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World Fuel Services Corporation (NYSE:INT)

Q1 2014 Earnings Conference Call

April 30, 2014 5:00 pm ET

Executives

Glenn Klevitz - Assistant Treasurer

Michael Kasbar - President & CEO

Ira Birns - EVP & CFO

Analysts

John Chappell - Evercore Partners

Kevin Sterling - BB&T Capital Markets

Jack Atkins - Stephens Inc.

Ken Hoexter - Bank of America-Merrill Lynch

Gregory Lewis - Credit Suisse

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the World Fuel Services 2014 First Quarter Earnings Conference Call. My name is George, and I will be coordinating the call this evening. During the presentation all participants will be in a listen-only mode. After the speakers' remarks there will be a question-and-answer session. Instructions on 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 Wednesday April 30, 2014.

I would now turn the conference over to Mr. Glenn Klevitz, World Fuels' Assistant Treasurer. Mr. Klevitz, you may begin your conference.

Glenn Klevitz

Thank you, George. Good evening everyone. And welcome to the World Fuel Services first quarter earnings conference call. My name is Glenn Klevitz, World Fuels' Assistant Treasurer, and I'll 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 webcast, please click on our website at www.wfscorp.com and click on the webcast icon.

With us on the call today are Michael Kasbar, President and Chief Executive Officer; and Ira Birns, Executive Vice President and Chief Financial Officer. By now you should have 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 these Risk Factors that could cause results to materially differ from these projections can be found in World Fuels' Form 10-K for the year ended December 31, 2013, and other reports filed with the Securities and Exchange Commission. World Fuel assumes no obligation to revise or publicly release these results of any revisions to these forward-looking statements in light of new information or future events.

This presentation also includes 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 Fuels' press release and could 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.

At this time, I would like to introduce our President and Chief Executive Officer, Michael Kasbar.

Michael Kasbar

Thank you, Glenn, and good afternoon everyone. Before getting into the business update, I would like to comment on our recent announcement that my longtime friend and business partner Paul Stebbins will step down as Executive Chairman of our Board of Directors. I would like to sincerely thank Paul for his many years of service, leadership, and especially his friendship. All of us at World Fuel owe him a great deal for the immense contribution he brought to our efforts, all with a sense of humor, wisdom, and integrity. We all wish him well in his future endeavors. Paul will continue to serve as a member of our Board of Directors.

Now on to current business activity. Despite continued challenges in the markets we served, we delivered solid results in the first quarter. Our diversified business model once again demonstrated our ability to respond to market dynamics and deliver consistent overall results as we continue to expand our global presence in complementary suite of offerings. We were pleased with the results coming from our land and marine segments this quarter.

In our land segment, extreme weather conditions drove volatility in the natural gas market benefiting our U.S. Energy business and we experienced traditional weather related seasonality in our domestic gas and diesel business.

Our marine business saw improvements coming from our core reselling activities. On March 7, we were pleased to announce the completion of the acquisition of Watson Petroleum, our largest acquisition to-date. As I mentioned in the last quarter Watson is one of the largest fuel distributors in the United Kingdom and brings with it a very talented and experienced team. The Watson team working with our existing UK land teams is actively growing the business utilizing our increased set of offerings and capabilities. With the impact of Watson included for last few weeks of the quarter, our land segment delivered record volume and profitability with significant growth opportunities still to be realized.

While we continue to make progress in many areas of our commercial and general aviation businesses and our broadening card issuing and processing platform, first quarter results were impacted by stronger than normal seasonality and a further decline in government activity as the military draw down in Afghanistan continues. However, we remain actively engaged in deploying our advanced logistics capabilities in other regions.

Looking forward, we continue to manage a robust acquisition pipeline across all of our segments, business lines, and geographies. Over the past two years, we have significantly expanded our capability in the merchant processing services and card payment solution space through numerous acquisitions including Multi Service.

In the ground base fuels market once again we have significantly increased our size and scale with multiple acquisitions capped off with the Watson acquisition in March and finally our recent acquisition of U.S. Energy has added natural gas, electricity, and water to the portfolio of our products and services.

In closing, as always we appreciate the support from all of our long-term shareholders, customers, and suppliers, and our more than 3,000 dedicated employees around the world as we remain focused on driving our strategic initiatives and long-term growth plans. We truly believe that we are on the early innings of our journey and remain optimistic about the long-term prospects for our diversified global transportation, energy, logistics, and payments platform.

