World Fuel Services Corporation Aktie

Thank you for standing by, and welcome to World Kinect Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Braulio Medrano, Senior Director of FP&A and Investor Relations.

Good afternoon, everyone, and welcome to World Kinect's First Quarter 2026 Earnings Conference Call, which will be presented alongside our live slide presentation.

Today's presentation is also available via webcast on our Investor Relations website. I'm Braulio Medrano, Senior Director of FP&A and Investor Relations. With me on the call today is Ira Birns, Chief Executive Officer; Mike Tejada, Executive Vice President and Chief Financial Officer; and John Rau, President.

And now I'd like to review our safe harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause actual results to materially differ. Factors that could cause results to materially differ can be found in our most recent Form 10-K and other reports filed with the Securities and Exchange Commission.

We assume no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. This presentation also includes certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our 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 Chief Executive Officer, Ira Birns.

Thank you very much, Braulio, and good afternoon, everyone. I want to start by saying how proud I am of our team. Despite a far more volatile and unpredictable environment than anyone could have expected, we delivered a strong start to 2026, driven by strong execution and the continued benefits of our focused portfolio strategy.

As conditions shifted rapidly following the escalation of the conflict in the Middle East, driving sharp price movements and heightened uncertainty across global energy markets, our team's remain focused, disciplined and deeply engaged with our customers and suppliers. They navigated real-world complexity, managing rapid price changes logistical challenges and tightening conditions while maintaining a clear and consistent focus on safely and efficiently serving our customers. That combination of execution, professionalism and focus is a defining strength of our organization and one that continues to set us apart.

Importantly, what you're seeing in these results is not just resilience in a volatile operating environment, but evidence of the successful execution of our portfolio optimization strategy. As we've discussed, our exits from noncore and lower-margin activities, particularly within land have enhanced our financial flexibility and increased our ability to focus on investing in areas where we see more predictable, durable and attractive returns. We announced today that World Fuel will serve as our unified corporate and commercial brand for substantially all internal and external purposes.

This is the logical next step in our repositioning efforts and reflects our strategic clarity and conviction in our approach to value creation. Our customers around the world already know us as World Fuel, and this brand clearly reflects who we are today, a trusted provider of transportation fuels and complementary services.

Just as importantly, this return to our roots reflects the progress we've made, simplifying the business and allowing our teams to fully focus on the core activities that benefit from scale, generate solid returns, and offer meaningful opportunities for long-term growth.

As noted in our earnings release, World Kinect will remain as our corporate legal name and our ticker symbol will remain as WKC. With that, I'd like to provide an overview of each of our core operating segments before passing things over to Mike to walk through the financials for the quarter. Marine results were consistent with what we have long communicated, when prices rise materially and volatility increases, this business performs exceptionally well. It has happened before, and well, it just happened again. It is important to note that this was not simply a quarter in which markets did the work for us.

Performance was driven by teams executing under pressure actively managing pricing, credit exposure and operational risk in real time while continuing to support customers despite challenging market conditions. We consider this a remarkable outcome and I want to recognize our entire marine team for their accomplishments in the first quarter.

Aviation also exceeded expectations this quarter as higher prices and increased volatility, expanded opportunities in our core commercial business while also driving increased government-related activity. The integration of the Universal Trip Support Services business is well underway, and we are pleased with both its performance and how effectively the teams are coming together.

Land core activities performed largely in line with expectations, with strong cardlock and retail results offset by modest softness in our natural gas business. As I mentioned earlier, we have made significant progress with our portfolio exits and expect the vast majority of that work to be completed by the end of the second quarter.

Excluding these exit activities, Land delivered an operating margin significantly above the prior year, reflecting continued momentum and the benefits of our portfolio optimization efforts.

Across the enterprise and more broadly across the markets we serve, customers increasingly rely on trustworthy counterparties with scale, financial strength and execution capability. Our global platform, long-standing supplier relationships and strong balance sheet position us to meet and exceed customers' expectations and to continue delivering when reliability matters most. Together, this reflects a simpler, more focused business with the scale, measured execution and balance sheet to reform across a broad range of market conditions.

From an earnings standpoint, we delivered incremental profitability in the first quarter with results supported by the high priced, high volatility environment we saw across the market. And while more upside is possible given day-to-day unpredictability, our core expectations for the balance of the year have not changed, and our full year assumptions have only been adjusted to reflect the profitability already generated during the first quarter.

Mike will walk through our updated guidance in a moment. This quarter's performance reinforces my confidence in our platform, the strength of our team and the durability of our customer and supplier relationships. Our strong results demonstrate the consistency of our model across a wide range of market conditions and the discipline with which we operate.

With that, I'll turn the call over to Mike to walk through the financial results in more detail. Mike?

Thank you, Ira, and good afternoon, everyone. Before I discuss our results, I want to briefly address our use of non-GAAP measures. As we have stated previously, our GAAP results can include items that do not reflect our ongoing operating performance, such as restructuring and exit costs, impairments, operating results of noncore divestitures and business exits and other nonrecurring items.

We provide reconciliations on our Investor Relations website and today's webcast materials. Total non-GAAP adjustments in the first quarter were approximately $16 million or $13 million after tax.

Now on to our [indiscernible] results, which exclude these non-GAAP adjustments. As Ira mentioned, we delivered a strong first quarter, benefiting from a dynamic market environment. While our results were [indiscernible] in our core business is performing in line with expectations we set last quarter, they were further enhanced by our team's strong execution and ability to capture additional upside from pricing and volatility-driven opportunities.

Our first quarter results were impacted by the conflict in the Middle East and the related market dynamics. And [indiscernible] like these, we have demonstrated our proven ability to balance our role to critical parents to our customers while leveraging our scale, the buyer relationships and the balance sheet to capture market-driven opportunities. This is a key strength of the Royal field platform and 1 that affords us the flexibility to generate incremental value when opportunities arise.

All these opportunities are not always predictable, they can be meaningful contributors to our overall performance as we saw this quarter.

On a consolidated basis, first quarter volume was 4 million gallons, down 6% year-over-year, while first quarter gross profit was $254 million, up 10% year-over-year, which is above our expectations going into the quarter. The arena was the principal driver of our strong performance this quarter. Let's start there.

Volumes were approximately 4 million metric tons in the first quarter, up 4% year-over-year and gross profit of $66 million, up a significant 86% year-over-year. This strong performance marks our third best quarter on record for Marine.

We entered the quarter expecting a low price, lower volatility environment. However, in March, conditions shifted quickly with volatility increasing sharply and average bunker prices rising approximately 70% month-over-month. By leveraging our supplier relationships and strong balance sheet, the team did with at best and executed extremely well, supporting our customers while capturing strong risk-adjusted returns in our core resale business and in our physical inventory locations.

As we have discussed in the past, Marine's baseline performance and low price, lower volatility environment delivered solid returns with minimal working capital requirements. However, when prices rise, credit availability tightens, and volatility increases, the spot nature of the business positions us well and enables us to continue to provide our customers with the products, services and credit they require when they needed those.

Our Marine business has a proven track record of executing in these environments while maintaining disciplined risk management, and this quarter was no exception. This performs is a testament to our team's capabilities and how to the optionality embedded in our model. We continue to view this as a major differentiator and a clear driver of value.

Looking to the second quarter, we expect orange gross profit to be lower sequentially as price and volatility moderate, their gross profit should be meaningfully higher year-over-year.

Now turning to Aviation. For the first quarter, Aviation volume was down 5% as expected. However, gross profit was $138 million, up 20% year-over-year and ahead of our expectations heading into the quarter. Based on performance in our core offerings was in line with expectations, and the year-over-year increase was driven primarily by the Universal Trip Support acquisition, which we closed in November of last year and is performing as planned.

Core aviation results exceeded our expectations driven principally by favorable market conditions, which created some short-term opportunities to generate incremental returns in our core commercial business while also driving increased government-related activity. Looking ahead, we remain confident in Aviation's outlook but are closely monitoring the glossy landscape. As we progress through the year, we recognize that as the competent Middle East continues to our extended period, they could begin to more broadly impact global supply and customer demand beyond what has so far been generally contained.

From a baseline standpoint, and as we discussed last quarter, we expect the benefits of our expanded service capabilities and growing international activity to more than offset any competitive pressure.

Heading into the second quarter, we expect our Aviation gross profit to be up sequentially, driven in part by the typical seasonal increase in activity as well as some continued contribution from the current market environment, as well as up year-over-year with the inclusion of Universal Trip Support acquisition.

Our Land business delivered results in line with our expectations in the first quarter, with volume and gross profit down 15% and 38% year-over-year, respectively, reflecting the impact of our portfolio actions and previously announced disinfectors. The remaining exit-related activities are progressing as planned and are expected to be materially complete by the end of the second quarter.

While these lower-return businesses were a meaningful part of our portfolio in 2025, they are not part of our core growth strategy going forward. However, we continue to invest resources to support customers through a smooth transition.

