the current team. So has something changed as far as maybe the robustness of the pipeline or maybe you and Ira focusing more on kind of the day-to-day instead of the strategic? What warranted this move to build a specific M&A strategic team?

Well, we have been doing this for a long time, and we have been hitting singles and doubles and I think doing a pretty good job. We have never bet the farm, not that we are intending to. But the company is maturing and evolving. We are handling acquisitions on a global basis. Our integration practice is I think maturing significantly. But there is a lot of dislocation in the marketplace today with all of the geopolitical activity. So, there are more and more opportunities. We do have a significantly full pipeline in all of our business areas. We are handling multiple acquisitions. The discussion that Ira and I have been having is really trying to raise that focus not only to increase our bandwidth but also to be looking at more sizable acquisitions, which means that you need to have a level of depth and maturity to make sure that you are not making mistakes on those more sizable acquisitions. So, what that means is that you need additional horsepower. We have been I think conservative in terms of acquiring companies that were wheelhouse and even if we made a mistake on them, which I don't think we have, nothing terrible would happen. So, if we're going to start to play a larger game, we need to have a more senior M&A team to enable us to do that the right way.

Completely understand. Alright. Thanks for the time, Mike.

Thanks Jon.

Thanks Jon.

Our next question is from Jack Atkins with Stephens. Please proceed.

Hey guys. Good afternoon. Thanks for the time. So …

Hi Jack.

… I guess what I'm trying to wrap my arms around here is you have a 39% increase or 38% increase in your volume. You have your largest competitor going out of business in the marine segment, and yet none of that seems to translate to the bottom-line. We are the third quarter into a low cost price environment, so that's not news. So what exactly changed over the last two months of the quarter to cause this significant of a variance versus the last time you updated us? I just don’t -- I don't understand what's happened here.

Yes. So I think we have been kind of clear in terms of the reasons for it. Certainly the offshore activity, everyone knows that, that has been hit. It is as bad as it's been in I think 30 years. So that area, which is a highly specialist logistics area is an area that was a meaningful component of our activity. We've got a blip within this quarter where hedging basically just completely dried up. It is a significant part of our activity. We have been in that business since 1988. Anybody who is in the oil industry understands risk management and that business basically disappeared because of the bearish sentiment and just complete lack of volatility, it just basically fell off the screen. As it relates to O.W., frankly I think it was reasonably overblown. A lot of those folks went into physical supply capabilities. We do a little bit of physical supply but it's really not our core competency. So those individuals are working in other companies and handling their business in those locations. And the price dropping has made it a lot easier for the marketplace to extend credit and that is some part of the -- of our value prop. So some of that expected windfall really didn't materialize. So, really it is business as usual for us and we are growing our market share. We are confident that we are on the right path in terms of providing significant value-add to our clientele. We feel good about the third quarter and the fourth quarter and this was an aberration.

Mike, with all due respect, I am not really trying to be argumentative here, but I have a hard time seeing how the O.W. Bunker issue was overblown when you grew your volumes 39% in marine. Something happened there to help drive the volume growth and I'm guessing it's the collapse of your largest competitor. Secondly, the offshore supply market, certainly today it's challenged, but you didn't see this type of hiccup in the period when we had the Macondo incident offshore. So, help us reconcile -- it is just very difficult to put two and two together with what's happened here and I hope you understand that?

Not really. I mean rig mobilizations basically are -- have just fallen off the map and that's essentially what our focus was. So, that business is significantly reduced. So …

Okay, and the ...

… that defines.

So in that case, how do you expect to see a recovery in your marine business sequentially and a significant rebound in results if we are not seeing a pickup in oil prices, certainly. So help us mesh it out down what?

So let's see, look Jack, it is very easy, very simple. We have got a significant increase in volume and I think that this quarter's results in terms of risk management, is an aberration. So volatility is already up. We are seeing our derivatives activity pickup already in July, so I'm not worried about it. We're going to recover. This is not any indication on what the rest of this year is going to be. We have got a fantastic marine organization. So we have had a significant change in market dynamics. And if you look at how our company has performed over years, the diversity of our business model has kept shareholders, investors completely satisfied through all sorts of different turns in the marketplace. But I guess we were going to have a quarter where things were going to get out of sync, so. Coincidentally, tomorrow is a blue moon. So these things I guess were bound to happen. We had turbulence this quarter but we're pretty confident that we will finish the year and have a good third and fourth quarter.

Okay, thanks again for the time.

And our next question is from Ken Hoexter with Merrill Lynch. Please proceed.

Hi. I actually want to follow up on the prior question just a little bit. Just given -- I want to harp on the 37% decline in earnings. Given that even in 2009 we didn't even see that large of a dip, so going back as far as my records go, I don't see that large of a dip. I just want to -- on marine, I hear you on the market dried up on hedging. But I want to understand if the rates are going to stay this low or let's just say were staying lower for longer, and so therefore volatility doesn't come back, what brings the [volume] and the risk back in to get that to pick up?

