Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of CVR Energy (CVI -0.36%) declined as much as 10% today on ugly earnings results from refining arm CVR Refining (CVRR) due to weaker refining margins and some outages at its facilities.
So what: CVR Energy is simply the holding company of its two variable-rate master limited partnerships: CVR Refining and CVR Partners (UAN -1.46%). So when operations at these businesses pass on weaker distributions, it is bound to impact the bottom line. CVR Partners actually had a decent quarter overall, but its modest size compared to the refining segment prevented it from covering the difference.
In reality, these are the sorts of things that investors in CVR Energy and its subsidiaries should expect since so much of their success is tied in one way or another to the (now deeply depressed) price of oil.
If any one thing should be of slight concern for investors, it's that the company's refineries are taking in a higher proportion of sweet crudes -- which have less sulfur content -- which are traditionally more expensive than sour crudes. If this continues, the company could see a decline in refining margins compared to past quarters.
Now what: For now, this looks pretty much par for the course for CVR Energy and its component companies. Refining margins shrank across the entire industry, so this isn't exclusive to CVR. As long as the company can maintain a high utilization rate for its refineries and fertilizer plants, and it can incorporate more of those cheaper crudes back into the mix, then CVR will do just fine. After all, with a variable rate distribution you don't need to worry about the company overpromising on payments.