For the quarter, our cardlock business performed well, benefit disciplined management that help margins keep pace with higher working capital costs and credit requirements in a rising such environment. These results were offset by our natural gas business which is negatively impacted by severe weather in the Midwest of January.

We expect second quarter gross profit to be up sequentially, though down versus the prior year, principally due to the [indiscernible] we have exited or in the process of exiting and the resulting impact on the comparative period. That said, we continue to expect our core land businesses to further improve and drive meaningful year-over-year growth with operating income still on track to nearly double and operating margin improving significantly toward our 30% target for 2026.

Next, I'll cover operating expenses and net interest expense. Operating expenses in the first quarter were $181 million, up 2% year-over-year. The year-over-year increase reflects the inclusion of the universal trip support business as well as higher variable compensation costs driven in part of our strong results in the first quarter. These operating expense increases were mostly offset by lower costs [indiscernible]. Net interest expense in the quarter was $26 million, up versus prior year, driven in part by a reduction in interest income as well as additional working capital requirements during the quarter as prices increase. With that backdrop, let's turn to our outlook and guidance framework.

As a reminder, for 2026, we're providing full year adjusted EPS guidance. We believe this approach better flexibly manage the business accounts for seasonality and provides investors a clear framework for evaluating performance. For the second quarter, while we do not expect a range to repeat its exceptional first quarter performance, we do expect overall adjusted EPS to be higher year-over-year. For full year 2026, we are updating our adjusted EPS guidance to $2.65 to $2.85 per share, up from the prior range of $2.20 to $2.40 per share. This reflects our overperformance to date, underpinned by baseline expectations that remain on track. Turning to cash flow, driven mainly by a sharp increase in commodity prices, which impacted working capital.

Our first quarter operating cash flow was negative $46 million and free cash flow was negative $60 million. While we expect prices to normalize over the coming quarters, we are proactively managing our exposure, and we believe that we remain well positioned with strong liquidity to deliver positive free cash flow in 2026 consistent with prior years.

And finally, a reminder that we returned $86 million of capital to shareholders through dividends and share repurchases in the first quarter. This includes the $75 million of share repurchases we completed in January as discussed on the February call.

Looking to the remainder of the year, we remain disciplined in our capital allocation framework with a key focus on returning capital and delivering long-term value to our shareholders.

As I wrap up, I'd like to leave you to some key takeaways. I First, we delivered a very strong start to the year with results well above expectations. While our core business is executed on target, we capture additional upside in a higher price and more volatile market, especially in Marine. While these conditions have persisted into April, our outlook is in the return to a more normalized market environment.

Importantly, periods such as needs reinforce our role as the trusted partner to customers, driving that with market expertise and acts the key supplier relationships supported by strong credit and liquidity position.

Second, as we discussed, Marine delivered extremely strong results in a volatile market, allowing us to capture attractive market-driven opportunities, underpinned by disciplined risk management. The strength of our team and market-leading position enables to significantly outperform our expectations for the quarter.

Third, Aviation outperformed our citations this quarter, and we continue to benefit from our strong global network and expanded service capabilities. We're remaining focused on discipline trends.

Our integration of the Universal Trip Support business is on track and we believe we are well positioned to deliver meaningful year-over-year growth. Fourth, land is progressing well through the exits and divestitures we discussed last quarter. With the similar, more focused portfolio and improving operating leverage, we are starting to see a steadier and more predictable baseline contribution from our core offerings.

We expect to build on this trend as we move forward with a focus on growth and improved year-over-year operating income and operating margin.

And finally, financial discipline remains essential for how we operate from cost management to capital allocation. We remain focused on executing our strategy maintaining a strong balance sheet and delivering consistent core earnings growth and cash flow generation.

With that, I'll turn the call to the operator for the Q&A session. Thank you.

[Operator Instructions] Our first question comes from the line of Ken Hoexter of Bank of America.

So great job in a volatile environment. You beat by our estimates at least $0.44 your full year, you're targeting of $0.45. So Mike, maybe you answered this a little bit in the last part, but maybe you could delve into it. I guess are you expecting a pullback, right, if you've got -- just based on your estimate, you've got, what $2 remaining for the rest of the year, so about $0.66 a quarter. So you're expecting a consistent pullback through the year. Maybe just walk us through how we should think about that?

Yes. Ken, thanks for the question. what we're kind of flowing through our guidance is a pickup from Q1. While we're taking some headwinds into April, Obviously, the dynamic market pretty volatile. So we're balancing it out. There's a lot of quarter left. So our guidance for the remainder of the year kind of holds consistently. The increased guidance is really a reflection of the Q1 overperformance that we have already kind of recorded. So we're just kind of maintaining where we were before for the balance of the year. .

Yes, stand in a different way than -- or not that different. Considering where we informally guided to for the first quarter, that $2 that you're referring to for the rest of the year is pretty consistent with where we thought the Q2 through Q4 would be going into the first quarter. There -- obviously, there's the opportunity for some additional upside. But as you see from what's going on today, we have a different story every day, and we're just assuming that we generate the same level of profitability over the balance of the year that we expected going in. If there's some upside, we'll talk about that next quarter, but we decided to play at the same time. .

So to be clear though, what you're saying now is it's not that it's pulled back to that level right now, it's just you're expecting the rollover and pullback in your forecast model. But right now, we're still seeing that volatility in pricing or profit per metric ton or gallon remaining elevated? Or it's already back down to...

It's not back to where it was. It's still above where it was. The peak volatility was clearly -- when these conflicts happen, the craziness is always most severe at the very beginning. If you combine price and volatility and uncertainty. So there's still some of that. It's not the same degree that it was the first couple of weeks in March. But obviously, there's still volatility in the market that's greater than it was in February. No one knows how long that's going to last. They could last another week, another month, another quarter is very difficult to predict. The longer it lasts, in theory, there could be some additional upside. But we -- I don't think any of us could predict predict that one. So again, we're for now just assuming that the balance of the year comes through the way we forecast before the conflict began. And there's certainly a possibility for some upside, some additional upside, but we'll wait until we have that in the books and close before we report on it.

So if we look at bunker fuel, and I don't know, Ira, maybe tell me if that's a good read on how we should think about Marine but you doubled your gross profit per gallon. Should we expect that to pull back? It looked like volumes were down, yet profitability obviously doubled. So maybe talk a little bit about the backdrop on the marine side. Given you said they really do take advantage of that volatile market. Maybe talk about the sustainability of that?

Yes, Ken, I can maybe just add in, like I said, I think that the peak of the volatility saw so far was in March. So April is definitely coming off that level of volatility, which is kind of 1 of the areas where you could see some additional incremental. So going off of the average of the month, April is performing stronger because obviously, Jan-February factored into that. So volatility and price has definitely elevated and higher.

So for April, we definitely have some -- we're taking in that obviously, higher level of performance. But as I indicated, that can go away quickly. As we said on the last earnings call, we wouldn't have forecasted or expected the increase in price in both that we saw throughout the month of March. So we're taking a cautious optimistic view on the rest of the quarter and the balance of the year and kind of getting back to that.

Yes, just some facts. Average average prices for the various products in Marine at the peak doubled in March versus February's average. They backed off about 20% from that MAX in April, but they're still well above February's average, right? So you could look at that number and read into it and say, we stay at the level that we're even at today, even though it's off the high of March, that could be -- again, that could be an opportunity for some incremental profitability, not the same level that we saw in March, but certainly, a greater profit contribution that we saw in the first 2 months of the year. but that number could change dramatically overnight or maybe you won't, right? So we're watching that very carefully and the teams out there trying to generate the best risk-adjusted returns they can without taking any undue risk in this uncertain environment.

So Ira, maybe that's a good 1 for you or Mike, I guess, seasonality, right? How do we think about if you've got maybe a stabilized April and what you're talking about kind of 2Q through 4Q, we normally seasonally see a sizable uptick in the 3Q. Is that -- do you think that goes away given this volatility? Or do you -- would you still see some seasonality there in terms of the bump?

That's really more of an aviation seasonality thing. So that doesn't go away and that seasonality was factored into our guidance at the beginning of the year. So that conflict or no conflict, the third quarter seasonality is still there. that would always be our -- so the first quarter is generally our weakest quarter of the year. Obviously, that's not what happened this year. We generally pick up a bit in Q3, Q2 and peak in Q3 and then come back down in Q4. So the Q3 story shouldn't change that much.

Obviously, the delta between the first quarter and the third becomes a lot smaller than you thought it was going to be at the beginning of the year. So -- but we could add the fact that, John, do you want to talk a little bit about what some of the risks to that might be?

Well, we've seen a lot of the airlines announcing schedule reductions. So that could offset some of the growth that we would be seeing in the third quarter. So that's a possibility that we could see some reduction there.

So we'll still have seasonality. But of course, we don't know what will happen, but you heard I think Lufthansa announced that they were tuning back a whole bunch of flights to be precautious. So we could see some volume degradation because if this drags on much longer, but even with that, the likelihood it's still going to be a seasonally strong quarter. They just not be as strong as we would have thought going into the year, if those situations start materializing as the summer season carries on.

