HF Sinclair Corp Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Pleased with third quarter financial and operational performance across all businesses, especially strong earnings in Marketing, Midstream, and Lubricants and Specialties segments.
• Returned $222 million in cash to shareholders in Q3 2024 and announced a $0.50 quarterly dividend.
• In Refining: Completed Parker refinery turnaround on time and budget, year-to-date progress on lowering operating expenses, and achieved quarterly records for jet and premium production.
• In Renewables: Set quarterly sales volume record for renewable diesel, achieved lowest operating expenses per gallon, and focused on reducing high-cost inventories, increasing low CI feedstock mix, and lowering operating expenses.
• In Marketing: Continued growing store count with 22 net new branded sites in Q3 2024 and has 46 net new fully branded sites year-to-date, with new signed contracts to convert 168 stores to branded wholesale over 6-12 months.
• In Lubricants and Specialties: Executed strategic initiatives including optimizing sales mix, operational efficiency, and base oil integration, introduced digital tools, and developed new product offerings.
• In Midstream: Delivered strong performance with record affiliate and third party transportation volumes year-to-date, supported by strength in crude pipeline systems.

Segment Performance

• Refining: Third quarter adjusted EBITDA was $110 million, down from $1 billion in Q3 2023. Crude oil charge averaged 607,000 barrels per day in Q3 2024, up from 602,000 bpd in Q3 2023. Achieved quarterly records for jet production and premium production at Woods Cross refinery.
• Renewables: Adjusted EBITDA was $2 million in Q3 2024, down from $5 million in Q3 2023. Set a record for quarterly sales volumes of renewable diesel and achieved lowest operating expenses per gallon. Total sales volumes were 69 million gallons in Q3 2024 vs. 55 million gallons in Q3 2023.
• Marketing: EBITDA was $22 million in Q3 2024, up from $21 million in Q3 2023. Added 22 net new branded sites in Q3 2024 and has added 46 fully branded sites year-to-date. Targets 10% annual growth for branded sites.
• Lubricants and Specialties: EBITDA was $76 million in Q3 2024, down from $118 million in Q3 2023. Faced a $27 million FIFO charge from falling oil prices but benefited from sales mix optimization and base oil integration. Reported strong results despite FIFO headwinds.
• Midstream: Adjusted EBITDA was $112 million in Q3 2024, up from $101 million in Q3 2023. Delivered strong performance with record affiliate and third party transportation volumes year-to-date, supported by strength in crude pipeline systems in the Rockies and Southwest.

Guidance

• Full year 2024 capital spending expected to be approximately $800 million in sustaining capital (including turnarounds and catalysts) and $75 million in growth capital investments.
• For the fourth quarter of 2024, expect to run between 565,000 and 600,000 barrels per day of crude oil in the Refining segment, reflecting the planned turnaround at the El Dorado refinery.

Risks

• Global Refining Margins: Weakening global refining margins pose challenges.
• RINs and LCFS Credits: Continued headwinds from weak RINs and LCFS credit prices impact Renewables segment.
• Market Supply Changes: Potential impacts from changes in market supply, such as new capacity additions, affecting refining and marketing segments.

Question and Answer

• Q: Ryan Todd with Piper Sandler on cash allocation and balance sheet management A: Tim Go and Atanas Atanasov stated they maintain a strong balance sheet with net leverage under 1x, committed to dividends and buybacks, and believe they can maintain cash returns to shareholders while keeping a prudently conservative balance sheet.
• Q: Manav Gupta with UBS on marketing growth strategy A: Steve Ledbetter explained the strategic focus on growing marketing business for logistical advantages, brand value, and to exploit opportunities in markets served, with 168 signed contracts to convert stores to branded wholesale over 6-12 months.
• Q: Paul Cheng with Scotiabank on lubricants business as core portfolio A: Tim Go said the lubes business is seen as a core business in the long-term, with appreciation of its value in the portfolio growing, and focus on continuing to grow it.
• Q: Doug Leggate with Wolfe Research on refining margins and renewable diesel A: Steve Ledbetter and Tim Go discussed confidence in mid-cycle margin assumptions, and strategies to navigate BTC and PTC changes in renewable diesel, focusing on CI feedstock and market adjustments.