And now, I will turn the call over to Ira Birns for a financial review of the results.

Ira Birns

Thank you, Mike, and good evening everybody. Before I comment on our results, I would like to note that our first quarter land and consolidated results include three weeks of operating results for Watson Petroleum, which closed on March 7.

Consolidated revenue for the first quarter was $10.6 billion, up 1% sequentially, and 4% compared to the first quarter of 2013. The entire year-over-year increase was related to increases in volume offset by the overall decline in certain fuel prices.

Our aviation segment generated revenues of $4.2 billion unchanged sequentially but up 8% year-over-year. The entire year-over-year increase was related to increases in volume offset by a decline in jet fuel prices.

Our marine segment revenues were $3.5 billion, down 1% sequentially, and 6% year-over-year. The entire year-over-year decrease was related to decreases in volume offset by an increase in bunker fuel prices.

And finally the land segment generated revenues of $2.8 billion, that's up 7% sequentially, and 11% year-over-year. The entire year-over-year increase was related to increases in volume offset by a decline in gasoline and diesel prices.

Our aviation segment sold 1.3 billion gallons of fuel during the first quarter that's flat sequentially, but up 200 million gallons or 18% year-over-year.

Volume in our marine segment for the first quarter was 6 million metric tons that's down approximately 250,000 metric tons or 4% sequentially, and 800,000 metric tons or 12% year-over-year.

Our land segment sold a record 960 million gallons during the first quarter, up 30 million gallons or 3% sequentially, and 120 million gallons or 14% from the first quarter of 2013.

Consolidated gross profit for the first quarter was $188 million, a decrease of $8 million or 4% sequentially, but an increase of $6 million or 3% compared to the first quarter of last year.

Our aviation segment contributed $69 million of gross profit in the first quarter, a decrease of $15 million or 18% sequentially, and $8 million or 11% compared to the first quarter of last year. The decline gross profit was principally related to the drop-off in government related activity, which declined more than anticipated at the time of last quarter's call. However, while not necessarily sustainable, based upon quarter-to-date activity, we do expect a bit of a rebound in government activity in the second quarter.

The first quarter was also impacted by seasonality, which was exacerbated by severe weather conditions in the United States, which resulted in more than 80,000 flight cancellations during the first quarter. We also realized a seasonal decline in profitability from our otherwise growing Asia based commercial aviation business. We do expect the traditional seasonal upswing in the second and third quarters to positively impact aviation.

Our self-supply model of jet fuel inventory position was approximately 109 million gallons or $319 million at the end of the first quarter, that's down from 132 million gallons or $394 million at the end of the fourth quarter. In the first quarter, jet fuel price volatility was fairly limited therefore our inventory related results were not meaningfully impacted this quarter.

The marine segment generated gross profit of $48 million, that's an increase of $5 million or 12% sequentially, and $6 million or 15% year-over-year. Despite continued headwinds, our first quarter benefited from improved results in our core reselling business.

Our land segment delivered record gross profit of $71 million in the first quarter, that's up $3 million or 4% sequentially, and $8 million or 12% year-over-year. These results include Watson gross profit for the three week period after the acquisition closing date in early March. As mentioned on last quarter's call, we are no longer consolidating the results from the crude oil transloading joint venture in our land segment.

World Fuel's portion of these results are now reflected in the other income line included in non-operating expenses. Also fuel related gross profit represented $60 million of the $71 million of gross profit reported for the quarter for our land business.

Operating expenses in the first quarter, excluding our bad debt provision, were $123 million, that's down $2 million sequentially, and at the low-end of the range we provided on last quarter's call, while including three weeks of Watson related operating expenses and approximately $1.1 million of one-time charges associated with the Watson acquisition. Operating expenses were up $8 million compared to the first quarter of 2013, which principally relates to expenses of acquired businesses.

I would assume overall core operating expenses of approximately $130 million to $134 million in the second quarter of this year. This estimate includes a full quarter of Watson related operating expenses, as well as higher compensation expense related to seasonal merit increases and payroll taxes on annual bonus payments, which were paid just about a week ago.