Well listen, I think that it's a good question. What that means is that you have got to cut costs because you either -- it's [rate volume], right. So I think the chances of serenity breaking out for any long period of time are not great. So we are already seeing a return of that, and we have gone to market share. Listen, this is a balance of are you going for volume? Are you going for margin? We have picked up some additional volume. Volatility has completely dropped off the chart, I mean this is just a simple fact. And what we are doing in our company is looking to insulate it from commodity swings. We are driving a diversified business model. Our whole company is a diversified business model in terms of different industries that we are focused on, different products. We are adding more services to the equation, more value add, with the intention of getting a larger volume of business activity from our clientele. So, I think that we're on the right path, I know that we are on the right path. But this quarter, various different pieces just conspired against us and I don't expect this to happen. Certainly, we are working to bulletproof the company such that we have got so many different drivers that are all synergistic with each other, both in the energy spaces, transportation spaces, commercial and industrial and governmental spaces, such that these types of events really are non-existent.

So Mike, maybe I can simplify this because it is somewhat of a black box, right? It is not like the rails where we get weekly carloads so you can track volumes, I guess although your volumes are great here. If crude stays low and stays at that $45, $50 range for the next two quarters, is that bad for business because you're not getting volatility that fuel is staying at the same price or can you still see the vol return in that kind of environment?

Well listen, I think that is an excellent question and I think the chance of that happening -- and listen, it could happen and we've got the ability to reduce costs. So, that is always there. We don't have an enormous amount of fixed assets. So our ability to scale back is pretty significant, so.

So two questions on that, Mike, then.

Yes. But we've got -- let's just look at what we have today, okay? Look at aviation, okay? Aviation -- and you got to look at how these businesses work. Aviation is a contract business, so today you have got the low environment. It is not really as susceptible to volatility or even low price. We have got an extraordinary value prop. We are continuing to grow our market share. We are continuing to add value. We value. We have grown in the business aviation space. The Colt team is adding tremendous value to our organization. If you look at your land model, again, a lot of long-term contracts, a lot of C&I. We are in the logistics space. Multi-service is starting to build up a significant pipeline in transaction processing. That is an annuity, extremely stable income stream. So the only part of our business is the supply and trading side of it. Our marine business is a spot business, and it is a good hedge because when you have got volatility, you are not really going to be able to capture that in the aviation space. You are going to be able to capture that in the marine space because you are in the spot market. So, this is the way the chips fell. They fell pretty hard this quarter. But I think we got a fantastic business model. I don't think it's a black box at all. I think that we are in providing fuel to the transportation industries, commercial and industrial. Our U.S. Energy business on natural gas, this global energy management service is a fantastic business. We're going to take that global. You are seeing natural gas. We're in the power space. So we're into three different energy sources, the only three that have any…

Yes, yes, I -- that would be great, if I could just squeeze two in one, just a clarification. In the marine business, what percent is hedging profits versus the discount resale of fuel? That would be one just quick one. And then the second one, you talked about cutting costs. G&A was up, I guess, 10% sequentially. Do we start flashing those kinds of costs as we move forward if this is the market?

Yes, listen, we have done that before. We know how to step on the brakes there. Again, we don't -- we've had made investments into different areas. We think our global energy management business, our natural gas, and power is a great business. We think our multi-service is a great business, and these are synergistic. Going after global energy management, all of those companies are using diesel lubricants. It is a perfect fit within our land C&I business. Our multi-service transaction processing and payment system and financial technologies is a great business within the transportation side. We haven't really invested enough in either one of those businesses and now we are doing that. So we have added some significant senior people there. We will continue to acquire in those spaces. On the derivatives side, we have been doing this for quite some time. We have got, I think, a fantastic risk management organization. We don't really break that out and I don't know if you want to break that out, Ira?

I could. It's a little north of 15% of total gross profit in marine, on average over time.

Rough 15% is the hedging?

The derivative -- profits from derivative activity …

Yes.

Yes.

Okay. Thank you very much.

Sure.

Our next question if from Gregory Lewis with Credit Suisse. Please proceed.

Good afternoon gentlemen.

Hi Greg.

Not to beat a dead horse, but just I am going to ask this a different way. So in the prepared remarks, you talk about a significant rebound in the second half. Is that -- I know you don't give quarterly guidance, but have we seen improvements on the energy sales into marine through the start of Q3?

Yes, go ahead.

Hey Greg, it is Ira. I could tell you, look, Q3 is early. Today is July 30 and …

Of course.

… have data up to today. But based upon what we have seen so far in July, our performance has clearly improved on both the derivatives side and overall. Is that sustainable? We certainly hope so. But, again, it is still early. But we have definitely seen some improvement. Some volatility has returned to the marketplace, which has helped margins a bit overall. So once again, based upon three weeks of activity where we have reasons to be optimistic, but there's still a long way to go until September 30th.

Absolutely. Okay, perfect. And then, just shifting gears, I guess, to the -- I guess the one business unit that was a bright spot in the quarter, aviation. I believe seasonally that is a little bit weak in the second quarter. What's -- was there any contributing factors that drove that to be a little better, maybe, than we might have expected?

