HF Sinclair Corporation (NYSE:DINO) Q4 2023 Earnings Call Transcript
HF Sinclair Corporation (NYSE:DINO) Q4 2023 Earnings Call Transcript February 21, 2024
HF Sinclair Corporation beats earnings expectations. Reported EPS is $0.87, expectations were $0.67. DINO isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to HF Sinclair Corporation's Fourth Quarter 2023 Conference Call and Webcast. Hosting the call today is Tim Go, Chief Executive Officer of HF Sinclair. He is joined by Atanas Atanasov, Chief Financial Officer; Steve Ledbetter, EVP of Commercial; Valerie Pompa, EVP of Operations; and Matt Joyce, SVP of Lubricants and Specialties. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. [Operator Instructions] We ask that you please limit yourself to one question and one follow-up. Additionally, we ask that you pick up your handset to allow optimal sound quality. Please note this conference is being recorded. It is now my pleasure to turn the floor over to Craig Biery, Vice President, Investor Relations. Craig, you may begin.
Craig Biery: Thank you, Gavin. Good morning, everyone, and welcome to HF Sinclair Corporation's fourth quarter 2023 earnings call. This morning, we issued a press release announcing results for the quarter ending December 31, 2023. If you would like a copy of the earnings press release, you may find it on our website at hfsinclair.com. Before we proceed with remarks, please note the safe harbor disclosure statement in today's press release. In summary, it says statements made regarding management expectations, judgments or predictions are forward-looking statements. These statements are intended to be covered under the safe harbor provisions of federal security laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings.
The call also may include discussion of non-GAAP measures. Please see the earnings press release for reconciliations to GAAP financial measures. Also, please note any time sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or re-reading of the transcript. And with that, I'll turn the call over to Tim.
Tim Go: Good morning, everyone. When I stepped into the CEO role last year, I laid out three priorities. One, to drive operational excellence, including improved reliability; two, to optimize and integrate our portfolio of new businesses; and three, to generate strong cash flows to advance our cash return strategy. I'm very pleased to report the significant progress our team has executed against these goals during the year. First, in 2023, we delivered record best process safety performance across our refining portfolio and successfully completed heavy maintenance turnarounds at all of our refineries during the year on schedule and on budget, as we took another step towards improving reliability across our portfolio. Second, we closed the transaction to buy in our HEP business in the fourth quarter and furthered our efforts to integrate and optimize our asset base.
In addition, we delivered growth in our Marketing segment volumes and site count and delivered strong Lubricants & Specialties segment earnings despite the weakening of base oil cracks in 2023. Third, during the year, we also returned over $1.3 billion in cash to shareholders through share repurchases and dividends, delivering on our cash return commitment to shareholders. With good momentum across our businesses, we believe we are well positioned to continue creating compelling value for our shareholders in 2024. Now, let's turn to our segment highlights. In Refining for the full year 2023, we set annual records at our Parco Refinery in both heavy crude runs and total throughput. We also executed planned turnaround work at all of our refineries on schedule and on budget.
Improved turnaround execution allowed us to do all the work on our equipment we intended and is essentially -- and is essential to our strategy of driving reliability improvements in 2024 and throughout the turnaround cycle. In Renewables, in the fourth quarter, we achieved our normalized run rate utilization for our renewables facilities and delivered record volumes at our pretreatment unit in Artesia. We also received our new CI pathways, which we believe will benefit our margin capture opportunity going forward. For 2024, we plan to continue to optimize the operation of our renewables assets through improved reliability and improved commercial efforts. The Marketing segment in 2023 delivered growth in gasoline and diesel branded sales volumes as well as branded site count compared to 2022, which includes our Sinclair branded wholesale business for the period after March 14, 2022.
We are pleased with the value that the DINO brand brings to our portfolio and we remain focused on increasing the number of branded sites and sales volumes in 2024. In Lubricants & Specialties, despite lower base oil margins in 2023, we performed well above our midcycle guidance and reported annual EBITDA of $346 million. Our results in 2023 reflect our continued efforts to optimize the feedstock integration and sales mix across our finished products portfolio and we look to build upon this strategy in 2024 to further enhance the value of our Lubricants & Specialties business. In Midstream, we closed on the acquisition of Holly Energy Partners on December 1, 2023 along with the associated exchange of the outstanding HEP bonds for new HF Sinclair bonds.
