World Fuel Services Corp. Q1 2010 Earnings Call Transcript

May. 4.10 | About: World Fuel (INT)

World Fuel Services Corp. (NYSE:INT)

Q1 2010 Earnings Call

May 4, 2010 5:00 pm ET


Frank Shea – EVP and Chief Risk and Administrative Officer

Paul Stebbins – Chairman and CEO

Ira Birns – EVP and CFO

Michael Kasbar – President and COO


George Pickral – Stephens

Jonathan Chappell – JP Morgan

Steve Ferazani – Sidoti & Company

Frank Shea

Good evening, everyone, and welcome to the World Fuel Services first quarter 2010 conference call. I am Frank Shea, Executive Vice President and Chief Risk and Administrative Officer, and I am doing the introductions on this evening's call with as we have been doing in recent quarters a live slide presentation. This call is also available via webcast. To access this webcast or future webcasts please visit our website and click on the webcast icon.

With us on the call today are Paul Stebbins, Chairman and Chief Executive Officer; Michael Kasbar, President and Chief Operating Officer; Ira Birns, Executive Vice President and Chief Financial Officer; and Paul Nobel, Senior Vice President and Chief Accounting Officer. By now, you should have all received a copy of our earnings release. If not, you can access our release at our website.

Before we get started, I would like to review World Fuel's Safe Harbor statement. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding World Fuel's future plans and expected performance, are forward-looking statements that are based on assumptions that management believes are reasonable, but 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.

The summary of some of the risk factors that could cause results to materially differ from our projections can be found in our Form 10-K for the year-ended December 31, 2009 and other reports filed with the Securities and Exchange Commission. 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, Paul Stebbins.

Paul Stebbins

Thank you, Frank. Good afternoon and thank you for joining us. Today we announced earnings of $33.7 million or $0.56 per diluted share for the first quarter of fiscal 2010. Our returns on equity, working capital and invested capital were strong this quarter and our excellent cash position and overall liquidity continue to support our ability to fund organic and strategic growth. We are pleased with our strong first quarter results and are optimistic about our prospects for the balance of this year.

In our marine segment we posted a sequential quarter-over-quarter increase in volume of 5%, the first quarterly increase since the second quarter of 2008. While the shipping market remained generally challenged in Q1 we began to see signs of recovery. Each segment had its own unique challenges. The container market still faced a weak rate environment and the prospect of additional capacity entering the market. However, those companies with sufficient scale to drive cost efficiencies will ultimately benefit from the rationalization of service in the market.

The bulk market continued to demonstrate resilience in line with the global demand for raw materials particularly in China where a persistent drought and record steel production drove increases in iron ore and coal imports. Every indication is that this trend will continue throughout this year.

More difficult to predict is the tanker market whose fortunes rise and fall with the energy complex. What seems clear is that best in class companies in this space have good balance sheets and continue to invest in fleet modernization. Any improvement in the world economy will certainly benefit this sector as the demand for energy increases.

Overall 2009 was a very tough year for the shipping industry but we believe the worst may be over and demand patterns are expected to improve in synch with the global economy. While many of our competitors have been fighting to survive throughout this difficult period we have taken the opportunity to refine and strengthen our offerings by continuing to invest in marketing, customer facing technology, internal training and talent development. Our business model will continue to focus on tight execution and as it evolves and achieves ever greater competitive differentiation we believe we stand to benefit as the operating environment improves.

Aviation had another strong quarter with continued growth in our commercial, corporate and government activity. Volume was up 3% sequentially and 51% year-over-year while operating profits achieved record levels in the quarter and increased 129% year-over-year. We have added new customers and significantly expanded our relationship with existing customers. The team is executing well and our credit discipline remains tight. We are excited about opportunities to expand our position at European and Asian airports while in the U.S. we continue to grow volume at key locations.

The success of these initiatives reflects the continued evolution of our business model and we are excited about our opportunities in the market. Overall, industry conditions have continued to improve despite the negative impact on traffic associated with the recent volcanic eruption in Iceland. While passenger traffic is up only slightly year-over-year cargo traffic has posted strong growth.