Yes. And aviation, just to understand, we saw a nice bump in gross profit per gallon on Aviation. -- not to the extreme, we saw it in marine. But I don't know, maybe how much is tied to Arm services? How much is tied to maybe flight patterns that you're talking about or changing flight patterns given the given the Middle East? .

I mean 1 thing to consider, Ken, when you look at our Q1 performance is universal trip support. As a services business, there's no volume associated with that. So when you think about it on a gross margin basis on a per unit basis, it's going to show that we're stronger. Now we did have a good Q1. So there were some spot business activities, some co-related activity as well. that's not a master part of our business, that is something that we were able to kind of see some opportunities in Q1, and the team was they able to kind of take advantage of those. However, part of the, I guess, the margin tick that you're seeing is related to the services business.

Okay. And then last one for me. I appreciate the time. It is thoughts on credit extension. So usually, when prices go up, you've got to extend a lot. We saw accounts receivable go up by almost $800 million sequentially. Your payables did, what, almost $900 million. But when you look at the receivables, is that something we should look at? I know you've always historically been such good risk managers. Is there -- maybe just walk us through that process, right? Because usually, it decreases your cash flow increases your opportunity maybe Ira, just if you want to update on thoughts on that given [indiscernible].

Great question. First quarter was literally a hand-to-hand combat customer by customer. Obviously, if you've got a customer with an X billion dollar credit line and they're pulling the same volume and the price of jet fuel doubles, you need to double their credit line to support that level of volume. You have to decide whether you want to do that. So the team has historically done a phenomenal job looking at each and every customer, every situation and determining where we have that room and where we might not what our options are. And they're all different outcomes, but I think we've worked through that. The team has done a phenomenal job of that to date. Obviously, we're spending more time focusing on credit and related risks and -- not that we don't do that all the time, but obviously, we've stepped up that game in this situation at the numbers, as you point that have grown by several hundred million dollars in aggregate. But it's something we do very, very well. Something can always got to big go wrong, but we manage that well. We monitor on a day-to-day basis and stay as close as we can to our customers, especially the most sizable ones where the risk is greatest.

I would now like to turn the conference back to Ira Birns for closing remarks.

Well, thanks, everyone. Thanks, Latif. I'd like to just close out by reiterating how proud I am of our team and the incredible effort they put forth in the first quarter, not that they don't do that every quarter. But this quarter, I would say that you could use a lot of words incredible, remarkable. And John and I and Mike are extremely grateful for that effort.

As we look ahead, we're entering the remainder of the year as a simpler and more focused business, built on scale, disciplined risk management and a strong balance sheet, as I mentioned earlier, and, of course, supported by our extremely talented and experienced team, as I just mentioned.

We'll stay close to our customers, just as I mentioned to Ken, in our last answer, execute with the same rigor you saw this past quarter, and remain committed to delivering strong performance through all market environments. We're -- we know we haven't always painted a clear picture with all the exits transformation efforts that have almost been completed. I think our story is getting simpler. We're able to focus more on the core businesses that we've had years and years of experience managing and those businesses are all generating solid returns, and they all have different levels of growth opportunities that we're 100% focused on now.

So moving in the right direction. We appreciate your time and continued interest in World Fuel and we'll talk to you again next quarter. Thank you very much.

Today's conference call. Thank you for participating. You may now disconnect.

[Audio Gap] Here a moment ago, we expect consolidated gross profit to be down versus prior year and sequentially, driven principally by the exit activity in Lance.

Moving on to operating expenses. Adjusted operating expenses in the fourth quarter were $186 million, down 6% year-over-year, primarily due to lower incentive compensation as well as the exit of certain businesses in our land segment, which we have previously discussed. For the full year, adjusted operating expenses declined approximately 7% to $78 million. This reflects that only performance-related compensation impacts, but also our continued focus on operating efficiency. As we move forward, we expect further benefits from the strategic repositioning of the land segment alongside continued investment in our platforms to ensure we enhance the customer experience while creating greater efficiencies.

Additionally, we are also focused on improving our operating leverage to the use of advanced analytics and AI enabled tools. For the first quarter of 2026, we expect operating expenses to be down versus prior year and sequentially when adjusted for residual land exit-related activity driven primarily by the improved cost base in land as well as the additional focused efforts we've been making to restructure the organization. These benefits are partially offset by the incremental operating expenses associated with our universal Trip Support acquisition.

Net interest expense in the fourth quarter was $26 million. in line with expectations. During the quarter, we amended and extended our $2 billion senior unsecured credit facility to November 2030 with a 1-year extension option. The amended facility improves pricing and flexibility and reinforces our strong liquidity position as we continue to execute on our strategy. Our adjusted effective tax rate was 29% for the quarter, resulting in a full year adjusted effective tax in line with the guidance we provided. Before turning to cash flow, I want to spend a moment on an important change to how we will provide financial guidance this year.

For 2026, while we will continue to share insight into anticipated quarterly segment performance we are transitioning to provide full year adjusted EPS guidance. We believe this approach better reflects that we manage the business, accounts for seasonality and market volatility and provides investors with a clear and more consistent framework for evaluating our performance. With the backdrop of everything we have covered and driven by the market conditions and business changes referenced in the fourth quarter, we expect the first quarter EPS to be down versus prior year and relatively flat sequentially.

For the full year, however, we expect 2026 adjusted EPS to be in the range of $2.20 to $2.40, representing solid year-over-year growth and reflecting the benefits of our portfolio actions and disciplined execution. Looking next at our cash flow and capital allocation. In the fourth quarter, we generated $34 million of operating cash flow and $13 million of free cash flow. For the full year, operating cash flow totaled $293 million slightly ahead of our expectations, while free cash flow came in at $227 million, exceeding our targets for the year. Combined with 2024, we have generated $419 million of free cash flow, also ahead of our long-term objectives.

Strong cash generation enabled us to continue to return capital to our shareholders. In the fourth quarter, we repurchased $40 million of shares, bringing full year repurchases to $85 million. Total capital return through dividends and buybacks in 2025 and was $126 million. Additionally, our board recently approved an incremental $150 million share repurchase authorization. And subsequent to year-end, we completed an additional $75 million in share repurchases underscoring our confidence in the business and our disciplined approach to capital allocation.

As we look ahead, I'll leave you with a few key points. Aviation remains the foundation of our portfolio. delivering strong results in 2025, while expanding our international presence and global service offerings. While we expect some increased competitive pressure versus 2025, the core business is strong and remains positioned for sustainable growth. Land reached a turning point in 2025. We simplified the portfolio, reset the earnings base and improved long-term return potential. We expect continued improvement as we move to 2026 with stronger operating margins and a significant increase in operating income.

Marine continues to demonstrate resilience, generating attractive baseline returns and offering significant upside when market conditions improve. Financial discipline remains central to how we operate from cost management to capital allocation. Most importantly, however, we enter 2026 as a simpler and more focused World Kinect with clear priorities and improved visibility into earnings growth. Looking ahead, our focus is on disciplined execution strong cash flow generation and continued progress toward our long-term margin and return objectives.

Additionally, as we operate a simpler and more focused portfolio, we will strive to increase the transparency of our business model and our expectations of the business at this segment as well as at the consolidated level.

With that, I'll turn the call to Latif for the Q&A session. Thank you.

[Operator Instructions] Our first question comes from the line of Ken Hoexter of Bank of America.

And great to hear the move to simplify the business and provide the clarity. So Ira, maybe just start off with -- you've made an acquisition here on Universal Trip. Maybe talk about scale of revenues up income volumes for that? And then also on the sale of the tank wagon business, maybe talk to us about the impact we should expect on volumes, revenues or what have you as we move into the second half, just to keep that off.

Good to hear your voice, Ken. Thanks for the questions, and thanks for being here. So starting on Universal, remember, that's a service business. So there's no volume and the approximate gross profit number for that business, which I think we shared at the time we closed the deal is about $70 million. So we had a couple of remember, we had a couple of months under our wings in 2025 because we closed at the beginning of November. So we'll see -- so the year-over-year want to certainly be the full $70 million, but the actual impact on 2026 will be somewhere around $70 million. in terms of the exits, I'll let Mike give you a high level on that.

Yes. I mean we're shooting about 1 billion gallons worth of volume between all our exits related to the diesel direct transaction, that we're receiving about $100 million between cash proceeds and return of working capital. So we should be in a pretty good position. We did take some noncash impairment related charges in the fourth quarter. but much better positioned for the go forward. In terms of profit contribution, everything, I think these exits in totality are positioning us much better going forward and we oil obviously kind of exceed expectations as we go forward. Our expectations are to exceed that as we move forward.

