HF Sinclair Corporation (NYSE:DINO) Q3 2023 Earnings Call Transcript
HF Sinclair Corporation (NYSE:DINO) Q3 2023 Earnings Call Transcript November 2, 2023
HF Sinclair Corporation beats earnings expectations. Reported EPS is $4.06, expectations were $3.81.
Operator: Welcome to HF Sinclair Corporation and Holly Energy Partners Third 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 Pompeia, EVP of Operations; and Matt Joyce, SVP of Lubricants and Specialities, along with John Harrison, Chief Financial Officer of Holly Energy Partners. 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]. 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, Christa. Good morning, everyone. And welcome to HF Sinclair Corporation and Holly Energy Partners third quarter 2023 earnings call. This morning, we issued a press release announcing results for the quarter ending September 30, 2023. If you would like a copy of the press releases, you may find them on our Web sites at hfsinclair.com and hollyenergy.com. Before we proceed with remarks, please note the Safe Harbor disclosure statement in today's press releases. In summary, such 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 releases 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 rereading of the transcript. And with that, I'll turn the call over to Tim Go.
Tim Go: Good morning, I am pleased to report strong third quarter results, driven by solid execution of safe and reliable operations across our Refining, Lubricants, HEP and Marketing segments. We continue to progress our strategic initiatives of integrating and optimizing our portfolio, along with delivering strong cash return to shareholders. Today, we reported third quarter 2023 net income attributable to HF Sinclair shareholders of $791 million or $4.23 per diluted share. These results reflect special items that collectively increased net income by $31 million. Excluding these items, adjusted net income for the third quarter was $760 million or $4.06 per diluted share, compared to adjusted net income of $983 million or $4.58 per diluted share for the same period in 2022.
Adjusted EBITDA for the third quarter was $1.2 billion, a 20% decrease compared to the third quarter of 2022. In our Refining segment, third quarter 2023 adjusted EBITDA contributed $1 billion compared to $1.4 billion in the same period last year. This decrease was primarily driven by lower refining margins in both the West and Mid-Con regions and lower refined product sales volumes due to higher maintenance activity. Operating expenses were $496 million in third quarter of 2023 versus the $475 million recorded in the same period last year as lower natural gas costs were offset by higher maintenance costs. Crude oil charge averaged 602,000 barrels per day in the third quarter of 2023 compared to 646,000 barrels per day in the third quarter of 2022.
The decrease was primarily due to higher maintenance activity during the period. I am pleased to report that the turnaround in the third quarter at our Casper refinery was completed on time and on budget and at Tulsa, we are in the process of ramping up normal operations after the successful turnaround at that refinery. With all of our major turnarounds behind us for the year, we remain focused on executing our strategy to improve reliability and operating costs across our refining portfolio. In our Renewables segment, we reported adjusted EBITDA of positive $5 million, for the third quarter of 2023 compared to negative $14 million for the third quarter of 2022. Total sales volumes were 55,000,000 gallons for the third quarter of 2023 as compared to 52,000,000 gallons for the third quarter of 2022.
We continue to make progress towards our target of achieving normalized run rates by the end of 2023 through improved reliability and feedstock optimization. Our Marketing segment reported EBITDA of $21 million for the third quarter of 2023 compared to $10 million in third quarter of 2022, and total branded fuel sales volumes set another quarterly record 398,000,000 gallons. Gross margin per gallon was $0.07 in the third quarter, supported by strong demand in our regions. During the quarter, we added 15 new branded sites and we expect to continue to grow our branded sites by 5% or more per year. Our Lubricants & Specialties Products segment reported EBITDA of $118 million for the third quarter of 2023 compared to EBITDA of $15 million for the third quarter of 2022.
This increase was largely driven by a $30 million FIFO benefit from consumption of lower priced feedstock inventory for the third quarter of 2023 compared to a $44 million charge in the third quarter of 2022. Despite weakening base oil prices during the period, continued efforts to improve sales mix optimization across our finished products portfolio, resulted in strong earnings contribution from our lubricants business. HEP reported EBITDA of $94 million in the second quarter of 2023 compared to $66 million in the same period of last year. This increase was mainly driven by tariff increases that went into effect on July 1, 2023. On August 15, 2023, we entered into definitive merger agreement with HEP and we expect the proposed transaction to close in the fourth quarter of this year, subject to the satisfaction of closing conditions.
During the third quarter, we announced and paid a regular quarterly dividend of $0.45 per share to stockholders totaling $84 million and spent $586 million on share repurchases. Year-to-date, as of September 30th, our total cash returned, including dividends and share repurchases is over $1.09 billion and we have reduced our share count by 8%. In closing, our third quarter results highlight the diversification of our portfolio and quality of our assets. Our strong cash return during the period demonstrates our continued commitment to our long term cash return strategy and long term payout ration, while maintaining an investment grade rating. Looking forward, we remain focused on executing our strategy of safe and reliable operations as we continue to integrate and optimize our assets across our portfolio.
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. Net cash flows provided by operations for the third quarter of 2023 totaled $1.4 billion, which included $124 million of turnaround spend in the quarter. HF Sinclair's standalone capital expenditures totaled $75 million for the third quarter 2023. As of September 30, 2023, HF Sinclair's standalone liquidity stood at approximately $3.85 billion comprised of a cash balance of $2.2 billion along with our undrawn $1.65 billion unsecured credit facility. As of September 30, 2023, we have $1.7 billion of outstanding with a debt-to-cap ratio of 15%. In October 2023, we have repaid at maturity the $308 million aggregate principal amount of our 2.625% senior notes.
HEP distributions received by HF Sinclair during the third quarter of '23 totaled $21 million. HF Sinclair owns 59.6 million HEP limited partner units, which represents 47% of HEP's outstanding LP units at a market value of approximately $1.25 billion as of last night's close. Now let's go through some guidance items. With respect to capital spending, last quarter, we lowered our full year 2023 guidance range to $900 million to [$1.60] billion on a consolidated basis. With the majority of our plant maintenance activity behind us, we expect to end up at the lower end of our capital spend range for 2023. For the fourth quarter of 2023, we expect to run between 590,000 to 620,000 barrels per day of crude oil in our Refining segment, which reflects plant maintenance at our Tulsa refinery during the period.
Let me now turn the call over to John for an update on the HEP, John.
John Harrison: Thanks, Atanas. HEP's third quarter 2023 net income attributable to Holly Energy Partners was $63 million compared to $42 million in the third quarter of 2022. Each period reflected non-recurring expenses that decreased net income by $4 million and $20 million respectively. Excluding these items, the year-over-year increase was primarily attributable to higher revenues associated with tariff increases that went into effect on July 1, 2023, which were partially offset by higher interest expense and higher G&A expenses during the third quarter of 2023. HEP’s third quarter 2023 adjusted EBITDA was $119 million compared to $110 million in the same period last year. The reconciliation table reflecting these adjustments can be found in HEP's press release.
For the third quarter, HEP generated distributable cash flow of $78 million and we announced a distribution of $0.35 per LP unit, which is payable on November 10, 2023 to unit holders of record as of October 30, 2023. Capital expenditures during the third quarter were approximately $9 million, a rise of $6 million in maintenance, $2 million of reimbursable and $1 million of expansion CapEx. During the third quarter, we repaid $27 million of debt and ended the quarter with available liquidity of approximately $630 million. We're now ready to turn the call over to the operator for any questions.
See also 25 Most Consumed Fish in the US and 14 Best Low Risk High Growth Stocks to Buy Now.
To continue reading the Q&A session, please click here.