In our land segment we are pleased to announce an agreement to acquire the wholesale motor fuel distribution assets of Lakeside Oil Company headquartered in Milwaukee, Wisconsin. Lakeside represents an additional 350 million gallons of volume and will continue our strategic expansion into this space while deepening our relationships with our existing supply partners.

As the economy shows greater signs of recovery we remain confident about the prospects for continued growth as the year progresses. Our balance sheet remains strong, providing liquidity to fund organic growth as well as additional strategic opportunities. As discussed at our analyst day we have established ourselves as a key player in the supply chain, developed a robust service offering to the energy and transportation industries and built a platform for sustainable success into the future.

We are proud to be ranked fourth on the 10-year total shareholder return in the recently released 2010 Fortune 500 and we aspire to keep our standing into the future. We appreciate your continued support and I will now turn the call over to Ira for a detailed financial review.

Ira Birns

Thank you Paul and good afternoon everyone. Consolidated revenue for the first quarter was $3.9 billion, up 11% sequentially and up 95% compared to the first quarter of last year. The year-over-year change in revenue is impacted by the increase in crude oil prices from an average of $43 per barrel in the first quarter of 2009 compared to an average of $79 per barrel in the first quarter of this year.

The aviation segment generated revenues of $1.5 billion, up $107 million or 8% sequentially and up $750 million or up 106% year-over-year. While approximately 60% of the sequential increase was the result of higher average fuel prices, approximately 40% was the result of an increase in volume. Our marine segment revenues were $2.1 billion, up $249 million or 13% sequentially and up nearly $1 billion or 90% year-over-year. Approximately 67% of the sequential increase was the result of higher average bunker fuel prices with 33% related to increased volume.

Finally, the land segment generated revenues of $360 million, up 5% compared to last quarter and up $159 million or 79% year-over-year. The entire amount of the sequential increase was due to increased volume.

Our aviation segment sold 622 million gallons of fuel during the first quarter, up 3% sequentially and up 47% year-over-year. Representing the highest level of quarterly volume since the record volume posted in the first quarter of 2008 and sequential volume growth for the fourth straight quarter. The trough in our aviation volume occurred during the first quarter of 2009 when the entire industry was cutting back capacity and we were shedding higher risk business to reduce credit risk in what was an extremely fragile business environment.

Just one year later our aviation segment has increased volume by approximately 200 million gallons per quarter principally driven by significant increases in sales to commercial passenger, cargo and government customers. As Paul mentioned earlier the disruption caused by the volcanic eruption in Iceland in mid-April should not have a meaningful impact on our second quarter results.

Our marine segment’s total business activity for the first quarter was 5.5 million metric tons, up 5% from last quarter and up 1% year-over-year. While volumes in our marine segment have remained stable over the past few quarters and we experienced modest growth this past quarter the core marine markets we serve remain soft. Therefore, we continue to exercise our prudent approach to managing risk. Fuel reselling activities constituted approximately 79% of total marine business activity in the quarter, in line with the average percentage over the past several quarters.

Our land segment sold 163 million gallons during the first quarter, up 3% sequentially and up 22% from last year’s first quarter. The year-over-year increase was driven in part by the acquisitions of Henty and TGS as well as growth in our international businesses in Brazil and the U.K. As we announced a few weeks ago, our acquisition of Lakeside Oil Company with 2009 volumes of over 350 million gallons is expected to close within 60 days. On a pro forma basis including Lakeside our annual land volume will reach approximately 1 billion gallons, nearly four times the annual volume we achieved only three years ago.

We are excited to welcome the Lakeside team to World Fuel and we look forward to their contribution to the continuing growth of our land business.