Yes. So Ken, just to follow up to the exits in totality, right? Power, energy management and sustainability services in Europe and then the piece that Mike did just talked about, unfortunately, they weren't really delivering much of anything in terms of operating profit, they were tying up capital -- they involve more capital investment if we really wanted to have a chance to grow those businesses in a meaningful way. And we were just dedicating a lot of attention to those areas, which I would generally define as noncore. So it made a lot of sense to make the move. As Mike mentioned, it's got a bigger impact on volume than it does on profitability. It will bring back capital, increase our returns and most importantly, allow us to focus on the parts of that business that we talked to you the most about over the years at [indiscernible] and then more recently, Cardlock after the flyers acquisition. That -- those 2 pieces of the pie will become the cornerstone of that business, and that's where we think we have some real growth opportunities.

We're already delivering solid margins and returns. And as I mentioned in my prepared remarks, there are some new fangled opportunities in that space to enable us to pursue growth that we really haven't thought about several years ago. It will be easy for us to explain that business to you. I know if you go back a few years, there were 15 different pieces to the pie. And now it will principally be 3. There's a couple of smaller inconsequential pieces, but almost the entire business once we're out of these activities that we're exiting will be [indiscernible] retail and natural gas.

So Mike, in your presentation, you talked about changing to just annual guidance. staying away from quarterly before when you add the European business, there was always the big move of seasonal European land, right -- the U.K. land, right? There was seasonality in first quarter, fourth quarter. How should we think about it now as you exit these businesses? Is it going to be more ratable, more balanced? Is it something we won't see through 1Q, 2Q because of the pending sales and we'll see it in the back half. maybe just as an initial thought as you just give that annual guidance, how we should lay that out.

Yes, Ken. For land, I think the seasonality story kind of falls away a little bit with the U.K. land sale that we had. And a lot of these exits and activity we're doing as well kind of further while it wasn't as big of an impact, it kind of further kind of decreases that [indiscernible]. Now it will take a little bit of time to kind of get into the go-forward run rate, I would say, in land. But overall, the seasonality picture is much improved in land. I think the main seasonality story for the company now is really related to aviation, and that's with demand in flights. And -- yes, but that should cover for land.

Yes. I'll add to what Mike said, Ken. So one of the things you were alluding to reading your mind is we always -- well, for many years, we talked about heating oil in the U.K. And if it wasn't told, we'd have swing if it was, that would be a seasonal pickup for land that's gone. We do have natural gas, which does have some seasonality associated with it. Obviously, you're selling more natural gas in the winter months than the summer months. It's not necessarily as pronounced as the heating oil story was. And then aviation always has its seasonally strongest quarters in Q2 and Q3. So we still have meaningful enough seasonality where we start with our weakest quarter of the year.

We built up in Q2. Q3 has generally been our strongest quarter in Aviation which is obviously the biggest piece of the pie and then we tail off a bit in Q4, that should still be the case even though we've eliminated some of the pieces of the pie that had some levels of seasonality as well.

Great. And sorry, I do have another one or two. Can you expand on the impact of -- you talked about owning and managing the fuel yourself, but partnering with independent operators who run the convenience stores. Can you maybe detail that and then the competitive pressure on aviation sounds like you expect more. Is this a new normal or a change in business that you're seeing that increase?

So I'll start with the first question. That model is growing in popularity in the [indiscernible] space in the U.S., call it a hybrid model. we're still focused on growing the model that we've talked about for many years. But there are scenarios where we find opportunities to grow the business that warrant is simple with the simple distribution model that we had in the past, if we're willing to take an ownership or it doesn't -- we don't have to own the site, we can lease the site, position ourselves interestingly enough, it's actually a somewhat better cash flow model because when we enter into those long-term arrangements, we generally have incentive type payments that go out upfront that we earn back over the life of the 7-, 10-, 15-year deal, which no longer would be the case in this newer model.

And we own the fuel. Therefore, we're reaping a higher margin on the fuel. It's actually a good cash flow model. So it won't necessarily increase our working capital position because we've got extremely solid credit terms in that part of our business. So it just opens up doors for us to find more growth in that part of the market that we hadn't really focused on historically. We're looking at it very carefully. We're understanding that we own the asset. We have to make sure that the economics make sense and we generate the returns that we want. But we're finding opportunities.

We've actually launched several locations already under that model, and so far, so good. In terms of aviation, I wouldn't use the word new normal, but it may be the temporarily new normal, right? I think we're still seeing -- or I know we're still seeing some of that as we speak quarter-to-date, we'll take it a quarter at a time. The margins are still strong. And then there's also growing opportunities to find opportunities to -- I said that word twice, sorry. to expand to new locations that could offset some of the margin pressure from that competition word, if you will. So the team is out there looking for opportunities to add airport locations to the portfolio, which will drive additional volume.

So I think we still have a lot of opportunities there, but I can't tell you whether what we saw in the fourth quarter is exactly what's going to happen in Q1 and Q2, but at the moment, we're seeing a bit of the same, and we'll see what happens as the year progresses. Typically, in aviation, a big chunk of the, as you may remember, of the contracts roll in about the middle of the year. So as we're going through those -- what's akin to an RFP process for the contracts that go from mid-'26 into '27, we'll know a little bit more about where we come out from a margin standpoint as we finalize those negotiations. So plenty of opportunity, but we just wanted to conservatively provide some caution on the fact that, that competitive pressure is out there.

All right. And if you'll indulge me, I'll toss 1 more out just to wrap it up. But the marine business, I think you talked about waiting for a rebound. Is that incumbent upon shipping volumes? Is it trade lanes? Given the dynamic and changes in the container market right now, what are you looking for on a rebound there?

Thanks for all the questions, Ken. Appreciate it. Look, in Marine, it's the same story. Certainly, there are macro factors that could always help. The biggest macro factor that has historically helped if you look at our P&L over the years in the Marine business is price and volatility. And we remain at a relatively low price environment, a low -- relatively low volatility environment. So the business, I would describe that business as stable. That always has opportunity to pounce on when things move in the right direction. could be trade lanes get helped out a bit. There's all sorts of things that could drive opportunities there. But the most significant have always been price and volatility, and we're still again, at the lower end of historical price range. And therefore, we don't expect anything materially to change in '26 if it does, that would be upside to our guidance.

Thank you. I would now like to turn the conference back to Ira Birns for closing remarks. Sir?

Well, thanks, Like, for all the questions, and thanks to all of you, the rest of you for joining us today. I know we've been on a bit of a bumpy road these past few years. but I'm very excited about and have great confidence in the current trajectory of our company, supported by the strategic changes we've made across our organization. As we've discussed today, we now have a simpler, more focused business model. that allows us to concentrate on what we do best: leveraging our global best-in-class platform to reliably deliver fuel and related services across the transportation and broader energy distribution markets. .

This industry continues to evolve and so do the needs of our customers. World Kinect has always been at the forefront of helping customers navigate risk, volatility and operational complexity with consistency and insight. With a streamlined portfolio and a renewed focus on disciplined execution and with a much tighter portfolio of business activities, we are better positioned than ever to meet those demands. Before we close, I want to thank all of our employees around the world for their commitment and support, particularly during the year of significant change. Their focus, professionalism and dedication are foundational to our success. We look forward to updating you on our journey as this critical year progresses. Thanks again for joining us, and we'll see you in April. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for standing by, and welcome to World Kinect Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Braulio Madrano, Senior Director of FP&A and Investor Relations. Please go ahead.

Thank you, Latif, and good evening, everyone. Welcome to World Kinect's Third Quarter 2025 Earnings Conference Call, which will be presented alongside our live slide presentation. Today's presentation is also available via webcast and on our Investor Relations website. I'm Braulio Medrano, Senior Director of FP&A and Investor Relations. With us on the call today is Michael Kasbar, Chairman and Chief Executive Officer; Ira Birns, President and Chief Financial Officer; and Mike Tejada, Senior Vice President and Chief Accounting Officer.

And now I'd like to review our safe harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause actual results to materially differ. Factors that could cause results to materially differ can be found on our most recent Form 10-K and other reports filed with the Securities and Exchange Commission. We assume no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events.

This presentation also includes certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our 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 Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Braulio. Earlier today, we announced a series of important leadership changes. The Board has unanimously elected Ira Birns to become World Kinect's next CEO and join the Board effective January 1, 2026. This is an important and positive milestone in our company's history for several reasons. The first is confidence in leadership. The Board has full confidence in Ira's ability to efficiently allocate resources, accelerate our focus on core businesses and aggressively drive growth and returns. And the second is strength of the team. With John Rao's exceptional commercial and operational expertise and Mike Tejada's deep commodity, financial and accounting acumen, we have a talented leadership lineup tested and ready to lead us forward.

This transition has been years in the making. Over the past several years, our leadership team has taken on increasing responsibilities and gained invaluable experience. Equally important, this team has the temperament and skill to navigate cycles and events, pandemics, wars, deglobalization and the disciplined judgment to evaluate risks and uncertainties, prudently allocate capital and maximize long-term value. They are well seasoned to deliver. Most importantly, we have the right people in the right roles to drive our goals and future growth, demonstrating our commitment to talent development and organizational capabilities that will sustain success for years to come.

