HF Sinclair Corporation Reports Quarterly Results and Announces Regular Cash Dividend

·20 min read
  • Reported net income attributable to HF Sinclair stockholders of $1,221.3 million, or $5.43 per diluted share, and adjusted net income of $1,258.5 million, or $5.59 per diluted share, for the second quarter

  • Reported EBITDA of $1,805.9 million and Adjusted EBITDA of $1,853.0 million for the second quarter

  • Commenced production of renewable diesel at the Artesia, New Mexico renewable diesel facility

  • Returned $200.6 million to shareholders through dividends and share repurchases in the second quarter

  • Announced a regular quarterly dividend of $0.40 per share

DALLAS, August 08, 2022--(BUSINESS WIRE)--HF Sinclair Corporation (NYSE: DINO) ("HF Sinclair" or the "Company") today reported second quarter net income attributable to HF Sinclair stockholders of $1,221.3 million, or $5.43 per diluted share, for the quarter ended June 30, 2022, compared to $168.9 million, or $1.03 per diluted share, for the quarter ended June 30, 2021.

The second quarter results reflect special items that collectively decreased net income by a total of $37.3 million. On a pre-tax basis, these items include a lower of cost or market inventory valuation adjustment of $34.5 million, acquisition integration costs of $12.5 million and decommissioning charges of $0.5 million related to the Cheyenne Refinery conversion to renewable diesel production. Excluding these items, adjusted net income for the second quarter of 2022 was $1,258.5 million ($5.59 per diluted share) compared to $143.8 million ($0.87 per diluted share) for the second quarter of 2021, which excludes certain items that collectively increased net income by $25.1 million.

HF Sinclair’s CEO, Michael Jennings, commented, "HF Sinclair delivered strong financial results in the second quarter driven by robust performance in our refining, marketing, lubricants and midstream segments. Healthy free cash flow generation in the quarter allowed us to return cash to shareholders through dividends and share repurchases, further demonstrating the commitment to our capital return strategy. During the quarter, we also commenced start-up of the Artesia, New Mexico renewable diesel unit. With all of our previously announced renewables projects complete, we will continue to ramp up production of these assets as we expect to reach full production levels by the end of the third quarter. Looking forward, we remain focused on the integration of our newly acquired assets from Sinclair while maintaining safe and reliable operations."

Refining segment income before interest and income taxes was $1,558.1 million for the second quarter of 2022 compared to $250.1 million in the second quarter of 2021. The segment reported EBITDA of $1,660.9 million for the second quarter of 2022 compared to $330.0 million for the second quarter of 2021. This increase was driven by higher refining indicator margins in both the West and Mid-Continent regions, which resulted in higher refining segment earnings in the quarter. Consolidated refinery gross margin was $36.36 per produced barrel, a 211% increase compared to $11.71 for the second quarter of 2021, and crude oil charge averaged 627,310 barrels per day ("BPD") for the second quarter of 2022 compared to 416,350 BPD for the second quarter of 2021.

Renewables segment loss before interest and income taxes was $(73.2) million for the second quarter of 2022 compared to $(11.5) million in the second quarter of 2021. The segment reported EBITDA of $(62.8) million for the second quarter of 2022 compared to $(11.2) million in the second quarter of 2021. Excluding the lower of cost or market inventory valuation charge of $34.5 million, Adjusted EBITDA in the second quarter of 2022 was $(28.3) million. Total sales volumes were 26 million gallons for the second quarter of 2022. The Cheyenne renewable diesel unit ("RDU") was mechanically complete in the fourth quarter of 2021 and fully operational in the first quarter of 2022, the pre-treatment unit ("PTU") at our Artesia, New Mexico facility was completed and fully operational in the first quarter of 2022 and the Artesia RDU was completed and fully operational in the second quarter of 2022. Also, effective with the Sinclair acquisition that closed on March 14, 2022, the Renewables segment includes the Sinclair RDU.

Marketing segment income before interest and income taxes was $19.5 million and reported EBITDA was $23.9 million for the second quarter of 2022. Total branded fuel sales volumes were 335 million gallons for the second quarter of 2022.

Lubricants and Specialty Products segment income before interest and income taxes was $135.1 million for the second quarter of 2022 compared to $60.1 million in the second quarter of 2021. The segment reported EBITDA of $155.7 million for the second quarter of 2022 compared to $79.2 million in the second quarter of 2021. This increase was driven by strong finished product demand in our Rack Forward businesses.

Holly Energy Partners, L.P. ("HEP") reported EBITDA of $79.8 million for the second quarter of 2022 compared to $88.1 million in the second quarter of 2021 and Adjusted EBITDA of $104.2 million for the second quarter of 2022 compared to $88.3 million in the second quarter of 2021.