Consolidated gross profit for the first quarter was $99 million, a decrease of $3 million or 3% sequentially but an increase of $12 million or 13% compared to the first quarter of last year. Our aviation segment contributed $48 million in gross profit, a decrease of $700,000 or 1% sequentially but up $16 million or 51% compared to the first quarter of last year. While activity levels may vary from quarter to quarter we continue to benefit from an increased level of government business as well as overall capacity and demand increases in the commercial passenger and cargo businesses.

Our self-supply model’s jet fuel inventory position was approximately 40 million gallons or $80 million at the end of the first quarter, an increase of only 2 million gallons from the end of the fourth quarter and an increase of $5 million principally due to the increased level of inventory. As we have for the past several quarters we did realize a benefit from inventory average costing again this quarter. However, the benefit of approximately $2-2.5 million was smaller than the benefit realized in the past three quarters.

The marine segment generated gross profit of $39 million, a decrease of $2 million from last quarter and a decrease of $8 million compared to last year’s strong first quarter results. Although we have begun to see signs of a recovery in some end markets at this point it is difficult to determine what impact this might have on volume or profitability over the next few quarters.

The strategic investments we have made in our business during the downturn in the shipping markets leave us well poised to capitalize on profitable growth opportunities as these end markets recover.

Our land segment delivered gross profit of $11.1 million in the first quarter, down $600,000 sequentially but up $2.8 million or 34% year-over-year primarily attributable to Henty and TGS. Our branded and unbranded wholesale distribution businesses were impacted by poor winter weather in the first quarter but we anticipate continued growth in this segment both organically and through future acquisition opportunities like the Lakeside transaction announced a few weeks ago. As announced on April 7th we expect the Lakeside acquisition to be accretive to earnings by $0.06 to $0.08 in the first 12 months post closing.

Operating expenses in the first quarter excluding our provision for bad debt were $56.3 million, flat sequentially but up $2.6 million compared to the first quarter of 2009. Excluding the impact of acquisitions which were not included in first quarter 2009 results operating expenses were up only $900,000 year-over-year. We remain committed to managing expenses carefully while gaining scale and leveraging our investment in people and technology across the business. For modeling purposes I would assume overall operating expenses excluding bad debt expense of approximately $57-60 million in the second quarter of 2010.

Our total accounts receivable balance was approximately $1 billion in the first quarter, up roughly $85 million from the fourth quarter principally due to volume growth in all three segments during the quarter. Our accounts receivable reserve remains at approximately 2% of the total portfolio at the end of the first quarter and we feel we continue to be adequately reserved.

Our bad debt provision in the first quarter was approximately $400,000, down $1.5 million compared to last quarter and down approximately $100,000 compared to the first quarter of 2009. The sequential reduction in our bad debt provision was primarily driven by the increased quality of our receivables portfolio offset in part by a modest increase in fuel prices in the first quarter.

Consolidated income from operations for the first quarter was $42 million, a decrease of $1.8 million sequentially but up $9 million or 27% year-over-year. Income from operations for our aviation segment reached $27 million, a record level for the second consecutive quarter. This represents an increase of $2 million or 7% sequentially and $15 million or 129% compared to the first quarter of 2009.

Our marine segment income from operations was $20 million for the first quarter, a sequential decrease of $4 million and a decline of $9 million from last year’s first quarter. Our land segment had income from operations of $2.3 million, down $800,000 sequentially but up over $1.2 million year-over-year.

The company had other expenses, principally net interest expense and other financing costs of $600,000 for the first quarter, a decrease of approximately $200,000 from the fourth quarter and a decrease of approximately $800,000 from the first quarter of 2009. Excluding any foreign exchange impact I would assume other expenses to be approximately $800,000 to $1.3 million in the second quarter.

The company’s effective tax rate for the first quarter was 18.5%, generally consistent with the 19.4% rate in the fourth quarter and 18.7% rate in the first quarter of last year. Our first quarter tax rate is below the range I provided on last quarter’s call principally due to a larger than expected sequential increase in the percentage of foreign earnings in our aviation business, taxed at much lower rates than our domestic earnings. We estimate our effective tax rate for the second quarter and for the balance of 2010 should be between 18-22%.