With improved organizational strength, operational readiness and a sharper portfolio, we are well positioned for the future. The entrepreneurial spirit that built this company in fragmented markets is now complemented by the operational and financial discipline required to profitably scale in today's environment. I am incredibly proud of our transformational journey from a simple broker and reseller to a strategically important partner, providing mission-critical supply to some of the largest and most important companies around the world. I couldn't be more proud.

Turning to the business. Aviation delivered another solid quarter of double-digit earnings growth, driven by improved operating leverage in Europe and profit growth in both business aviation and government activity. Our recent announcement to acquire Universal's trip Support Services expected to close in Q4 will add momentum and significantly expand our service offering to our core business and general aviation customer base. Marine faced a challenging quarter amid lower bunker prices and low volatility, but we see strong opportunities for greater cash generation when market conditions shift.

Land rebounded significantly from Q2, and we are confident that our accelerating portfolio reshaping efforts will improve financial returns and earnings predictability as we move into 2026. We are nearly through our portfolio sharpening, and Ira, John, Mike and the rest of our team have my full support to deliver on our strategic plan and drive the business forward. I'll now turn the call over to Ira for a financial review, I guess, his last and his business comments.

Thank you, Michael, and good evening, everyone, and be prepared. I unfortunately have a lot to say today. Mike, I want to begin by expressing my deep gratitude not just for your extraordinary leadership over the years, but for your unwavering commitment to our mission, our people, our customers, our suppliers and our shareholders. Your vision and passion have shaped this company into what it is today, and I've been truly honored to work alongside you for so many years. I'm incredibly excited about the road ahead and the opportunities that lie before us. This next chapter builds on the strong foundation you've created, and I'm grateful that you'll continue to be part of our journey as Executive Chairman.

Over the past several quarters, we've been sharpening our focus, as Mike just mentioned, making deliberate decisions to exit noncore and underperforming businesses. While there is certainly still more work to be done, this is already enabling greater strategic clarity and is allowing us to concentrate more of our time, energy and capital on the areas where we see the greatest opportunities for growth across our aviation, marine and land platforms. As we move forward, executing on this strategy will continue to be a team effort, and I'm especially looking forward to continuing to work closely with John Rao, who will step into the role of President and Mike Dejada, who will succeed me as CFO.

Both bring tremendous expertise, drive and integrity to their new roles, and I have every confidence in their leadership. With a strong foundation and a world-class team, I believe we're well positioned to unlock greater value for our shareholders, our customers and our employees throughout the world. Mike, again, I look forward to your continued support as Executive Chairman, and I am excited about working alongside our exceptional leadership team and our Board as we move into this next chapter. As Mike Dejada will be assuming the role of CFO after we file our 10-Q tomorrow, I will now take you through our quarterly financial results for the 75th and last time.

Before we review our financials, please note that our non-GAAP results reflect approximately $5.8 million of non-GAAP adjustments this quarter or $4.2 million after tax, principally associated with the finance transformation initiative we initiated last quarter, where we continue to make progress in line with our expectations. Reconciliations are as always on our IR website and in today's webcast presentation. So now let's turn to our third quarter non-GAAP results. On a consolidated basis, third quarter volume was 4.3 billion gallons, that's down 4% year-over-year, and consolidated gross profit declined 7% from last year's third quarter to $250 million.

Although our gross profit did fall below guidance for the quarter, we were able to offset most of this impact by effectively reducing variable costs. This brought our operating expenses below expectations and resulted in operating income that was within our guidance range and very close to the midpoint. In the third quarter, our aviation volume was 1.8 billion gallons, down 4% year-over-year. While volume declined, aviation gross profit of $143 million increased $14 million or 11% year-over-year, driven principally from continued strong results at our airport locations in Europe, an increase in government sales and our business and general aviation activities.

Speaking of Business Aviation, as Mike mentioned, in September, we entered into an agreement to purchase Universal Weather and Aviation's trip support service business. This business provides end-to-end operational support for business aviation flights worldwide, covering everything from flight planning and overflight permits to on-the-ground coordination of more than 3,000 locations throughout the world. This transaction is expected to be approximately 7% accretive to adjusted earnings per share in the first 12 months with additional accretion from the realization of approximately $15 million of annual cost synergies within 2 years following the closing date of the transaction, which we now expect to occur within the next 2 weeks.

As we look to the fourth quarter, we anticipate Aviation's gross profit to again increase year-over-year, supported by the expected contribution from the Trip Support acquisition in addition to continued momentum from our airport locations throughout Europe. In the third quarter, land volumes declined 8% year-over-year, mainly driven by the sale of our Brazilian business in last year's fourth quarter and the sale of our U.K. land business in the second quarter of this year. Land gross profit was $81 million. That's down 20% year-over-year, principally due to continued unfavorable market conditions in part of our liquid fuel business in North America, most notably ongoing transportation inefficiencies tied to our fuel delivery business and the impact of our recent exits from the U.K., Brazil and certain operations in North America.

For the fourth quarter, year-over-year gross profit is expected to decline, again, primarily due to the impact of the various business exits over the past year and continued macroeconomic headwinds in parts of the business. While we've already taken significant steps to reshape our portfolio, exiting Brazil and the U.K. and select activities in North America, as I just mentioned, we are now sharpening our focus even further. Going forward, our priority will be to concentrate resources and capital on our core, most profitable land business activities, those with the greatest potential for sustainable growth and earnings consistency.

In the short term, this means working to quickly further streamline our portfolio while leveraging operational efficiencies across our core land business activities. These initiatives are designed to drive meaningful improvement in our land segment's performance as we move into 2026 and beyond, positioning us to deliver stronger overall shareholder returns. In Marine, while volumes increased 3% year-over-year, primarily driven by a recovery in the dry bulk markets, gross profit decreased 32% year-over-year. This decline is principally due to lower profit contributions from certain physical locations as well as lower margins driven by low market volatility and a lower fuel price environment.

As we have consistently communicated over the years, the spot nature of our Marine business closely aligns performance with pricing environments and market volatility levels. While periods of lower prices and reduced volatility can impact profitability as they certainly did this quarter, since Marine operates with modest capital requirements, we generally generate cash in marine across cycles. We also remain focused on further strengthening the segment's resilience during cyclical troughs while positioning Marine to best benefit when prices and volatility increase. While we anticipate some sequential improvement in our results for Marine in the fourth quarter, with market volatility and prices expected to remain low through the fourth quarter, we expect marine gross profit to decline year-over-year in Q4.

As we look to the fourth quarter and with the backdrop of the related segment gross profit comments shared a moment ago, we expect consolidated gross profit to be in the range of $237 million to $245 million. Moving on to expenses. Consolidated operating expenses were $181 million. That's down 7% year-over-year. As mentioned earlier, this is well below guidance, primarily driven by lower variable costs during the quarter. As always, we remain focused on disciplined expense management, always focusing on additional opportunities to drive efficiencies across the business.

As we look to the fourth quarter, we expect operating expenses to be in the range of $181 million to $187 million. This outlook reflects a partial quarter impact from the recently announced Trip Support acquisition, again, expected to close within the next couple of weeks. Despite the additional expenses related to the acquisition, we still expect a year-over-year decline in operating expenses, driven by the businesses recently exited and our continued focus on driving greater cost efficiencies throughout our platform. Interest expense was $26 million in the third quarter, up approximately 8% year-over-year, consistent with the guidance provided last quarter. For the fourth quarter, interest expense should be in the range of $25 million to $27 million.

The anticipated increase in interest expense associated with funding the Trip Support acquisition is expected to be generally offset by the impact of declining interest rates. Our third quarter adjusted effective tax rate was 27%, slightly higher year-over-year, but consistent with guidance provided last quarter. Looking at the fourth quarter, we expect our adjusted effective tax rate to be generally in line with the third quarter, approximately 26% to 28%, which should result in an adjusted full year effective tax rate of 20% to 22%. One highlight of the quarter, our cash flow generation remains strong with $116 million of operating cash flow and $102 million of free cash flow generated in the third quarter. This increases our year-to-date operating and free cash flow to $259 million and $215 million, respectively.

In closing, I want to leave you with a few thoughts, actually, several thoughts. Aviation results this quarter reflect the strength of our service network, especially our European airport locations and our business and general aviation activities throughout the world. We're truly excited about the addition of the Universal trip support business. Trip support services have always complemented our global fuel distribution activities. Now with this acquisition, our trip support business will triple in size, further enhancing and expanding the value we deliver to our aviation customers alongside our fuel offering.

Land results reflect the impact of our recent exits from the U.K., Brazil and certain operations in North America. As stated earlier, we are continuing to sharpen our focus in land with more activity underway, which should result in meaningfully better results and returns for land in 2026. Marine performance was principally impacted by lower profit contributions from select physical locations as well as broader impacts from the continued low price, low volatility environment. And we also continue to focus on driving greater operating efficiency in Marine to enhance returns in this business.