Nothing in particular, Greg. I think overall the aviation team did a great job. As you said, it is not the strongest seasonal quarter for us, but our North American business did pretty well. We did very well I think Mike may have mentioned it earlier in the tender season, which is in the spring. It is when we are normally renewing contracts for the following year, so our team did a nice job there. We picked up some volumes. In saying that, and also even the government business, which a lot of people thought was falling off the deep end, actually improved a bit in the second quarter as well. Looking to the third quarter, to add to that, that is generally the seasonally strongest quarter for aviation and we expect aviation to do even better than what you saw in Q2 and hopefully meaningfully better than what you saw in Q2, and we are already seeing some good, solid start to July in that segment as well.

Okay, and then just one final one from me. I mean when we think about Watson, I know clearly Watson is better in the Q4, Q1 months. Was there any carryover in Q2, just given some of the seasonal -- unseasonably cold weather that was experienced in the UK?

Yes, there was a little bit -- it is a good question, but to be honest, it is probably somewhat marginal. So the best way to answer that question is Watson Q2 to Watson Q2 of last year was a bit better, because the second quarter last year was probably one of the warmest periods historically. So we did a little bit better, but nothing in comparison to what you see generally in the first quarter. So the drop off that we saw was pretty consistent with what we expected to occur when the quarter began.

Okay, guys. Hey. Thank you very much for the time.

Thanks Greg.

Thanks Greg.

And we have a question from Kevin Sterling with BB&T Capital Markets. Please proceed.

Well, thank you. Good evening, Ira, Mike.

Good evening Kevin.

Hey Kevin.

How did -- if you can help us walk through the quarter, when we look at your marine business, how did marine gross profit or spreads trend throughout the quarter? Did they get worse as the quarter progressed?

Yes, I would say that it is absolutely certain that the results deteriorated over the course of the quarter. We started out in pretty good shape and the derivative activity dropped off, I would say, most heavily in the second and third months of the quarter. The offshore activity that Mike referred to was pretty weak most of the quarter, but the larger impact was derivatives, and that really got a whole lot worse as we entered into May and June than where we started out in April.

Okay. I think I'm going to piggyback here on Jack and Ken's questions and comments, Ira. I think as we look at this, it seems like it really did come out of left field, and the worst thing Wall Street wants to see is something out of left field that is like this. Did you guys -- as the quarter was progressing and the derivatives activity was all falling apart, did you guys internally consider pre-releasing or anything like that?

We did have a chat about it, but since we don't provide numerical guidance, we decided that wasn't necessarily the right thing to do and we have never done that before and weren't looking to set a precedent this quarter. Hopefully, we don't have reasons to even talk about it ever again. But the decision was that, under our specific circumstances, was not something that was necessary.

Alright, I just was wondering. I know you guys hadn't done it before and it is not necessarily setting a precedent, but when things go like this, going forward it might be better just to kind of get it out there so that it is less of a surprise. Let me ask you, as you think about the marine gross profit improving, you're pointing to that, what would be the -- what is the biggest impediment, maybe, that doesn't keep it from improving? Is it inventory levels? Is it lack of volatility? What do we really need to see, or maybe it's both, to kind of get that marine gross profit back to where you want?

Yes, I would say -- remember, I think it was 1998, the price in Fujairah didn't move for about six months, so obviously that is a bit challenging. If everybody is trying to work off of the exact same price, it is a little bit difficult to get any type of spread. So, it's -- listen, it is something that you always have to take into consideration. That would be a little bit of an aberration in today's world. Certainly you've got a heavily oversupplied marketplace. But I think that there are enough forces and there are enough geopolitics today that it is probably not likely to happen. But like I said earlier, we have got the ability to dial back. We have got an extremely flexible business model. We choose not to because we are very oriented to building for long-term value. So we could get violent and try to make every quarter or we could be building for long-term value. I don't think most of our investors are looking to make it every quarter. So we're using our judgment in order to drive long-term value.

Alright. And Mike, let me ask you, too, looking at the marine volumes, and like you guys highlighted, the volumes were good across the board. Is embedded in some of that marine volume strength the fact that maybe you're doing business with top-tier customers because the shipping markets in general have been weak and could that have pressured spreads as well?

Absolutely, Kevin, and thank you for bringing that up. We have said this time and again. It is possible we are a little bit conservative. I mean it is a little bit tricky out there and we very much are oriented towards blue chip. I mean our net trade cycle is very tight in marine and it is a little bit tricky out there. So that's where we are hanging out, and, yes, that's not going to give you the fattest margins.

And just to add to that, Kevin, if you look at it year-over-year, obviously we had a bit of a blip in the fourth quarter and the first quarter. But if you look at our margins in our core marine business in the second quarter versus the second quarter last year, they are virtually flat on a significant increase in volume. So that would say we're basically -- and day-to-day, we are doing the same thing we were doing a year ago, but arguably doing it a bit better. But in this quarter was the factors that we've talked about several times already on this call that really had the most meaningful impact on price profitability.

Okay, well that's all I had. Thanks for your time this evening.

Thanks Kevin.

Thanks Kevin.

Mr. Kasbar, there are no further questions at this time. I will now turn the call back to you for closing remarks.

Well, we appreciate the support of our shareholders and we look forward to speaking to you next quarter with better news.