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Why Calumet Specialty Has Underperformed Its Peers in 2016

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CLMT’s stock performance

Calumet Specialty Products Partners (CLMT) has generated total returns of -76% since the start of 2016. In comparison, CVR Refining (CVRR) and Alon USA Partners (ALDW) have generated total returns of -68% and -59%, respectively, over the same timeframe.

Refining MLPs generated positive returns in 2015 when the broader energy sector was in the red. The refining MLPs benefited from the higher crack spreads due to low crude oil prices in 2015.

As the above graph shows, refining companies’ stocks have been on a downtrend since the start of 2016. The decision to suspend distributions in April 2016 resulted in a steep fall in CLMT’s stock price.

CLMT had negative distributable cash flows in 4Q15 and 1Q16. It did not pay any distributions for the first and second quarters of 2016. Poor operational performance combined with very high leverage and suspended distributions made investors concerned who exited the stock, bringing it down.

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Are Calumet’s steps to reduce leverage enough?

Calumet has a very high leverage, which only increased further in 2Q16. Read about CLMT’s leverage in Calumet’s High Leverage: A Key Concern for Investors.

The company is taking a number of steps to reduce leverage and strengthen its balance sheet. Divesting interest in its poorly performing DPR (Dakota Prairie Refinery) was one such measure.

“During the second quarter, we divested our 50% joint venture interest in DPR, resulting in a $32 million net increase in Partnership liquidity, raised $400 million through a senior secured notes offering and suspended the payment of our quarterly cash distribution to unitholders that amounted to nearly $225 million of cash outflows in 2015,” stated Tim Go, CEO of Calumet.

Let’s see what CLMT is doing on the capital spending front to strengthen its balance sheet.

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