Operating expenses again came in below our guidance range, underscoring the flexibility in our variable cost structure and our disciplined approach to managing expenses. Our ability to generate strong operating cash flow is a testament to our level of excellence in working capital management. This quarter, again, we generated cash flow of $116 million of operating cash flow and free cash flow of $102 million. This lowered our net debt to adjusted EBITDA ratio to under 1x, enabling us to maintain our strong liquidity profile. We haven't talked about the targets we shared at our Investor Day event a couple of years back in a while, so it's a sensible time to provide an update as we approach 2026.

Our cash flow generation to date remains in line with the 5-year aggregate free cash flow target we had set. While we haven't yet reached our adjusted operating margin target of 30%, we remain focused on achieving this target before the end of next year, driven in large part by many efficiency initiatives well underway. We have also been meeting or exceeding our targeted free cash flow allocated to buybacks and dividends as we remain focused on enhancing shareholder value through these programs. As a matter of fact, since the beginning of 2024, we have returned $214 million to shareholders through buybacks and dividends, representing more than 50% of free cash flow over that time period, exceeding our Investor Day target of 40%.

Regarding the EBITDA target we shared at our Investor Day event, progress has been affected by several factors: the impact of businesses we have exited, subdued M&A activity due to the persistent high interest rate environment, which is now changing, and market weaknesses in certain segments, as we have discussed along the way. As a result, reaching this target will take longer than anticipated. Nonetheless, we remain focused on further improving operating efficiencies, generating strong cash flow and boosting returns, all of which should pave the way for more meaningful EBITDA growth.

With our strong financial profile and healthy balance sheet and liquidity profile, combined with declining interest rates and more reasonable market multiples, we also see increasing opportunities to invest in our core business activities and more attractive returns. Finally, and yes, finally, I'm almost done. As I prepare to take on my new role, I'm energized by the opportunities ahead, and I am fully committed to leading our efforts to drive growth and enhance shareholder returns. I would like to thank all of you for your continued support, and I look forward to spending more time with our customers, suppliers, employees and the investment community in the months ahead. I'll now turn the call back to Latif, our operator, for Q&A. Latif?

[Operator Instructions] Our first question comes from the line of Ken Hoexter of Bank of America.

Adam Roszkowski on for Ken Hoexter. Michael, Ira, congrats on the promotion. Maybe I'll just start with land. I mean you noted the sharpening focus in this segment, but also some unfavorable market conditions and some transportation inefficiencies. Maybe what is it going to take on those last 2 points to maybe turn that around? What are you seeing over the next quarter, year or so? Curious how you view the market.

We'll share a lot more about that next quarter, Adam. But in the short term, there -- if you look at something like transportation inefficiencies, we're looking at different strategies to manage delivery of product in North America, in particular, that could be significantly more cost efficient. There may be some markets that may not make sense for us long term. So we're really digging into every piece of our North American business and even some of the activity in land overseas to figure out whether there are better strategies to drive greater returns or whether there are some parts of the business that may not make sense for us longer term, similar to the storyline that we've shared for Brazil and the U.K. over the last over the last 12 months.

So we're working through that. I'm pretty confident that we'll have a lot more details to share as we get into the end of the year on the land business. Obviously, we've been disappointed with performance, but the team is really focusing on a lot of ways that we can make that business dramatically more profitable at a relatively short period of time, and we're spending a lot of time focusing on that.

Got it. That's helpful. Maybe going back to the latest acquisition, 7% earnings accretion in the first year. Broadly, do you have a thought on the cadence of how that flows in, in the first year? Does it ramp sort of at the tail end? Any thoughts?

We've been conservative. So if we're just looking at the current run rate of business, again, we're not assuming any immediate synergies. So as we hopefully close at the very beginning of November, it should be fairly ratable on a monthly basis. There isn't -- the material. There's maybe a little bit of summer seasonality in the private jet industry, but the number should be fairly ratable over the first 12 months. And then as we get beyond 12 months, we should start seeing some increase in their bottom line contribution from the achievement of synergies over about a 2-year period after we complete the first year.

Got it. And Michael noted that you're nearing the -- I think you said the nearly through the portfolio sharpening, but also noticed or noted that interest rates coming down that could spark some M&A opportunities. So maybe how are you balancing kind of further sharpening divestitures from here? And what -- and potential M&A opportunities from here?

Well, great question. So obviously, we have a lot going on in the short term, which is, as I said, we'll share more in Q4 in terms of fixing, restructuring some things, putting land in a much better position. And then also a lot of work to get the Universal acquisition integrated as quickly and as efficiently as we can. So that's a lot of work right there. But at the same time, with interest rates coming down, we're actively looking at opportunities beyond the Universal transaction. I don't foresee any of that happening overnight, but we have a pipeline of opportunities that we're looking at.

We have a much sharper focus on what makes sense versus what doesn't than we may have had several years ago. So the door is opening a bit wider. I wouldn't expect anything to happen tomorrow, but I think over the course of '26, some more opportunities should hopefully materialize in our core, where we know we can get synergies, we know we can integrate effectively and drive EPS growth through that mechanism.

Got it. And got some support this quarter from the variable cost side. You spoke about some of the opportunities in land. Maybe just broadly, any other areas that you expect some runway? And if you could speak to any of those other kind of variable cost efficiencies you can have here.

Yes. So land is a big piece. So we've talked about that a couple of times already. But we're -- every day, we're looking at every part of the business where there are opportunities to do things more cost effectively. One of the things we talked about a little bit, which had a charge this quarter associated with it is our global finance transformation initiative. Mike Tejada and I are actually heading overseas as part of that next week. And that's only kicking off. It takes a while to ramp up one of those programs, but that will start paying dividends for us in '26 and even more so in '27.

So we're -- that's one example of something we're doing within one function that will generate several million dollars of benefit for us over time. And we're, of course, looking across all of our activities that are ratable, that have synergy opportunities and that have potentially opportunities to operate under more efficient cost structures. So the finance piece is one example. We've done a little bit of that in IT, similar to the outsourcing initiative in finance, and we'll look at more opportunities of different flavors over time where we could drive efficiencies and not only save money but add more value to the business, right?

That's the goal as well, right, to improve our back-office functions, make them more supportive of the business to help the business accelerate growth, make it easier for them to operate on a day-to-day basis. So there's a lot going on. There's one example. And over time, we'll share additional examples.

[Operator Instructions] I would now like to turn the conference back to Michael Kasbar for closing remarks. Sir?

Okay. Well, thanks for joining us today. It's a quick call. I want to once again congratulate Ira, John and Mike in the new roles. We look forward to speaking to you next quarter. So stay well, stay safe, and watch this space. Thanks very much. Take care, everybody. And thanks to our global team. As always, it is a great pleasure to work every day alongside each and every one of you. Take care.

Bye-bye for now.

Thanks, everybody.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, everyone, and welcome to the World Kinect Corporation Second Quarter 2025 Earnings Conference Call. With us today are Michael J. Kasbar, Chairman and Chief Executive Officer; Ira M. Birns, President and Chief Financial Officer; and Braulio Medrano, Senior Director, FP&A and Investor Relations. [Operator Instructions] Now it's my pleasure to turn the call to Braulio Medrano, Senior Director, FP&A and Investor Relations. Please go ahead.

Thank you, Carmen, and good evening, everyone. Welcome to World Kinect's Second Quarter 2025 Earnings Conference Call, which will be presented alongside our live slide presentation. Today's presentation is also available via webcast on our Investor Relations website. I'm Braulio Medrano, Senior Director of FP&A and Investor Relations. With us on the call today is Michael Kasbar, Chairman and Chief Executive Officer; and Ira Birns, President and Chief Financial Officer. And now I'd like to review our safe harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause actual results to materially differ.

Factors that could cause results to materially differ can be found in our most recent Form 10-K and other reports filed with the Securities and Exchange Commission. We assume no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. This presentation also includes certain non-GAAP financial measures.

A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our 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 Chairman and Chief Executive Officer, Michael Kasbar.

Thank you, Braulio. Good evening, everyone, and welcome to our call today. I'd like to start by noting that our global commercial, business and general aviation fuel and services platform continues to perform very well.

Demand for commercial and business aviation fuel and services remains strong, particularly in Europe, where our operated and inventory airport locations have continued to deliver strong results. With the strong summer travel season underway, we expect this momentum to continue into the third quarter. The past few months have also been a period of meaningful transformation for World Kinect.

Despite continued macroeconomic headwinds, we are making deliberate and necessary moves to streamline our portfolio. This is reducing structural complexity and allowing us to focus and sharpen execution in the parts of our business that offer the greatest opportunity for sustainable value creation in the medium and long term.

Consistent with this strategy that we have outlined in prior earnings calls, we have scaled down exposure or exited underperforming activities that have exhibited earnings volatility and refocused our capital and team to strengthen our capabilities in businesses and geographies that deliver recurring revenue and higher economic value.