This acquisition strengthens our business as we simplified our corporate structure and reduced costs as a combined company, further supporting the integration and optimization efforts across our assets. Going forward, our Midstream operation will continue to be reported as a separate standalone segment in our financials. In the fourth quarter, we returned $248 million to shareholders through share repurchases and dividends. For the full year 2023, we returned over $1.3 billion in cash to shareholders, representing an annual cash return of 12% and payout ratio of 74%. This does not include the additional $268 million in cash paid to HEP unitholders in the HEP transaction. Since the closing of the Sinclair acquisition on March 14, 2022, we have returned approximately $3 billion in cash to shareholders, which represents 27% of our market cap as of December 31, 2023.
As of February 9, 2024, we have $591 million remaining on our current share repurchase authorization and we remain fully committed to our long-term cash return strategy and long-term payout ratio, while maintaining a strong balance sheet and investment grade credit rating. We also announced on February 14, 2024 that our Board of Directors declared a regular quarterly dividend of $0.50 per share, an increase of $0.05 over the previous dividend payable on March 5, 2024 to holders of record on February 26, 2024. The 11% dividend increase reflects our Board's commitment to returning excess cash to shareholders. Looking ahead, we remain focused on further executing our corporate strategy to maximize shareholder value. We believe the strength and diversification of our new asset base coupled with our disciplined approach to capital allocation will position us well for success.
With that, let me turn the call over to Atanas.
Atanas Atanasov: Thank you, Tim, and good morning, everyone. Let's begin by reviewing HF Sinclair's financial highlights. Today we reported fourth quarter net loss attributable to HF Sinclair shareholders of $62 million or negative $0.34 per diluted share. These results reflect special items that collectively decreased net income by $227 million. Excluding these items, adjusted net income for the fourth quarter was $165 million or negative $0.87 per diluted share compared to adjusted net income of $598 million or $2.97 per diluted share for the same period in 2022. Adjusted EBITDA for the fourth quarter was $428 million compared to $1 billion in the fourth quarter of '22. In our Refining segment, fourth quarter adjusted EBITDA was $278 million, which excludes the $221 million lower of cost or market inventory valuation charge.
This compares to $864 million of Refining segment EBITDA for the fourth quarter of '22. This decrease was primarily driven by lower Refinery gross margins in both the West and Mid-Con regions, which resulted in lower Refining segment earnings in the quarter. Crude oil charge averaged 614,000 barrels per day for the fourth quarter compared to 628,000 barrels per day for the fourth quarter of '22. In our Renewables segment, we reported adjusted EBITDA of negative $3 million for the fourth quarter compared to negative $7 million for the fourth quarter of '22. Improved operations in the period were offset by weakening RINs and LCFS credit prices. Total sales volumes were 63 million gallons for the fourth quarter as compared to 54 million gallons for the fourth quarter of '22.
Our Marketing segment reported EBITDA of $9 million for the fourth quarter compared to $23 million for the fourth quarter of '22. Total branded volume sales were 350 million gallons, representing $0.06 per gallon margin. Our Lubricants & Specialties segment reported EBITDA of $58 million for the fourth quarter compared to EBITDA of $67 million for the fourth quarter of '22. This decrease was largely driven by a $30 million FIFO charge from consumption of higher priced feedstock inventory in the fourth quarter of 2023 compared to a $7 million FIFO charge in the fourth quarter of 2022. Our Midstream segment reported EBITDA of $105 million in the fourth quarter compared to $90 million in the same period of last year. This increase was driven by higher revenues from our pipelines, terminals and loading racks.
Net cash provided by operations totaled $231 million, which includes $85 million of turnaround spend in the quarter. HF Sinclair's capital expenditures totaled $124 million for the fourth quarter. For the full year 2023, our total capital expenditures were $941 million, which includes $556 million in turnarounds. Our full year capital spend came in under budget due to the improved execution of our planned maintenance activities. As of December 31, 2023, HF Sinclair's total liquidity stood at approximately $3.7 billion, which includes a cash balance of $1.4 billion, our undrawn $1.65 billion unsecured credit facility and $744 million availability on the HEP credit facility. During the year, we reduced our debt by $520 million to the repayment of our 2.625% senior notes at maturity in October and by paying down a portion of our outstanding HEP revolver.
As of December 31, we had $2.8 billion of debt outstanding with a debt to cap ratio of 21%, a net debt to cap ratio of 11%. Let's go through some guidance items. With respect to capital spending for full year 2024, we expect to spend $235 million in Refining, $5 million in Renewables, $40 million in Lubricants & Specialties, $10 million in Marketing, $30 million in Midstream, $65 million in Corporate and $415 million for Turnarounds & Catalysts. In addition, we expect to spend $75 million in growth capital investments across our business segments. For the first quarter of 2024, we expect to run between 585,000 to 615,000 barrels per day of crude oil in our Refining segment, and we have planned turnaround scheduled at our Puget Sound refinery during the period.
We're now ready to take some questions from the audience. Operator?
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