Adams Resources & Energy, Inc. (NYSE:AE) is a diversified energy company primarily engaged in crude oil marketing, transportation, and storage, as well as tank truck transportation of liquid chemicals, pressurized gases, asphalt, and dry bulk. The company also operates in the pipeline transportation, terminalling, and storage of crude oil, as well as the interstate bulk transportation logistics of crude oil, condensate, fuels, oils, and other petroleum products, and the recycling and repurposing of off-specification fuels, lubricants, crude oil, and other chemicals.
Business Overview
Adams Resources & Energy has a long and storied history, dating back to its incorporation in 1973. The company operates in four key business segments: (i) crude oil marketing, transportation, and storage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt, and dry bulk; (iii) pipeline transportation, terminalling, and storage of crude oil; and (iv) interstate bulk transportation logistics of crude oil, condensate, fuels, oils, and other petroleum products, as well as recycling and repurposing of off-specification fuels, lubricants, crude oil, and other chemicals.
The company's crude oil marketing segment is its largest, accounting for $623.8 million, or 94.4%, of the company's $661.1 million in total revenue for the first quarter of 2024. This segment involves the purchase, transportation, and sale of crude oil, with the company's operations spanning various crude oil and natural gas basins in the lower 48 states of the United States.
The transportation segment, which includes the company's tank truck operations, contributed $23.2 million, or 3.5%, of total revenue in the first quarter of 2024. This segment provides transportation services for liquid chemicals, pressurized gases, asphalt, and dry bulk primarily in the lower 48 states, with deliveries into Canada and Mexico.
The pipeline and storage segment, which encompasses the company's crude oil pipeline transportation, terminalling, and storage operations, generated $4.0 million, or 0.6%, of total revenue in the first quarter of 2024. This segment includes the company's VEX Pipeline System, which transports crude oil.
Finally, the logistics and repurposing segment, which consists of the company's Firebird Bulk Carriers, Inc. and Phoenix Oil, Inc. subsidiaries, contributed $14.0 million, or 2.1%, of total revenue in the first quarter of 2024. Firebird Bulk Carriers provides transportation services for crude oil, condensate, fuels, oils, and other petroleum products, while Phoenix Oil repurposes and finds beneficial uses for off-specification fuels, lubricants, crude oil, and other chemicals.
Financials
For the full year 2023, Adams Resources & Energy reported annual revenue of $2,745,293,000, annual net income of $212,000, annual operating cash flow of $30,275,000, and annual free cash flow of $18,378,000.
In the first quarter of 2024, the company generated total revenue of $661.1 million, compared to $650.2 million in the prior-year quarter, an increase of 1.7%. This increase was primarily driven by higher crude oil prices, which offset lower crude oil volumes. The company reported a net loss of $498,000, or $0.19 per share, in the first quarter of 2024, compared to a net loss of $1,999,000, or $0.79 per share, in the prior-year quarter.
Crude Oil Marketing Segment
The company's crude oil marketing segment reported revenue of $623.8 million in the first quarter of 2024, up from $608.5 million in the prior-year quarter, an increase of 2.5%. This increase was primarily due to higher crude oil prices, which rose from an average of $73.27 per barrel in the first quarter of 2023 to $75.35 per barrel in the first quarter of 2024. However, this was partially offset by lower crude oil volumes, which decreased from an average of 94,030 barrels per day in the first quarter of 2023 to 64,634 barrels per day in the first quarter of 2024.
The segment's operating earnings increased from $1.9 million in the first quarter of 2023 to $6.7 million in the first quarter of 2024, primarily due to inventory valuation changes, the increase in average crude oil prices, and lower operating expenses, such as driver compensation, insurance, and fuel costs, which were partially offset by the lower crude oil volumes.
Transportation Segment
The company's transportation segment reported revenue of $23.2 million in the first quarter of 2024, down from $26.4 million in the prior-year quarter, a decrease of 12.1%. This decrease was primarily due to a softening in the transportation market, which led to lower volumes and decreased transportation rates.
The segment's operating earnings decreased from $901,000 in the first quarter of 2023 to $213,000 in the first quarter of 2024, primarily due to the lower revenues, partially offset by lower operating expenses, such as driver commissions and wages, insurance, and maintenance expenses.
Pipeline and Storage Segment
The company's pipeline and storage segment reported revenue of $4.0 million in the first quarter of 2024, compared to $0 in the prior-year quarter. This increase was primarily due to higher volumes transported on the VEX Pipeline System, which were up 20% on a sequential quarter basis to an average of 11,260 barrels per day.
The segment's operating loss decreased from $1.2 million in the first quarter of 2023 to $963,000 in the first quarter of 2024, primarily due to lower operating materials and supplies and outside service costs.