Our transformation accelerated recently with the sale of our U.K. land operations following a similar divestiture of certain Brazilian assets in late 2024 and continues with the ongoing refinement of the remaining portfolio of activities in our land segment. The Land segment, as you've seen, experienced another challenging quarter.

In an environment of continued global economic uncertainty and demand weakness in parts of our North American liquid fuels business, we are making difficult but necessary choices to reshape our business around core markets that represent opportunities for a more predictable and more consistent earnings contribution.

Aside from the impact of a discrete item that affected second quarter results, which Ira will describe shortly, our Global Marine segment delivered core results generally in line with expectations despite competitive market conditions. From a capital deployment standpoint, we continue to follow a balanced approach. During the second quarter, we took another step forward in our commitment to delivering shareholder value by increasing our quarterly dividend, an action that reflects both our confidence in the business and the strength of our cash flow generation capabilities.

In a time of market complexity, our ability to generate consistent and sustainable cash flow allows us to reinvest in our highest performing platforms while also returning capital to shareholders in a disciplined and meaningful way without sacrificing the pursuit of strategic growth opportunities.

In summary, while we are navigating a challenging macro environment, we continue investing in our most resilient and ratable platforms while shedding assets and exiting business activities that no longer meet our return and runway thresholds. This is increasing our focus on operational discipline and portfolio selection.

While there's more work to do, I'm proud of the progress we've made so far and confident in our ability to continue to drive medium- and long-term value for our shareholders. With that, I'll turn it over to Ira for more detail on the quarter.

Thank you, Michael, and good evening, everyone. Before I review our second quarter operating results, I'd like to walk through several GAAP to non-GAAP adjustments recorded during the second quarter.

Reconciliations are as always, on our Investor Relations website and today's webcast presentation. Our second quarter non-GAAP adjustments totaled approximately $487 million or $373 million after tax. The most significant adjustment relates to a noncash intangible asset impairment totaling $367 million within our land segment, $359 million of which is related to goodwill and $8 million related to other intangible assets in land.

The goodwill impairment was driven by our reassessment of the remaining business activities within land and the related revisions to our long-term forecasts. As part of our disciplined capital allocation strategy, we continue to actively shed underperforming assets and streamline business activities that fall short of our return thresholds, enabling us to concentrate our operational focus on core activities with leverageable platforms, stronger returns and the most significant growth opportunities.

$82 million of the non-GAAP adjustments relate to the sale of our U.K. land business that we completed in April. A significant portion of this overall adjustment, approximately $55 million relates to noncash unrealized foreign currency translation losses previously included within shareholders' equity.

In our Marine segment, we recorded a $32 million asset impairment in the second quarter related to a physical inventory location that no longer aligns with our long-term strategic objectives. The remaining $6 million in non-GAAP adjustments principally consists of additional restructuring charges associated with the company-wide transformation, which we began in the first quarter.

More specifically, these charges relate to an initiative to streamline our global finance back-office operations to enhance scalability and better support our medium- and long-term strategic objectives. Now let's turn to our second quarter operating results. And as a reminder, the following results exclude the impact of the non-GAAP adjustments that I just reviewed.

On a consolidated basis, second quarter total volume was $4.2 billion, that's down 3% year-over-year, and consolidated gross profit declined 5% from last year's second quarter to $232 million. That's below the guidance range provided last quarter. While weaker-than-expected results in land were largely offset by stronger results in Aviation, consolidated gross profit came in below the range provided last quarter due largely to an unexpected unfavorable transaction tax settlement in our Marine business.

While gross profit did decline 5% year-over-year, as a result of numerous strategic actions taken over the past year, adjusted operating income actually increased 11% year-over-year, demonstrating our continuing focus on improving our overall operating performance and returns. In the second quarter, our aviation volume was 1.9 billion gallons. That's up 2% year-over-year.

Aviation gross profit was $138 million. That's an increase of $10 million or 8% year-over-year. This increase is principally attributable to our airport locations in Europe and our business and general aviation activities. Partially offsetting these increases is the impact of the Avinode sale, which was completed during the second quarter of last year.

As we look to the seasonally strong third quarter for aviation, we expect aviation gross profit to be up meaningfully year-over-year, driven principally by our on-airport operations in Europe, but also a recent increase in government activity as well.

In the second quarter, land volumes declined 7% year-over-year, primarily due to the impact of the sale of our U.K. and Brazil land businesses and also the strategic exit of certain North American operations in late 2024 as well as some softness in parts of our liquid fuels business in North America.

Land gross profit was $67 million in the second quarter. That's down 17% year-over-year, again, principally related to the U.K. sale and the exit of certain North American land operations in the fourth quarter of '24, but also the impact from lower volumes in parts of our core liquid fuels business in North America that I just mentioned.

Looking at the entire land business, the results we forecast in the beginning of the quarter simply did not materialize. This is due in part to the volume pressure I just mentioned, but also macroeconomic factors, which impacted our power business in Europe and even our sustainability-related products and service business activities.

Looking ahead to the third quarter, we expect sequential seasonal improvement in land performance. However, year-over-year gross profit will remain lower, reflecting similar dynamics to those experienced in the second quarter, namely the impact of our portfolio changes and continued market challenges in parts of the business.

We remain focused on proactively evaluating and addressing any remaining underperforming activities within the land segment, and we remain confident in our ability to further reshape our land business, which should drive improved returns and margins and a much clearer growth trajectory.

In the second quarter, marine volumes declined 7% year-over-year, while gross profit decreased approximately 26%. While the volume decline was primarily related to ongoing global trade-related uncertainty, the decline in gross profit was primarily related to an unfavorable transaction tax settlement recorded in the second quarter and weaker performance at certain marine physical inventory locations in the U.S.

In our core resale business, while volumes declined year-over-year, our team did a great job keeping gross profit generally flat despite what remains a quite competitive market environment. As we look to the third quarter, we expect marine gross profit to be down year-over-year, considering continuing weakness in certain physical interior locations in particular.

As we look to the third quarter and with the backdrop of the related segment gross profit comments shared a moment ago, we expect consolidated gross profit to be in the range of $252 million to $262 million.

Moving on to expenses. Consolidated operating expenses were $173 million in the second quarter, which is below the guidance range we provided last quarter and down 10% year-over-year. As we look ahead to the third quarter, we expect operating expenses to be in the range of $185 million to $189 million, down again year-over-year, driven in part by our recent divestitures, but also our ongoing efforts to further streamline our cost structure. We continue to maintain a disciplined approach to cost management and are actively pursuing further opportunities to streamline operations and enhance profitability, including the finance initiative I mentioned earlier.

Interest expense, that was $26 million in the second quarter. That's down about 7% year-over-year and consistent with the guidance provided last quarter. For the third quarter, we expect interest expense to be in the range of $25 million to $28 million.

Our second quarter adjusted effective tax rate was 11%, which was lower than anticipated going into the second quarter. This was driven in large part by the sale of the U.K. business as well as this quarter's goodwill impairment, which was largely related to our U.S. entities and impacted our global income mix. At this stage, we expect our adjusted effective tax rate for the full year to be in the range of 20% to 22%, which implies higher more normalized quarterly rates in the second half of the year.

During the second quarter, we generated operating cash flow of $28 million and free cash flow of $13 million, increasing our year-to-date operating and free cash flow to $143 million and $113 million, respectively. This strong cash flow performance has enabled us to return approximately $64 million to shareholders, $45 million through share repurchases and $19 million in dividends in the first half of the year.

This is evidence of our continued commitment to allocating a meaningful portion of our cash flow to buybacks and dividends to maximize shareholder value. With only $415 million of net debt currently and more than $1 billion of available liquidity, our balance sheet remains strong and liquid, enabling us to actively pursue an expanding pipeline of investment opportunities.

We believe we have growing opportunities to accelerate growth in our core business activities through additional reasonably valued strategic and synergistic investments. In closing, I'd like to leave you with a few thoughts. Aviation clearly continues to shine with second quarter gross profit up 8% year-over-year, driven by strong performance at our on-airport operations in Europe and our business and general aviation activities and a strong summer season is underway. Aside from the impact of exiting certain markets and activities, land clearly underperformed our expectations going into the quarter, but contributions from our core activities were generally stable year-over-year. We are continuing to refine the land portfolio, placing a greater focus on core ratable activities with the strongest returns and greatest medium- and long-term growth opportunities.

We believe these efforts position the land segment for improving performance looking forward. Marine's second quarter results were generally in line with expectations, while impacted by some weakness in certain physical inventory locations, our core resale profitability remained stable year-over-year despite competitive market conditions.

Operating expenses came in below guidance for the second quarter and declined meaningfully year-over-year, reflecting our continued discipline in driving operating efficiencies, including our latest initiative intended to streamline back-office operations and finance which should pay nice dividends going forward.

We generated $28 million in operating cash flow and $13 million in free cash flow during the second quarter, and we raised our quarterly dividend by 18%, and we have returned approximately $64 million to shareholders through share repurchases and dividends year-to-date.

