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Coverage Initiation: World Fuel Services Corporation
Value Line has initiated coverage of World Fuel Services Corporation (INT) in its flagship product, The Value Line Investment Survey. As the name indicates, the company is a leading global fuel logistics company, principally engaged in the marketing, sale, and distribution of aviation, marine, and land fuel products and related services on a worldwide basis. The principal office is located in Miami, Florida, and the company employs roughly 2,500 globally.
World Fuel can trace its roots back to 1985, when Paul Stebbins and Michael Kasbar founded Trans-Tec Services, Inc., which was a marine fuel brokerage company. Over the next ten years, the company grew and built a global network of offices located in key markets. In need of a stronger capital base, Trans-Tec was sold to International Recovery in 1995, creating a global marine and aviation fuel services company. The company name was then changed to its current moniker, while keeping International Recovery’s ticker. (International Recovery went public in 1986 on the NYSE and traded under INT.) Since then, the company has enjoyed solid growth, and started expanding its scope to include the ground fuel market in 2008. Mr. Stebbins is the chairman of the board, while Mr. Kasbar is president and CEO.
The company provides customers with value-added benefits, including single-supplier convenience, competitive pricing, the availability of trade credit, price risk management, logistical support, fuel quality control, and fuel procurement outsourcing. In most cases, World Fuel hires third parties for the delivery and storage of fuel products. Operations are broken up into three main categories: aviation (38% of 2012 revenues), marine (38%), and land (24%). Additionally, the company offers transaction management services, which consist of card payment solutions and merchant processing services to its customers.
The aviation segment offers fuel and related services to major commercial airlines, second and third-tier airlines, cargo carriers, regional and low cost carriers, airports, fixed based operators, corporate fleets, fractional operators, private aircraft, military fleets, and to the U.S. and foreign governments. The marine segment offers fuel and related services to a broad base of marine customers, including international container and tanker fleets, commercial cruise lines, yachts, and time-charter operators, as well as to the U.S. and foreign governments. And the land segment offers fuel and related services to petroleum distributors operating in the land transportation market, retail petroleum operators, and industrial, commercial and government customers, and also engage in crude oil marketing activities.
In the aviation and land segments, World Fuel primarily purchases and resells fuel, but does not act as a broker. Profits from these areas are primarily determined by the volume and gross profit achieved on fuel resales and a percentage of card payment and processing revenue. In the marine segment, however, the company primarily purchases and resells fuel, while also acting as a broker for others. Profit here is determined mainly by the volume and gross profit achieved on fuel resales and by the volume and commission rate of the brokering business.
The company’s revenue and cost of revenue are significantly impacted by world oil prices. Significant movements in fuel pricing during any given financial period, however, can have a significant impact on gross profits, either positively or negatively, depending on the direction, volatility, and timing of such price action. Segment profitability also depends on operating expenses and, since the company extends credit to most of its customers in connection with their purchases, it can be significantly affected to the extent that World Fuel is required to provide for potential bad debt.
Competitors within the highly fragmented worldwide downstream markets of aviation, marine, and land fuel are numerous, ranging from large multinational corporations, principally major oil producers, which have significantly greater capital resources, to relatively small and specialized firms. World Fuel competes with the major oil producers that market fuel directly to the large commercial airlines, shipping companies, and petroleum distributors operating in the land transportation market, as well as fuel resellers. Overall, the company believes its extensive market knowledge, worldwide presence, logistical expertise, extension of credit, and use of derivatives (to provide fuel pricing alternatives) give it the ability to compete in the marketplace.
Subscribers interested in this fuel services provider are advised to consult Value Line’s quarterly reports for World Fuel Services Corporation, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.