In addition, as it relates to the Paul Stebbins transition, which Mike mentioned earlier, we will be recording a one-time charge of approximately $4.8 million in the second quarter. The after-tax impact of $2.9 million will reduce diluted earnings per share by $0.04 in the second quarter. This one-time charge was not included in the expense guidance, which I just provided.

Our total accounts receivable balance was $2.8 billion at the end of the first quarter, up 9% from the fourth quarter principally related to the Watson acquisition.

Our bad debt expense in the first quarter was $1.2 million, down from $6.1 million recorded in the fourth quarter, which again was impacted by two specific write-offs but the $1.2 million was flat with the first quarter of 2013.

While the Watson acquisition was the principal driver of the increase in our accounts receivable balance this quarter, it did not have a meaningful impact on our bad debt reserve, due to a lower credit risk associated with the Watson receivables portfolio. Our overall bad debt reserve remains more than $29 million, which we believe is adequate.

Consolidated income from operations for the first quarter was $64 million, unchanged sequentially but a decrease of $3 million or 4% year-over-year.

For the quarter, income from operations in our aviation segment was $30 million, down $11 million or 27% sequentially, and $5 million or 14% compared to the first quarter of last year. Again, the main driver of the decline in the operating income in the aviation segment was related to the drop-off in government related activity, as well as seasonality in the impact of severe weather conditions in North America during the quarter.

Our marine segments income from operations was $21 million for the first quarter, an increase of $4 million or 21% sequentially and $6 million or 38% more than the results posted during the first quarter of last year.

And finally, our land segment had income from operations of $27 million, an increase of $5 million or 25% sequentially, but down $1 million or 3% year-over-year.

Consolidated EBITDA for the first quarter was $79 million that's a $3 million or 4% sequential and year-over-year increase.

Non-operating expenses were $2.5 million for the first quarter that's down a $1 million compared to the fourth quarter and the first quarter of last year. This decline principally relates to the reclassification of our transloading joint venture operating results to the other income line included in non-operating expenses for the first time this quarter.

I would assume overall non-operating expenses, which includes net interest expense and equity earnings to be approximately $3 million to $4 million for the second quarter of 2014.

Our effective tax rate for the first quarter was 18.3%, up from 12.2% last quarter but down from 19.4% in the first quarter of last year. Once again, while our tax rate may fluctuate on a quarterly basis, we estimate that our effective tax rate for the full year of 2014 should be between 16% and 20%.

Our net income for the first quarter was $50.7 million, a decrease of $1 million or 2% from the fourth quarter but an increase of $2 million or 4% year-over-year.

Non-GAAP net income, which excludes amortization of identified intangible assets, stock-based compensation, and expenses related to the loss in acquisition, was $58.5 million in the first quarter, a decrease of $2 million or 3% sequentially, or an increase of $3 million or 6% year-over-year. Once again that only includes the one-time expenses related to the Watson acquisition incurred in the quarter.

Diluted earnings per share for the first quarter was $0.71, a decrease of 3% sequentially, or an increase of 4% year-over-year.

Non-GAAP diluted earnings per share was $0.83 in the first quarter, a decrease of 2% sequentially, or an increase of 8% year-over-year.

We generated $92 million of cash flow from operations in the first quarter, compared to $51 million generated in the fourth quarter, and $110 million in the first quarter of last year. We have now generated positive cash flow from operations in each of the past seven quarters, aggregating nearly $560 million, providing a funding for all of our strategic investments over the same period.

Net debt was $282 million in the first quarter, representing an increase of $110 million sequentially which relates to the Watson acquisition completed in early March, offset in part by the cash flow generated during the quarter.

Our balance sheet remained strong and we continue to maintain a significant liquidity profile to drive organic growth while continuing to pursue what remains a very robust acquisition pipeline.

In closing, although market headwinds remain our diversified business model again produced solid results. We were pleased to complete the Watson acquisition and we remain actively focused on integrating Watson with our existing UK land platform.

And finally, our prudent working capital management has allowed us to generate a significant amount of cash flow over the past two years enabling us to continue to invest in the business, supporting organic growth, and strategic growth initiatives, while maintaining a very strong balance sheet.

I would now like to turn the call over to the operator to begin the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions).

Our first question comes from John Chappell. Please go ahead.