Our net income for the first quarter was $33.7 million, a decrease of approximately $800,000 compared to the fourth quarter but an increase of $8 million or 31% year-over-year. Diluted earnings per share for the first quarter of 2010 was $0.56, a decrease of $0.01 sequentially but an increase of $0.12 or 27% year-over-year. As discussed during our recent analyst day in New York we continue to leverage our value added business model to generate returns well in excess of our cost of capital.

Our return on invested capital was 18% in the first quarter compared to 19% in the fourth quarter and 17% in the first quarter of last year, all consistently well above our cost of capital. Our net trade cycle decreased slightly from 6.7 days to 6.5 days during the first quarter. Our return on working capital in the first quarter was 57%. This strong results demonstrates our continued focus on managing our investment and working capital while generating solid returns.

Despite the increases in fuel prices we generated approximately $17 million of operating cash flow in the first quarter. This resulted in an ending cash position of $311 million which when combined with our generally unutilized committed liquidity facilities provides us with significant capital to grow the business and drive even greater value to our shareholders.

In closing, we have continued to perform well despite volatile global economic conditions. We announced an immediately accretive strategic acquisition that shows our commitment to growing the land segment. We delivered record results in our aviation business and our marine business increased volumes for the first time since the second quarter of 2008.

The strength of our balance sheet and our solid liquidity position will enable us to continue to drive further growth across all three segments of our business. We will look to continue to utilize our cost efficient business model to gain scale while driving profitable growth. Finally, we remain committed to achieving operational excellence while maintaining a strong financial profile, returning value to our customers, suppliers and shareholders.

At this point I would like to turn the call over to the Operator to open the call up to questions and answers.

Question and Answer Session


(Operator Instructions) The first question comes from the line of George Pickral – Stephens.

George Pickral – Stephens

Can you kind of give your outlook on the marine side? I think you said you were cautious but we saw a few dry bulk companies report this morning and they seem pretty bullish on the demand side. So maybe can you talk about how you feel about that market in particular and then your other markets and your overall feel of the marine market going forward?

Paul Stebbins

Sure. You have heard me say in many calls over the years that eternal vigilance is the price of liberty. We take a cautious view just given the fact we don’t have a wholesale what I think anybody would feel comfortable in saying is a robust economic recovery on a global basis.

As you know, shipping which is kind of the infrastructure which is moving all of the goods; as we have talked about 80% of the world’s goods are being transported by ship, we watch carefully just to make sure the signs of the recovery are real, are durable, that they go deep into the economies and that the changes are something we think are sustainable. So we approach the market with what we think is just prudent caution.

When we look at the dry bulk market we are actually quite happy to see there has been a robust recovery and I think that has to do with what is going on primarily in China and India. You are right, some of the bulk carriers that are announcing are of course very, very happy to see that upturn and the strong demand. You have the drought in China. It is putting pressure on hydroelectric power. You have imports of coal that are helping to supply power. You have the issue around steel production. China continues to make huge investments in infrastructure.

So I think the longer-term question becomes is this sustainable? Is this durable? Can China keep the machine going? I don’t know the answer to that any more than anybody on this call or anybody listening in, I doubt. We hope that is the case but I can’t give you any particular divine insight into that.

When we look around the rest of the market I think the tanker market is very much a function of what happens in the energy complex. If the economy begins to fundamentally turn then you are going to see a more robust consumption pattern in energy. That will drive the tanker activity. I think our own feeling is long-term oil isn’t going anywhere. We happen to be in the Rex Tillerson camp that no matter how much we do on renewable and how much we do on efficiency fundamentally a very huge percentage of energy consumptions are going to be around fossil fuel based energy sources and that means that the tanker activity long-term is going to be there.

I think the well managed companies that are making investments in modernized fleets will have a role to play and they are going to do well over time. You know many of those companies as well as we do. That happens to be our target class of customers so we feel good about our relationships there. As their business expands so will ours. Just like those tanker companies who are making investments during sort of the downturn. It is the same thing we did as well.

