Question:
I have a question about World Fuel (NYSE:INT). I wanted to ask about the level of confidence that you have in volume growth and pricing trends in the marine, aviation, and land segment over the mid-to-long term and how important you think acquisitions are to the future. I find those mid-to-longer term numbers hard to get my hands around.
Rory Priday:
We did too. We do not own the stock anymore. As I mentioned last year, World Fuel Services is a fuel supplier. It gets credit from some of the major oil companies and uses that credit to buy fuel to sell to various customers in marine, aviation, and land markets. When you talk to the company’s managers, they will point out that World Fuel has very small shares of those markets; so you can get excited about the potential. Any time you look at an investment, you want to look at what percentage of its market it has and how big it can get. One of its biggest competitors in marine fuel went into bankruptcy late last year, but the trouble is that it is still going to be pretty difficult for the company to grow organically at a good enough pace in each of its markets. The markets may be huge, but there are structural reasons why organic growth is difficult to come by.
We thought that most of the growth going forward would come from acquisitions, which is fine — the management team has been terrific. It has presided over a lot of value creation. Mike Kasbar is a great operator and has built a really nice company. The company does smart acquisitions. If you run through the list of deals, on average over the last five or six years, World Fuel probably earns, by my math, between 10% − 12% on its acquisitions. If you had a company that was not growing at all organically and it could invest all its earnings at 10% − 12% each year, it could grow earnings at that rate. But we did not feel confident, owning something like that over a long period of time, that it would get a bigger at a fast enough pace to meet our hurdle rate. So that is why we are out of it.
Bob Goldfarb:
We sold World Fuel Services because it reported a very strong quarter, which to a fair extent was based on the volatility of oil prices, which usually benefits the company. Going back to an earlier question, there are some occasions when we are selling into strength, and others when we are selling because there is a disappointment.
From Ruane, Cunniff & Goldfarb Investor Day 2015 Transcript Part I.