John Chappell - Evercore Partners

Ira, I was hoping you could help out a little bit on the aviation side in regards to the impact of the government business. So you mentioned that it was going to actually improve in the second quarter. I think we had probably been thinking about a slow kind of bleed off of that business but if it's going to drop really fast and then pick back up again in the second quarter. Is there any way to out of that $15 million sequential decline year-over-year, how much of that might be government? And then, how much of that may reverse in the second quarter?

Ira Birns

I would tell you about half of the sequential decline from the fourth quarter the $50 million you have heard too relates to the government piece. What's the readout may be in the second quarter is tough to tell. Probably, not as much but I assume we will bounce back a few million dollars. It's very tough to predict. The orders don't come through on a ratable basis. So while true draw down activity continues, I think the needs will be a little choppy along the way. Certainly, the longer-term direction over the next several quarters continues to be down. We just wanted to point out the second quarter because that's information we've really seen based upon the results of the first month of the quarter.

John Chappell - Evercore Partners

Okay. That helps. Mike, my follow-up kind of what I ask almost every quarter, but this time a little bit more relevant. The marine side pretty steep drop in volumes, however, pretty large increase in gross profit. And if we think about kind of a de-risking of the business in this multiyear trough and shipping, it kind of doesn't really lineup because you probably aren't going to the C or D level type of customers yet. So can you explain a little bit how the profitability was supposed to -- or ended up rising so much, even though the volumes had contracted?

Michael Kasbar

Sure. It's business mix. Our core customers have been the large -- contain a lot of companies. And we all know we've seen their demand for bunkers decline with slow steaming. So that will come back at some point, to some extent but not soon. So we've diversified our offering into different segments, exotic locations, requiring significant logistics or specialized business skill, service products. We've developed a significant expanding lubricants portfolio. We are active in bulk movements. So we've been creative in seeking a more diverse marine audience.

And you have to remember it's still a spot business. So there is a good amount of variability in this business compared to other lines of business. And so it's closely been a different mix of business.

John Chappell - Evercore Partners

And has that changed the risk profile of the portfolio at all?

Michael Kasbar

No, no not in the least bit. That's where risk is, I think as I've mentioned it's not really the game we play certainly not consciously. So it's we have not changed our risk profile in any way shape or form.

Operator

Our next question comes from Kevin Sterling. Please go ahead.

Kevin Sterling - BB&T Capital Markets

Are you guys -- just kind of a bigger picture question? Are you seeing or anticipating any impact from the various sanctions against Russia in your business?

Michael Kasbar

Our sanctions obviously and I guess the best way to answer that question is we're used to international business and disruptions like that's happened from time-to-time. Certainly we operate in a world where there is always been sanctions of some sort or another. We manage our exposure to certain countries with risk profile commensurate with the particular areas that we're dealing with. So we have exposure in all of these countries but based on past experiences we're optimistic that we will manage these issues the way we've always managed them.

So we're not undue concern and we've got very active and professional compliance team. So it's the normal course of doing business in the world today. It's not unusual and we're geared up and prepared to deal with these types of issues. So fortunately we've got a very confident and professional, legal and compliance team, and financial team, so and risk team. So it's obviously an issue and it's really part of I think our value prop is to be able to navigate in markets like this.

Kevin Sterling - BB&T Capital Markets

Okay. And you touched on the weather and obviously the extreme volatility we saw and may -- it sounded like it benefited your land business. Can you kind of talk may be big picture, Mike, on kind of the resiliency of your business model or the proposition of your business model when there are disruptions like this whether it's caused by weather or something else and your ability to procure fuel for your customers and how it may have helped you some this quarter and how customers turn to you guys for help?

Michael Kasbar

Certainly. I think we may have mentioned. I don't recall. But when there were disruptions on the aviation side of the equation back when we had Sandy, we were able to procure diesel fuel for some of our airline customers to keep their office operations and business operations going. So that was a great benefit and certainly differentiated us from some of our competitors on the aviation side.

But I think the diversity of our business model is really something that's pretty important. We are a global business that is diverse and all of our different business cycles we're involved in a lot of different products. Our de icing fluid obviously benefited we're an exclusive distributor for Dow Chemical and that certainly was something that we benefited from unnatural gas side, there were significant probability in that part of the equation. We are active in that space by virtue of U.S. Energy. So we ended up getting a pick up there.