When you look at the container side it is a little bit more complex. I would say on the one hand you have seen Evergreen Shipping out there saying that they are going to look to put in $5 billion or 100 ships worth of orders on new buildings. This is a company that avoided a lot of the over expansion during the boom years but is now looking to replace its fleet. Now when you see indications out there in the market that is very encouraging to us and it does show some positive signs of a change but at the same token you also have thousand of ships that are stilled laid up in various markets around the world and I think you will notice whether it is A.P. Moller, or whether it is the Tung Family and OOCL, every one of these major enterprise principles are basically saying that the container market is still quite fragile, that if you were to have a radical influx of capacity into the market you could get [up] sort of a tentative stabilization of rates.

So there is a great deal of kind of wait and see. At a macro view we don’t have any particular wisdom on what is going to drive the macroeconomic backdrop. So we are just kind of taking a wait-and-see. So I would say our cautious optimism is also mixed with a cautious view that we don’t want to get out over our skis. You did see some increases in our volume. That shows our commitment to want to start taking some market share and to get back into the game perhaps a little bit more aggressively than we have in the past.

George Pickral – Stephens

Following up on your last comment there about increasing volume and taking share, by my calculation your blended spread was about $7.16 on the marine side. Were you opportunistically taking share of lower margin or naturally lower margin customers?

Paul Stebbins

The focus is on the highest class quality customer. That continues to be our discipline driven by Frank and his team. That is reflected a little bit in the margin but I would say within sort of a movable range and band that margin doesn’t surprise us. It is sort of consistent. I think at the end of the day we have said this in the past, there has been a tremendous amount of obsession and sort of focus on the marine spreads and at the end of the day we are driving gross profit and we are driving the overall enterprise success. So it is the ultimate financial wellbeing of the company we are concerned about. If we can drive robust gross profit as a company we are less focused on that individual spread.

I think ultimately it is about having a differentiated offering in the market that is second to none by continuing to make the investments in technology, people, training and making our service offering something that is not easily replicated by any other player. At the end of the day we think as the market returns to some sort of normalcy and even growth we are going to be in a phenomenal position to take advantage of that and we have an execution level that I think is second to none. So our focus is going to be on driving gross profit in general, not so much focused on that individual spread.

George Pickral – Stephens

Switching over to aviation, you mentioned growing your exposure in Asia and Europe. I know you don’t give sector break downs in terms of percentage of your revenue, but can you have in the past talked about targeting business or maybe targeting other sectors.

Paul Stebbins

Sure. I am sorry. I know it is tough sometimes and I am not known for speaking slowly but the focus of that comment on Europe and Asia had to do with the expansion on our supply side. As you know the history of our self-supply model and a lot of what we have developed and successfully transforming our strategy from going from sort of a small regional back to back reseller to a more robust global enterprise that is focused on supply had to do with our ability to generate self-supply opportunities in key locations in the domestic United States. That led to our inventory positions and it changed kind of the scope of our ability to play in the supply chain and it allowed us to add a whole new level of value to our supply partners as well as to our customers. We think that was a very successful model.

What we are beginning to see some early signs of and we are excited about is there seems to be some similar opportunities to develop these models in the European theater, perhaps in the CIS and also we see even some indications in Asia. Historically these have been markets that have been very closed and very controlled at the airport level but there is some indication this is changing. The regulatory environment is changing in Europe. There is pressure within the EU and sort of deregulation to open up some markets.

We think this is good news and it suits our model uniquely. The fact we are in a position to manage the short position, the ability to actually be able to finance self-supply, these are all very good things for us. So the comment is around the fact not only has our customer expansion robust but we think the success of our model in the United States and being able to self-supply and open up these airports has some early signs of potential to develop in the European theater and Asia. So that is good news and we are excited about that.

George Pickral – Stephens

Not to get too far ahead of ourselves here but is there a land opportunity in developing nations? I know the focus right now is mostly on the U.S. and you have some exposure in Britain but is this something you could take to Asia, Africa or Eastern Europe?

