CVR Energy, Inc. (CVI) Earnings

Management highlights

Overall Operational Performance - Delivered strong operational results, with 98% crude utilization and 99% ammonia plant utilization. Ongoing global geopolitical conflicts tightened energy and fertilizer markets, benefiting the company's asset base. - Declared a Q2 2026 dividend of 10 cents per share, and remains committed to reducing leverage and creating shareholder value. - Full year 2026 consolidated capital spending is projected to range between $215 million and $240 million. Ended Q2 with $737 million in consolidated cash, and ~$1.1 billion in total liquidity excluding CVR Partners, remaining focused on reaching a gross leverage target of $1 billion (excluding CVR Partners debt). Refining Segment Highlights - Global geopolitical disruptions (Middle East refinery damage, Russian capacity offline from Ukrainian attacks, halted Chinese refined product exports) have created severe tightness in global refined product supply. - U.S. refined product exports have risen 16% year-over-year to ~2.6 million barrels per day, while domestic demand remains resilient, pushing gasoline and diesel inventories to near/below 5-year lows. CVR has benefited from this market tightness, with Group 3 2-in-1 cracks averaging $44.91 per barrel in Q2, up from $24.02 per barrel in Q2 2025. Fertilizer Segment Highlights - Spring planting season delivered strong overall nitrogen demand, supported by higher grain prices driven by lower expected carryout inventories from drought in the western U.S. corn belt, strong export demand, and a smaller-than-expected Argentine corn crop. - Secured a solid book of business at attractive pricing for H2 2026 through completed summer fill and fall prepayment programs. A planned turnaround at the East Dubuque facility will begin in late August 2026, including a 5% brownfield ammonia capacity expansion, and planning for a conversion to allow natural gas as an alternative feedstock to third-party pet coke.

Guidance

- For Q3 2026 petroleum segment: total throughput is projected between 205,000 to 220,000 barrels per day, direct operating expenses between $110 million to $120 million, and capital spending between $41 million to $50 million. - For Q3 2026 fertilizer segment: ammonia utilization is projected between 75% and 80% due to the planned East Dubuque turnaround; direct operating expenses (including inventory and turnaround impacts) are projected between $57 million to $62 million, turnaround expenses between $30 million and $35 million, and capital spending between $40 million and $49 million. - Management expects current above mid-cycle market conditions for both refining and fertilizer segments to continue well into 2027. As of Q3 2026, prompt pricing is $58.70 per barrel for Group 3 2-in-1 cracks, $650-$700 per ton for ammonia, and $325-$350 per ton for UAN. - Full year 2026 consolidated capital spending is guided between $215 million and $240 million, maintained from prior outlooks.

Segment performance

Consolidated CVR Energy posted Q2 2026 net income of $46 million, EBITDA of $161 million, and adjusted EBITDA of $209 million. For the petroleum segment: adjusted EBITDA was $106 million, up from $38 million in Q2 2025, representing approximately 50.7% of total adjusted EBITDA. Combined throughput reached ~213,000 barrels per day, with utilization at 98% of nameplate capacity. Direct operating expenses were $5.93 per barrel, down from $6.45 per barrel year-over-year. Net RINs expense (excluding RFS liability change) was $216 million, or $11.16 per barrel. For the fertilizer segment: adjusted EBITDA was $107 million, up from $67 million in Q2 2025, representing approximately 50.3% of total adjusted EBITDA. Ammonia plant utilization hit 99% with minimal downtime during the quarter. CVR Energy owns ~37% of CVR Partners common units, and will receive a ~$24 million proportionate cash distribution from CVR Partners' Q2 2026 distribution of $6.08 per common unit. Consolidated cash flow from operations was $307 million, and free cash flow was $264 million. Total consolidated capital spending (accrual basis) was $46 million: $29 million in petroleum, $17 million in fertilizer.

Risks & headwinds

- The U.S. EPA is 9 months delinquent in ruling on the Winningwood Refining 2025 SRE petition, with the 2025 compliance deadline just 1 month away, creating material uncertainty around RFS compliance obligations. CVR currently recognizes 100% of Winningwood's RIN obligation in its financials, which added $77 million in Q2 2026 costs. - RIN prices have risen over 125% year-over-year to an average of nearly $14 per barrel in Q2 2026, driven by the EPA's Set 2 blending obligations that created a market shortage requiring imported biofuels, which adds ~40 cents per gallon to U.S. gasoline prices and makes RFS compliance costs more than double all other combined operating costs for many refineries. There is material risk of a continued RIN market shortage for 2026 compliance. - Ongoing geopolitical conflict has created significant market volatility, though CVR has benefited from current tightness, volatility could lead to unexpected margin or operating impacts. - The company realized $81 million in derivative losses on crack spread swaps in Q2 2026, and remaining open hedge positions carry mark-to-market risk if current elevated crack spreads hold.

Analyst Q&A

• Q: Is expanding refining capacity still a core strategic goal, and how would any expansion or acquisition be funded given expected strong cash flow from current high margins? /

  A: CVR still intends to grow its refining footprint and diversify away from its core southern mid-con region. The company's first priority is using excess cash to reduce debt to its $1 billion gross leverage target, and is not planning to use existing balance sheet cash for large M&A. The capital markets are open for funding accretive acquisition opportunities, and CVR expects to use alternative funding for any expansion. Management notes that U.S. refining capacity is declining when it should be growing, creating favorable acquisition conditions. (318 words)

• Q: How would you describe CVR's current hedging strategy and outlook for future hedging levels, following the large Q2 2026 realized loss? /

  A: Historically, CVR had board authorization to hedge up to ~30% of annual production. After mis-timing hedge entry in past cycles, the company moved quickly to layer on hedges early when the Ukraine conflict began, leading to the current large realized loss when cracks rose higher than hedged levels. For the remainder of 2026, management is satisfied with current hedge levels, and 2027 hedge volumes are much smaller. Going forward, the company will likely lower its target hedge authorization below 30%, and will be more cautious when layering in new hedges. (347 words)

• Q: What are your concerns around 2026 RIN compliance, and what is your current RIN purchasing strategy for Winningwood Refining? /

  A: Management has significant concerns: the RFS program is mismanaged, provides no regulatory clarity for business planning, and harms consumers with higher fuel costs. The EPA must intervene to address the current RIN market shortage. CVR follows a ratable RIN purchasing strategy, but slowed purchases in Q2 2026 when prices spiked, expecting the EPA to take corrective action, which has paid off with recent RIN price softening. The company will catch up on purchases in Q3. Currently, CVR is only purchasing 50% of Winningwood's expected 2026 obligation, while it continues to pursue the 100% SRE waiver the company believes it is entitled to. (332 words)

• Q: How do you balance dividend returns with debt reduction, and what is the current M&A landscape for refining? /

  A: Hitting the $1 billion gross debt target (excluding CVR Partners) remains the top capital allocation priority. The company already initiated a dividend after making progress on deleveraging, and if current strong market conditions continue and further debt reduction progress is made, an incremental sustainable dividend increase may be considered, but a return to the very high historical dividend levels is not expected. For M&A, the current market environment is favorable for transactions, as more market participants are looking to rebalance portfolios. Bid-ask spreads that previously blocked deals have narrowed, allowing for balanced risk-reward and value-creating transactions at fair mid-cycle valuations. (329 words)