And it's the beauty of having a hand in so many different business cycles and different business segments and products that if one is being impacted perhaps the other one is benefiting, and that's been our experience. So while we may not be so simple to model out each and every one of the individual businesses, the overall result is obviously what we're focused on. So those weather disruptions are certainly the reason why a company is in, particularly companies that rely on these products to run their operations rely on a company like us because we have so many different sources and solutions for them.

Kevin Sterling - BB&T Capital Markets

Okay. Great. And, last question here. As you look at your acquisition pipeline, I think you talked about it being robust. Where do you see the most opportunity is it still in the land business or is it across the board?

Michael Kasbar

It's really across the board as we continue to grow our business globally and extend and diversify our offerings. We increase the richness of our opportunities and our confidence in the area of M&A continues to grow. So we think we're going to be able to accelerate intelligent profitable growth through M&A and I think it's something that continues to impress us, because we have a good track record as a confident acquirer. So it makes us a company that many sellers want to consider. So we feel pretty good about our ability to continue to utilize M&A as a great way to accelerate our profitable growth into the future.

Operator

Our next question comes from Jack Atkins. Please go ahead.

Jack Atkins - Stephens Inc.

So I guess Mike just to go back first to your comments on the marine side of the business. John did point out the decline year-over-year in the marine volume. I'm just curious just based on your commentary on the fourth quarter call and as you look out over the state of that business today just the maritime industry in general and the role you play there. Could you may be comment on how you see that particular industry developing as you move through the year in terms of just the supply/demand dynamics and the opportunity for may be returning to some volume growth there?

Michael Kasbar

It's one way; it's for us it's really about risk and return. So the reason why we've elected to take a more diversified approach as opposed to getting into increasing the volume either at lower returns or increased risk. So I'm not expecting that we're going to see a dramatic change within our marine space.

So we are really investing more in a long-term proposition. I think that we have got a fantastic organization. We've got some of the best professionals within the marine space we've been doing it for a longtime. So really more focused on long-term sustainable value and profitable growth. Obviously producing a quarterly result, excuse me, is important but we're really much more oriented to understanding how we can partner up with the best companies in the world and leverage or fantastic global platform to be able to provide them with an overall service. We know what we do, we've got a lot of folks focused on this area, we've been doing it for a long, long time.

So the market has changed, ship owners have changed. So we're reflecting on that from the perspective of rather than dropping down into a lower return business is there a way that we could put together our significant products and services and be able to offer an overall service to our clientele. So we're fortunate that we have diverse business model. So that if one of our business segments is experiencing a tepid business cycle, they've got the opportunity to re-gear revisit while the other segments carrying the load. So it feels pretty good about our long-term prospects. I'm not forecasting that we're going to have any significant return to the marine business anytime soon.

Jack Atkins - Stephens Inc.

Okay. Okay. Thank you for that insight there. Ira, when I look at the Aviation gross spread per gallon in the first quarter I think a lot of us are trying to understand sort of the -- what the business from a profitability standpoint that aviation business will look like after the NATO draw-down is complete. And understanding that you're going to see a bounce back in the second quarter but is that $0.053 per gallon roughly is that the right way we should be thinking about gross profit per gallon in the core business excluding that NATO contribution?

Michael Kasbar

I would say it's tough to give you an answer on a quarter-by-quarter basis but I think over the course of the year excluding that activity the number we produced this quarter is certainly on the low side. So I think $0.065 in the fourth quarter, $0.053 this quarter I think the run rate is more likely somewhere between those numbers.

Jack Atkins - Stephens Inc.

Okay, that's helpful, thank you. And then last question for me, it's more of a housekeeping item, but Ira the move of the Dakota Plains joint venture out of your consolidated results I think created some noise year-over-year in terms of operating income. Just curious if you could provide the amount of operating income that joint venture provided in 2013 so we can sort of get a good year-over-year comp there?

Ira Birns

It runs -- it's really relatively small, Jack. It runs at less than a $1 million in operating income.

Jack Atkins - Stephens Inc.

In 2013?

Ira Birns

Yes.

Operator

Our next question comes from Ken Hoexter. Please go ahead.