Michael Kasbar

What we have been seeing over the last 3-4 years with the retreat from the downstream market and the fragmentation that has been going on in the U.S. is happening really worldwide. It has been going on in Europe for a number of years. We are seeing it all throughout Africa; BP, Total, Shell. We are seeing it in New Zealand and Australia. So yes that is occurring. Right now we are staying focused on our core areas of the U.K., Brazil and the United States obviously the Lakeside acquisition we think the good old USA provides us with great opportunity to safely expand and consolidate our position here.

But we certainly are looking at those opportunities. We are conservative. We are building it brick by brick. But we do see it as a global business. You have heard the stats in terms of the land growth it has been a slow burn but we do see it as a global business.


The next question comes from the line of Jonathan Chappell – JP Morgan.

Jonathan Chappell – JP Morgan

You both mentioned investments in people and technology and from what I understand the investments in technology are probably pretty much behind you with the ERP system but the salaries and wages is actually down as a percentage of gross profit. How much more volume and how many more acquisitions can you do to add scale and complement your current businesses without having to add significant headcount?

Ira Birns

That is a great question. Probably not the easiest question to answer in a finite fashion. You recognize that comp as a percentage of GP is down. We have done a good job there. That number will bounce around from quarter to quarter. We are clearly at the point where we don’t need to hire at the rate we were hiring in 2007 for example but there are still opportunities to add key personnel to all three of our business, even in some of our corporate back office functions. But we do have more leverage. As we buy more acquisitions we should be able to improve that metric over the long-term.

Paul Stebbins

I would also say to add on to your question about technology investment, yes the ERP platform that we put in was of as you know a major undertaking and we are very happy to have the bulk of that behind us but as we get past all of the fundamental ERP thing as we continue to refine our model what we are finding is there are some pretty exciting opportunities to use technology on the customer interfacing side which are really commercially driven ways to entangle customer supply as opposed to just managing all of the compliance and the internal control and the management of information globally which was pretty critical to the backbone of our model.

When we look down the road and we look out a couple of years we think strategically some of the differentiation is going to be around the ability to be easy to do business with. Technology is a great way to do that. I think that as we were in this sort of difficult economic trough it was a good time for us to step back and take the time to make some of those investments and begin to lay out maps strategically how those offerings could actually put a much greater gap between us and the competitive landscape. Technology is never something that just stops. It is an ongoing investment and it is something we think is an integral part of our offering. We are excited about it. No, are we going back to the levels of investment that we saw with the ERP we don’t really see that. To say we just stopped everything and there is no more technology investment that would not be true either.

Jonathan Chappell – JP Morgan

On the Lakeside acquisition the way I interpret it it seems pretty similar to the TGS Petroleum acquisition from last year, the distribution business, branded business which is I think higher margin than some of the other potential land businesses. First of all, is that correct? Second of all, what is the competition like in that region? It seems to be an extension of your Midwest presence. Are there further opportunities to kind of continue to build out and let’s call Chicago as a hub for a Midwest part of the land business?

Michael Kasbar

I think the Lakeside business is similar from the viewpoint that we are looking at a distribution model that is based on contracts. We like that. We are leveraging what we started out in Texor back in June of 2008. So it really is a plug and play from the perspective we understand the business extremely well and we have been building the platforms. So our intention is to continue to grow that space and add onto that. So it is back to your previous question in terms of standardizing and optimizing a lot of what we are doing.

So it is a little bit different from TGS to the extent we really didn’t bring over, we brought four people over with TGS. This is a little bit different than that acquisition in the sense that we have got a management team that is sticking with the operations in Milwaukee. TGS was right in Chicago so all we had to do was take that business and basically move over the contracts and we picked up a couple of sales people and a couple of back office people.

Lakeside is slightly different because it is Milwaukee. It is about 90 miles away. We do have an actual management team there. It will extend our range into a little broader geography. We have a couple of different things we are doing there which we are delighted with and just so it sort of expands and grows our whole land business. It is very much dropped into that business segment.