Logistics and Repurposing Segment
The company's logistics and repurposing segment, which includes the Firebird Bulk Carriers and Phoenix Oil subsidiaries, reported revenue of $14.0 million in the first quarter of 2024, down from $15.2 million in the prior-year quarter, a decrease of 7.8%. This decrease was primarily due to lower volumes and activity at the Phoenix Oil business, partially offset by increased transportation rates and volumes at the Firebird Bulk Carriers business.
The segment reported an operating loss of $1.5 million in the first quarter of 2024, compared to operating earnings of $535,000 in the prior-year quarter, primarily due to the lower revenues and higher operating expenses, such as driver commissions and insurance costs.
Liquidity
As of March 31, 2024, Adams Resources & Energy had $36.6 million in cash and cash equivalents, compared to $33.3 million as of December 31, 2023, an increase of 10%. The company's total liquidity, which includes available borrowing capacity under its credit facility, was $83.6 million as of March 31, 2024, up from $80.3 million as of December 31, 2023.
During the first quarter of 2024, the company generated $13.1 million in net cash from operating activities, compared to $23.7 million in the prior-year quarter. This decrease was primarily due to an increase in the price of the company's crude oil inventory and a 23% increase in the number of barrels held in inventory.
The company's capital expenditures for the first quarter of 2024 totaled $6.2 million, primarily for the purchase of 17 tractors, 13 trailers, and other field equipment.
Outlook
Looking ahead, Adams Resources & Energy is cautiously optimistic about the prospects for its business segments. In the crude oil marketing segment, the company expects to see continued improvement in volumes and margins, driven by steadily increasing volumes at its GulfMark Energy division and the resumption of third-party barge loading activities at its VEX Pipeline System's Victoria, Texas terminal.
In the transportation segment, the company is seeing signs of tightening capacity in certain markets, which it hopes will allow it to negotiate higher rates to offset the rate reductions experienced over the past year. The company is also working to add drivers to its fleet to meet the increasing demand.
The company's logistics and repurposing segment is expected to face some near-term headwinds, as the Phoenix Oil business transitions from truck deliveries to barge deliveries of its primary product, fuel oil. However, the company is optimistic that this transition will be completed by the third quarter of 2024, and it is also excited about the progress on its new Dayton, Texas facility, which will improve the operational efficiency of the Phoenix Oil business.
Overall, while the company acknowledges that the economic environment remains challenging, it is encouraged by the signs of recovery and improvement across its various business segments. Adams Resources & Energy remains focused on controlling costs, improving operational efficiencies, and positioning itself to capitalize on the opportunities that arise as the markets it serves continue to recover.
Risks and Challenges
As with any energy-related business, Adams Resources & Energy faces a number of risks and challenges, including:
1. Commodity price volatility: The company's profitability is heavily influenced by fluctuations in crude oil and other commodity prices, which can be difficult to predict and manage.
2. Regulatory and environmental risks: The company's operations are subject to various federal, state, and local laws and regulations related to environmental protection, worker safety, and other areas, which can change over time and impact the company's costs and operations.
3. Competition: The company operates in highly competitive markets, and its ability to maintain and grow its market share is critical to its success.
4. Dependence on key customers and suppliers: The company relies on a limited number of large customers and suppliers, and the loss of any of these relationships could have a significant impact on its business.
5. Workforce challenges: The company's ability to attract and retain qualified drivers and other personnel is crucial to its operations, and it faces ongoing challenges in this area.
Despite these risks, Adams Resources & Energy remains committed to navigating the challenges and capitalizing on the opportunities in its various business segments. The company's diversified operations, focus on cost control and operational efficiency, and strong liquidity position provide a solid foundation for weathering the current economic environment and positioning the company for long-term success.
Conclusion
Adams Resources & Energy is a well-established energy company with a diversified portfolio of operations, including crude oil marketing, transportation, pipeline and storage, and logistics and repurposing. While the company has faced its share of headwinds in recent quarters, it has demonstrated resilience and a commitment to improving its operational and financial performance.
Looking ahead, the company is cautiously optimistic about the prospects for its various business segments, with signs of recovery and improvement in areas such as crude oil marketing, transportation, and pipeline and storage. The company's focus on cost control, operational efficiency, and strategic investments positions it well to capitalize on the opportunities that arise as the markets it serves continue to recover.
Despite the challenges, Adams Resources & Energy remains a well-managed and financially sound company with a strong balance sheet and ample liquidity. As the company navigates the current economic environment, investors will want to closely monitor its progress and the company's ability to execute on its strategic initiatives.