Ken Hoexter - Bank of America-Merrill Lynch

Can you, Ira, maybe delve into the cost increase a little bit? It looks like you're talking about $15 million, $20 million increase year-on-year. Can you break down what is Watson, what is incentive comp? And then I guess the second part of that same question will be can you talk on seasonality on Watson yet in terms of how we should see that fluctuate through the year?

Ira Birns

Yes, a few questions there. Watson clearly didn't have much of an impact in the first quarter because it was only in for a few weeks.

So when you look at the increase year-over-year it more relates to acquisitions made in the past like Multi Service, right, because Multi Service was I guess in the beginning of last year. So it's a combination of compensation and some of these acquisitions that we concluded during the year like U.S. Energy that Mike alluded to on the natgas side. Even before Watsons we made a series of smaller acquisition that are currently being integrated into Watson in the UK that we didn't necessarily advertise because of their individual size. So I would say those are the bigger drivers there.

You also asked about Watson going forward?

Ken Hoexter - Bank of America-Merrill Lynch

Yes, I mean that part of the question which is where the top-line but on the first question was just what you're hitting on the expense side in terms of that ramp up what was from Watson, what was from incentive comp that you had mentioned?

Ira Birns

Yes, so in the quarter going forward the forecast that I gave for Q2, the incentive comp fees $2 million and Watson is probably about $7 million. So most of the increase relates to those two items. If you look at the midpoint of my guidance versus the result in the first quarter.

Ken Hoexter - Bank of America-Merrill Lynch

Okay. And then the second part of the question was just talk about seasonality on Watson as you go forward near the top-line?

Michael Kasbar

Yes. As mentioned when we originally announced the deal, the seasonality from a seasonal strength standpoint is heavily tilted towards Q4 and Q1. So while we'll see some benefit in the second and third quarter, the benefit will be more pronounced in the fourth quarter this year and then obviously the first quarter 2015.

Ken Hoexter - Bank of America-Merrill Lynch

And then just a housekeeping question, just like to wrap it up but your thoughts on the -- any update on process on (inaudible) on the railcar side, anything to update on that process?

Michael Kasbar

Yes, I would say -- Ken thanks for asking. There's really nothing material to report. The environmental proceedings in the U.S., Canadian and Kenyan lawsuits are as expected progressing very, very slowly. And as we've said before, any final determinations on liability is still a very long way off in our estimation. And once again, we continue to believe that the actions against us that are out there are clearly without merit and we intend to continue to vigorously defend ourselves against them. But nothing really has changed meaningful since last quarter.

Operator

Our next question comes from Gregory Lewis. Please go ahead.

Gregory Lewis - Credit Suisse

I just had a couple questions. Real quick on Multi Service you touched on the building out of Multi Service and still ramping up. I guess my question is what type of impact to gross profit margins do you try to get the sense that Multi Service has had on any particular segments since it's sort of been implemented and as we think about that going forward and I can always harp on internal capital. At what point do we think Multi Service starts to positively impact return on capital?

Ira Birns

First question is easier to answer than the second. So the first question what are the reasons that we provide or I provided in my prepared remarks, the fuel related GP is so that you could parse out the profit per gallon from fuel related activity without it being adulterated by Multi Service. The impact is probably about a penny.

But as I indicated earlier, land for example had $71 million of gross profit in the first quarter, $60 million was fuel related. So the $60 million is the number you should be dividing by gallons to get the really run rate of fuel margin. And then the $11 million is the non-fuel piece.

In terms of return on capital, I will let Mike in a moment talk about all the things we get going on with Multi Service. But certainly, from my perspective there are lots of opportunities there to drive enhanced profitability. And since it doesn't have a high capital mark, capital investment type model, it provides us some pretty significant leverage for that to contribute to returns in a right way. Let Mike pickup from there.

Michael Kasbar

Yes, I guess the only think that I would add to that is Multi Service well we haven't seen astronomical growth. We couldn't be happier with the business and the team. And with some businesses, it just takes some time to build up some momentum. Multi Service was the beneficiary of our ad card and software businesses. In the same way that we did a reverse integration with Watson running out of UK land business.

So right now Multi Service is running our software and technology business and this takes some time to incorporate. So there is certainly not a whole lot more about what they're doing with those businesses than we ever did. We were attracted to them because they created a fantastic bundle solution to our clientele and to our customers and our suppliers. But it certainly in better hands with Multi Service and we've got to saddle them with transferring all of that and they are harmonizing all of that activity.