Jonathan Chappell – JP Morgan

Are there [audio overlap] out there?

Michael Kasbar


Paul Stebbins

Just to add to what Mike said on some of your other questions, one of your questions related to the margins. I think in the branded space it is fair to say that the margin profile can vary significantly from state to state. It is not necessarily the case that margins would be higher than our average profile but whatever they may be the model obviously has a cost profile that matches up with the margin profile and still results in a pretty good result for us at the end of the day. Whether it be the Illinois area where we have already bought TGS or now Lakeside which is actually in Wisconsin and Minnesota, yes there are opportunities to further grow in that region alone on top of the other regions in the country where there may be similar opportunities that we haven’t found yet.


The next question comes from the line of Steve Ferazani – Sidoti & Company.

Steve Ferazani – Sidoti & Company

Second straight quarter we have seen the tax rate below 20%. I know Ira you have commented on this a little bit. Are we seeing a long-term global shift or global mix shift that could sustain it below the 20% level? What are you seeing now?

Ira Birns

It is tough to ever talk long-term in this business. I would say that in the short term we have been consistently below 20% if you look at the results. Actually the result of 2009 was in the low 20’s. The first quarter of 2009 matched up pretty closely with the first quarter of 2010. The last two quarters were both below 19%. I would say it is fair to assume that can continue in the short-term but as the business evolves Lakeside, as an example, while it is not going to contribute a very large percentage to our overall profitability that is going to be taxed at the highest domestic rates.

That would have a negative impact on the tax rate beginning in the third quarter. So depending upon where the growth opportunities are that number could still vary as it has even though I have tried my best to give some reasonable guidance that is the one area where we have often missed a bit just because of the tremendous difference between rates from our lowest tax income in the world to the highest tax income. That mix could change from quarter to quarter but what we see now in the shorter term, and that is why I was willing to offer up an estimate for the full-year we see the number somewhere either in a very high teens or very low 20’s. If that changes we will let you know next quarter.

Steve Ferazani – Sidoti & Company

How much of this is related to the government aviation contract? Is that pushing down?

Ira Birns

That is one of many pieces. That is one that has a positive benefit on the tax rate. There are other pieces that do as well.

Steve Ferazani – Sidoti & Company

Can you comment at all about how that contract is going and whether it is leading you to pursue other DoD type contracts and where that could go in terms of being a volume driver?

Paul Stebbins

As you may know we first got into the government contracting business back in the late 1980’s when we were still a private company before we were even sold as a marine entity to World Fuel. So it has been some resident expertise for a long time. It has been part of our ongoing business. It comes and goes just dependent upon what the tendering cycles are. It is something we believe is a good business to be in because there is a very high level of logistical expertise associated with that business and that is very strategically valuable to us because it drives certain economies of scale and it drives certain kinds of discipline throughout our commercial activity on the back of that.

So we continue to just monitor the tendering process. We participate from time to time depending upon where our capabilities might be. It has been part of our business. It is not new in that sense. It has always been kind of a part of our thing. We think the team does a very good job. One of the things that may be of interest over time, we don’t know, as the land business expands we may find some opportunities there because historically the military activity has primarily been concentrated in marine and aviation. But there may be some opportunities on the land side and we are exploring that.

Steve Ferazani – Sidoti & Company

On the bad debt expense if you are pursuing the higher quality customers does that mean you have higher quality receivables and we can expect that number could remain at a lower level? I know you don’t guide for that line.

Ira Birns

Clearly the quality of the receivables is a key factor in the overall reserve methodology we utilize. But in saying that there is a very broad mix. We had $1 billion of receivables at the end of this quarter and that includes customers of many different shapes and sizes and there are a lot of factors that go into calculating that reserve. It is tough to give any more formal guidance than that going forward.


There are no further questions at this time.

Paul Stebbins

Thank you very much for joining us this afternoon. We will look forward to speaking to you at the end of Q2. Take care.


This concludes today’s conference call. You may now disconnect.

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