Calumet Specialty Products Partners, L.P. last Friday reported results for the quarter and year ended December 31, 2016. For the latest fourth quarter, Calumet reported a $79.6 million loss, an improvement compared to the $116.8 million loss during the fourth quarter in 2015.
During the fourth quarter 2016, total specialty products sales volumes increased 9.0% year-over-year, however segment gross profit declined due to a rise in crude oil prices which outpaced adjustments in product pricing. Specialty products segment Adjusted EBITDA for the fourth quarter 2016 was also impacted by a $1.8 million unfavorable LCM inventory adjustment and a $7.1 million unfavorable LIFO inventory liquidation loss.
During fiscal year 2016, total specialty products sales volumes increased 6.3% year-over-year, however segment gross profit declined due to ongoing volatility in feedstock costs and market supply that impacted margin capture in the period. Specialty products segment Adjusted EBITDA for 2016 was also impacted by a $13.7 million favorable LCM inventory adjustment and an $8.8 million unfavorable LIFO inventory liquidation loss.
Lubricating oils volume increased to 15,373 barrels per day during the fourth quarter from 14,420 bpd during the fourth quarter in 2015 and for the full year increased to 14,697 bpd from 13,325 bpd in 2015. Packaged and synthetic specialty products, which represents production of packaged and synthetic specialty products, including the products from the Royal Purple, Bel-Ray, Calumet Packaging and Missouri facilities, increased to 2,092 bpd during the fourth quarter from 1,644 bpd during the fourth quarter in 2015 and for the full year increased to 2,074 bpd from 1,584 bpd in 2015.
The Partnership's $79.6 million net loss for the fourth quarter 2016 includes the impact of two items: (1) a favorable lower of cost or market ("LCM") inventory adjustment of $5.9 million and (2) $26.2 million of losses related to liquidation of last-in, first-out ("LIFO") inventory layers. The Partnership's Adjusted EBITDA of $27.7 million for the fourth quarter 2016 includes the impact of two items: (1) a favorable LCM inventory adjustment of $9.6 million and (2) $26.2 million of losses related to the liquidation of LIFO inventory layers.
"2016 was a year of transition, stabilization and foundation building for our Partnership," stated Tim Go, Chief Executive Officer of Calumet. "We refocused our long-term vision on our core specialty business, took decisive action to enhance our liquidity profile, and began the process of optimizing our asset portfolio through the sale of Dakota Prairie Refining, LLC and by shedding some third party terminal agreements. Most of our leadership team was upgraded through the addition of significant talent with deep and diverse industry experience. Lastly, we implemented and executed an aggressive three-year operations excellence strategy and surpassed our 2016 self-help expectations, generating an estimated $89 million of our annual Adjusted EBITDA, which helped us offset a challenging fuels refining environment."
"In terms of our performance during the fourth quarter, we witnessed typical seasonal weakness across all three of our segments. On the plus side, 2016 capital expenditures ended the year below our prior guidance at $122 million, representing an annual reduction of over 70 percent year-over-year. As of December 31, 2016, we had $365 million in available liquidity through our cash position and revolving credit facility."
"As we enter 2017, we do so with cautious optimism as we believe our strategy to eliminate waste, drive efficiencies and develop best practices across our organization is working. We completed additional cost reductions early in 2017, through ongoing headcount rationalization and other waste reduction initiatives. We believe these efforts will remove an additional $10 million to $20 million in annualized SG&A expenses. Further, we adjusted our product pricing within our specialty products segment in January to increase our margin capture and to offset the continued increases in prices of our crude oil feedstocks. Both of these initiatives, as well as several others like our recently announced packaging agreement with BP, have us on track to hit our original $150 million to $200 million Adjusted EBITDA target for our operations excellence self-help initiatives by the end of fiscal year 2018."
Go concluded, "Given the positive impact that our operations excellence initiatives are having on the business, we also plan to launch the second stage of our strategic plan, which involves opportunistic growth projects. We have identified a number of margin enhancing internal growth projects capable of generating one-to-two-year payouts with low to moderate capital investment requirements. For example, we approved and filed permit applications for a flexibility project at our Superior refinery. This flexibility project will allow us to optimize our yields. Other quick payback capital initiatives include new product launches within our specialty products segment, the completion of our new ERP system, and a portfolio of investments that expand our outbound logistics capabilities. We have offset these expenditures with capital discipline in our base operations, as a result we expect 2017's capital expenditure program to be fairly similar to 2016. Finally, we remain committed to reducing our debt leverage profile and believe we have the right strategic plan to reposition the Partnership for long-term growth."