So we are very optimistic that we are going to see an increased contribution from Multi Service. We are very happy to be in that space and have them run that activity. It's a business on its own and we become a beneficiary as do other clients of Multi Service. So it's really a many fold opportunity. So we're pretty excited about that space and that diversification that that represents to our company. And I'm expecting that we're going to see more significant in that in time.

Gregory Lewis - Credit Suisse

Okay. Great. Thanks. And then just real quick. You touched on the impact on minority interest pretty clearly. When we think about that impact in modeling that going forward, do you have any sort of guidance for how we should be thinking about that on a quarterly run rate?

Ira Birns

Yes. There are two different things and I would try my best not to confuse you, okay. So transloading JV on the crude side used to be a land operating results. But now that we no longer have a controlling interest that is now appearing in the other income section of non-operating expenses, different line than minority interest. There used to be an minority interest piece there when we had control. So it's left on the minority interest line one of the reasons why it's actually flipped to a benefit from a kind of subtraction -- from a subtraction to income is because all that is left is the crude marketing joint venture which made a little bit of money in the quarter, but also our Brazilian joint venture and that numbers calculate not on operating results alone but on net income results and there is a significant amount of interest expense tied to that business.

And therefore, the number that you saw on the first quarter is probably pretty indicative of what you should expect on that line which now doesn't have a lot going on anymore going forward for the next couple of quarters.

Operator

We have a follow-up question from Ken Hoexter.

Ken Hoexter - Bank of America-Merrill Lynch

Just a quick follow-up. You just gave a great breakout on the land side. You noted what was fuel related, not fuel related. Can you do that for the other two services? I'm just thinking that, Michael, you mentioned earlier on the marine side that you had moved more into some of the lubricating business. Would that still be counted for similarly on a profit or price per gallon point in the same metric that we would use on the fuel, or would that be a little different? So I'm just wondering what side you --

Michael Kasbar

In that example, Ken, yes, it's just smaller volumes but it's part of total volume and that's more traditional profit per gallon or profit per metric ton type of a metric as opposed to Multi Service which doesn't sell any fuel.

Ken Hoexter - Bank of America-Merrill Lynch

Because of the factor that it's measured by volume and price, but does that change -- Michael mentioned that you're changing the mix as time goes on given your move to more profitable businesses. Does that change your gross profit per metric ton or anything of that ilk if you're selling different products within the mix?

Michael Kasbar

Well interesting question, Ken. I would say if you look at the overall business whether it be land, may be not so much aviation, which is principally jet fuel, jet for may be a little bit of add gas, there are multiple products for many, many years right. In land you've got gas and diesel and propane. Now, you got natural gas and all of that is blended together in volume and gross profit results that we provide from fuel activity.

In marine, there may be different grades of bunker fuel that we're selling and now some lubricants as well. And by the way, there are lubes on the land side too, but all of that is reflected. I mean, historically, we haven't broken out every single piece of those businesses in terms of contribution from a fuel perspective.

Ken Hoexter - Bank of America-Merrill Lynch

I'm just wondering, I guess, just because Michael mentioned it earlier that it seems to be shifting the tenor of container side is dropping in terms of demand levels that the mix was shifting. So is that something we should continue to look to see the gross profit per metric ton continue to rise because of the quality of the volumes are going to shift or is that always mix going to play an issue there?

Michael Kasbar

Yes, remember, Ken, once again tougher question. It is a spot business and the mix of business in marine is fairly dynamic quarter-to-quarter. We get out larger individual transaction with more complexities in the given quarter and then the next quarter that same volume is made up with a bunch of small deliveries to small medium sized ships of varying profit margin. So it's really tough to nail that down any more clearly than that to be honest.

Glenn Klevitz

Ken, we're really trying to figure out how to clip coupons but we haven't cracked the code yet.

Michael Kasbar

Operator?

Operator

There are no further questions at this time. Mr. Kasbar, I'll turn the call back to you for your closing remarks.

Michael Kasbar

Well, thanks very much for your support. We feel very good about the strength of our overall company and we look forward to talking to you next quarter.

Operator

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation. I ask that you please disconnect your line.

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