Fuel is perhaps the most economically sensitive of all commodities; it doesn’t take much of a price bump to lower demand. That’s ushered in a wave of consolidation and bankruptcies in the industry, with shaky players and their overleveraged balance sheets going the way of the dodo. But one distributor has continued to grow even as its peers struggle to stay afloat.

Resting on the bedrock of a solid balance sheet, World Fuel Services (NYSE: INT) has emerged from the past two years relatively unscathed.

Distributing and financing marine, aviation and ground transport fuel through a network of more than 2,500 global locations, World Fuel’s financial visibility and large cash position enabled it to secure favorable terms with its suppliers and extend credit to its customers at a time when its competitors sought strategic alternatives. The company also benefits from a diverse customer base that includes the US military, global governments and Fortune 500 companies.

Flight planning and risk management services supplement its core operations, providing the company with another competitive advantage. Because World Fuel was able to buy in bulk throughout the economic slowdown, the firm managed to grow its margins even as prices declined. Installing a unified software system in 2007 facilitated a program of aggressive cost cutting last year and further improved margins.

Management also initiated efforts to rationalize the client base in 2008, cutting weaker customers loose and focusing on retaining and recruiting more top-tier clients. The firm also began emphasizing prepaid and contract sales across all of its business lines, collecting revenues upfront and allowing it to better manage fuel inventories.

And World Fuel appears to be poised for solid growth in 2010, especially if shipping volumes continue to pick up as the global economy recovers. As depicted to the left, the Baltic Dry Index, a measure of the cost to ship a variety of raw materials by sea, is gradually rising. That’s an important tailwind for World Fuel; sales of marine bunker fuels account for over half the company’s revenues. The composite leading indicators compiled by the Organisation for Economic Cooperation and Development (OECD) likewise suggest that the global rebound is well underway.

Improving economic conditions also will intensify competition within the industry, which could reduce margins slightly. But World Fuel’s roster of value-added products and services makes the firm a convenient one-stop shop for transportation management–the firm is well-positioned for success.

World Fuel’s growth has traditionally depended on acquisitions. In 2007 the company acquired AVCARD, which offered clients a private-label charge card used to purchase aviation fuel, as well fuel sales and related services. Texor was acquired in 2008 and provided entrée into the ground-transport fuel market. And by virtue of its solid balance sheet, the company was able to acquire both TGS and Henty Oil at the height of The Great Recession. With little debt and a net cash position of $350 million, the company is in an enviable position to pick up smaller competitors at attractive valuations.

Any circumstance that weighs on fuel demand–for example, higher oil prices or a double-dip recession–would pose a challenge, but World Fuel Services should continue to benefit from improved global trade over the course of the year. And according to management, the company already has its eye on several acquisition targets that would increase its share of the ground-transport fuel market.

WHY TO BUY
WORLD FUEL SERVICES (NYSE: INT, $27.27)

• Will benefit from improving global trade

• Healthy balance sheet will fund future acquisitions

• One-stop shop for the transport business