While macroeconomic and market conditions impacted portions of our business in the second quarter, we continue to take decisive steps to reshape our portfolio and focus on our most resilient, ratable and higher-return core activities that will support medium and long-term value creation.

Our transformation initiatives are ongoing, and we continue our disciplined approach to managing costs. With a clear strategy, we remain committed to disciplined execution, operational efficiency and delivering sustainable returns for our shareholders. Thank you. I would now like to turn the call back over to our operator, Carmen, to begin the Q&A session.

[Operator Instructions] Our first question is from Ken Hoexter with Bank of America.

So just, I guess, thinking about the land disappointment here. I know you've worked on shedding out some assets. Are there more assets that you can look to get rid of? How much more room do you have? And what specific areas would you focus on? It sounded like when you wrap-up comments, you kind of talked about repeatable, ratable business. And maybe just delve into that a little bit.

Look, there are parts of that business that remains that are still ratable, meaning easily -- easy to forecast, easier to explain expected performance to someone like yourself and other members of the investment community. There are other pieces of the business that are not as simple. U.K. was an example where it was heavily dependent on weather. And if it didn't get cold in the winter, the pop that you would hope for in the fourth and first quarter didn't happen.

So we're not in that business anymore, and we already told the story about Brazil. So I won't get into any specifics, but there are clearly additional parts of the business that we're seriously looking at to either find ways to better optimize -- better optimize assets that support parts of the business that require, for example, many trucks on the road or there may be activities that simply don't make sense anymore. And we'll -- when we get to that point and make that decision, we'll certainly let you know.

But there's certainly more to be done, and that's an area we're spending a tremendous amount of time as we realize that we haven't had a lot to brag about in terms of the numbers that we shared in land, but we think we have many, many opportunities to begin improving that more and more as we continue down this path of analyzing every piece of the business and figuring out what the right answer for the future is. I think Mike may have something to add.

Yes, Ken, just to give a little bit of color, I agree 100% with Ira's comments. But certain trade activities, certain wholesale activities, some smaller subscale activities with some of the acquisitions, good businesses. But again, can you scale them? Can you get operating leverage on them?

Some of the heavy logistics activities that I made reference to, really looking at digging into all of those pieces of the puzzle to understand the real true return allocations and digging deeper into those. And again, having fewer where we can get the focus, reduce overall cost in terms of shared services and the like.

So really trying to get a hyper-focused business there on the areas that we really see are sizable or are clearly growing. So again, really trying to reduce and sharpen the portfolio. So some of those activities that for a while, we were fine, but realizing that if we're not going to be able to supersize them, it's go bigger, go home and just taking a closer look at all of those smaller activities. So I don't think there's anything large, but really, again, trying to sharpen the focus.

Let me ask one follow-up, but with 3 parts, right? If you can hit on each of the businesses and land, marine, aviation and talk about kind of how we should think about third quarter. You talked about aviation profit being up by government activity. What's driving the government activity in marine, you talked about product being down in third quarter gross profit. Is that just shipping coming back, container shipping? What's the key dynamic? And then same for land?

So if we look at it just walking across all 3 of them, aviation, we've got, I think, the preeminent independent aviation fuel services platform in the world. That's taken 4 decades to build. And we've got a phenomenal fuel and services platform, and we've made all of the right moves there.

So we go from strength to strength there. And the government activity is largely aviation denominated. So our global platform is a great way for us to basically expand and flex into areas where you've got both commercial, governmental and our business aviation platform, our services, our trip support activity. All of these have taken a lifetime to basically put together, not easy to do, not easy to get into these locations, and we've got all of that.

With some of the acquisitions that you've seen over the years, they've dovetailed very nicely. John Rao and the team have done a phenomenal job in terms of developing that aviation -- global aviation fuel and services platform. And the services part of it is critical. So -- and a large part of the government activity historically and currently is aviation dominated. There is a good amount of land activity and marine activity.

So they worked out quite well. Our marine business, it's a spot business. The team has done a phenomenal job in terms of creating efficiency in that market. We've got a good physical capability there. So that business, we like. And then land, we've focused it on the U.S. and is looking at the core activities of the large diesel gasoline markets and really just trying to trim that to the areas that we're really going to lay our claim to.

And then Ira and the rest of the team in terms of corporate and looking at some of the efficiencies of the back office, that, I think, is extremely encouraging and something that is permanent annuity in terms of dealing with some of those efficiencies in back office, and you've seen our ability to manage OpEx. So those are the things that we're focused on. We've got, I think, the preeminent global network in terms of energy services for marine and aviation.

The land piece, we've shrunk to focus. The U.S. market is still the largest market in the world. We've added some additional talent there. So we feel good. It's been a long haul, obviously, but -- and you're seeing the returns come back to shareholders and the focus on that. But Aviation, very strong global platform. Marine, solid business, really focused on optimization and land really trying to get a much narrower focus on that.

So Mike nailed that, but I just want to add one comment about land because your original question was about the moves sequentially or the guidance that we gave at least year-over-year.

So 2 stories for land. I said clearly that land would be down in the third quarter. From a gross profit perspective, that's true. Most of that relates to the fact that we've exited Brazil, the U.K. and then some activities in the U.S. Those businesses weren't very profitable. Actually, some of them were losing money. We don't normally give guidance on the operating results of the segment, we're talking about GP. But while gross profit will be down for those reasons, the operating income coming out of land should be pretty consistent with last year.

Similar to my message on our consolidated gross profit earlier being down year-over-year, but operating income being up 11%, right? So we're seeing a drop in GP as we've exited a lot of activities. The more important number to focus on is where the operating profit is going. And of course, that's the number we're trying to drive in the right direction as much as we can.

And then the last comment I'll make, Ken, on the land piece, natural gas, power, sustainability. Our natural gas business is a nice business in the U.S. That's been a good producer for us.

The power business, listen, power, we all know the electrification of the economy. That's going to continue to grow at 50% or more. Our participation model is the name of the game, and that's something that we're understanding the geography is important because these markets do behave differently in different areas. We've got the benefit of a global platform. So some work to be done there. But obviously, the dynamic between the molecule and the electron is extremely important.

You need to -- for renewables, you've got to have some amount of power, and there's a dynamic there. And then sustainability -- and when I say power, that's solar. It could be looking at balancing for power providers and power users. And again, it's our advisory, our brokerage, our merchant and our services and some for digital. And then sustainability within carbon, -- that is something that has been highly politicized, but it's not going away.

I mean there is going to be a continuing market for that. People -- you've got mandates that are coming through regardless of what certain countries are doing or certain parts of the world. States have got different activities. It's complicated the carbon accounting. So the operational integration that we're providing for our clients is another part of the service.

We're a solutions provider. and selectively working that energy provisioning of energy for those customers whose core competency is moving goods or moving people or manufacturing. And the energy side is a significant percentage of their operating cost. It's not their core competency. It's complicated. That's continuing to be the value that we provide to both buyers and sellers, and it's really sharpening our participation model. So I feel pretty good about where we are. And any case, hopefully, that gives you a little bit of color.

[Operator Instructions] Our next question is from Justin Jenkins with Raymond James.

Ira, I wanted to go back to where you maybe ended your prepared comments, thinking about the investment cycle or the opportunity set in front of you here. Can you unpack that maybe just a little bit more what you're thinking of from an investment standpoint? Is that on the organic side? Is it M&A? Is it JVs, all of the above? Just any more color there would be helpful.

Not necessarily a JV, although you never rule that out. But no, it's obviously investing in the businesses that are businesses we feel have solid performance and solid opportunities longer term that we are generically referring to as the core. And we've already talked about shedding some of the things that don't necessarily have those characteristics.

And then from an inorganic standpoint, it's finding investment opportunities that fit into those buckets that could accelerate growth, maybe fill in a market where we may not have the same density we have in other markets as an example. That could be aviation, land, theoretically marine, but mostly, I would say, aviation and land at the moment. And valuations have gotten a bit better from the craziness that we've seen in the recent past. Interest rates are starting to come down. So we did take a bit of a breather as we've been focusing a lot internally on some of the things that we talked about today. But as things are moving in the right direction, there seem to be more opportunities. So we're sinking our teeth into those, and I'm confident that we'll find some leverageable opportunities in those segments over the next few quarters.

Perfect. That's helpful. Second one for me is just a housekeeping one on the Marine segment itself. Without that tax settlement that you talked about in 2Q, would you have otherwise been within your guidance on gross profit dollars?

Yes. Yes, we would have been right in the middle of guidance without that item. It's a good question.

And this concludes our Q&A session for today. I will turn the call back to Michael Kasbar with his final remarks.

Well, first and foremost, I want to thank our fantastic global team. We're only here because of what our great World Kinect team does every day to keep the wheels of commerce, energy and transportation moving. So thank you to all of you and to our shareholders, thanks and look forward to chatting to you next quarter. Take care. Stay safe, stay well. Bye-bye now.

Thank you so much, and we conclude our conference. Thank you all for participating, and you may now disconnect.