For the second quarter of 2022, net cash provided by operations totaled $1,528.4 million. At June 30, 2022, the Company's cash and cash equivalents totaled $1,702.3 million, a $1,110.0 million increase over cash and cash equivalents of $592.3 million at March 31, 2022. During the second quarter of 2022, the Company announced and paid a regular dividend of $0.40 per share to shareholders totaling $90.2 million and spent $110.4 million in stock repurchases. Additionally, the Company's consolidated debt was $3,348.1 million. The Company’s debt, exclusive of HEP debt, which is nonrecourse to HF Sinclair, was $1,739.6 million at June 30, 2022.

HF Sinclair also announced today that its Board of Directors declared a regular quarterly dividend in the amount of $0.40 per share, payable on September 1, 2022 to holders of record of common stock on August 18, 2022.

As of June 30, 2022, HF Sinclair has achieved annualized run rate synergies of over $90 million related to the Sinclair acquisition and over $100 million of working capital synergies. The Company is currently on pace to exceed its target of approximately $100 million in annual run rate synergies within two years of the acquisition close date through a combination of commercial improvements, operating expense reductions and optimization of selling, general and administrative expenses.

The Company has scheduled a webcast conference call for today, August 8, 2022, at 8:30 AM Eastern Time to discuss second quarter financial results. This webcast may be accessed at https://events.q4inc.com/attendee/167295545. An audio archive of this webcast will be available using the above noted link through August 22, 2022.

HF Sinclair Corporation, headquartered in Dallas, Texas, is an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and other specialty products. HF Sinclair owns and operates refineries located in Kansas, Oklahoma, New Mexico, Wyoming, Washington and Utah and markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. HF Sinclair supplies high-quality fuels to more than 1,300 Sinclair branded stations and licenses the use of the Sinclair brand at more than 300 additional locations throughout the country. In addition, subsidiaries of HF Sinclair produce and market base oils and other specialized lubricants in the U.S., Canada and the Netherlands, and export products to more than 80 countries. Through its subsidiaries, HF Sinclair produces renewable diesel at two of its facilities in Wyoming and also at its facility in Artesia, New Mexico. HF Sinclair also owns a 47% limited partner interest and a non-economic general partner interest in Holly Energy Partners, L.P., a master limited partnership that provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HF Sinclair subsidiaries.

The following is a "safe harbor" statement under the Private Securities Litigation Reform Act of 1995: The statements in this press release relating to matters that are not historical facts are "forward-looking statements" based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties, including those contained in our filings with the Securities and Exchange Commission (the "SEC"). Forward-looking statements use words such as "anticipate," "project," "will," "expect," "plan," "goal," "forecast," "strategy," "intend," "should," "would," "could," "believe," "may," and similar expressions and statements regarding our plans and objectives for future operations. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Any differences could be caused by a number of factors, including, but not limited to, the Company’s and HEP’s ability to successfully integrate the Sinclair Oil Corporation (now known as Sinclair Oil LLC, "Sinclair Oil") and Sinclair Transportation Company LLC ("STC") businesses acquired from REH Company (formerly known as The Sinclair Companies) (collectively, the "Sinclair Transactions") with their existing operations and fully realize the expected synergies of the Sinclair Transactions or on the expected timeline; the Company's ability to successfully integrate the operation of the Puget Sound refinery with its existing operations; the demand for and supply of crude oil and refined products, including uncertainty regarding the effects of the continuing coronavirus ("COVID-19") pandemic on future demand and increasing societal expectations that companies address climate change; risks and uncertainties with respect to the actions of actual or potential competitive suppliers and transporters of refined petroleum products or lubricant and specialty products in the Company’s markets; the spread between market prices for refined products and market prices for crude oil; the possibility of constraints on the transportation of refined products or lubricant and specialty products; the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand, accidents, unexpected leaks or spills, unscheduled shutdowns, weather events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, or political events or developments, terrorism, cyberattacks, or other catastrophes or disruptions affecting our operations, production facilities, machinery, pipelines and other logistics assets, equipment, or information systems, or any of the foregoing of our suppliers, customers, or third-party service providers; the effects of current and/or future governmental and environmental regulations and policies, including the effects of current and/or future restrictions on various commercial and economic activities in response to the COVID-19 pandemic and increases in interest rates; the availability and cost of financing to the Company; the effectiveness of the Company’s capital investments and marketing strategies; the Company’s and HEP’s efficiency in carrying out and consummating construction projects, including the Company's ability to complete announced capital projects on time and within capital guidance; the Company's and HEP’s ability to timely obtain or maintain permits, including those necessary for operations or capital projects; the ability of the Company to acquire refined or lubricant product operations or pipeline and terminal operations on acceptable terms and to integrate any existing or future acquired operations; the possibility of terrorist or cyberattacks and the consequences of any such attacks; uncertainty regarding the effects and duration of global hostilities and any associated military campaigns which may disrupt crude oil supplies and markets for the Company's refined products and create instability in the financial markets that could restrict the Company's ability to raise capital; general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States; a prolonged economic slowdown due to the COVID-19 pandemic, inflation and labor costs which could result in an impairment of goodwill and/or long-lived asset impairments; and other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s and HEP’s SEC filings. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS

Financial Data (all information in this release is unaudited)

Three Months Ended
June 30,

Change from 2021

2022

2021

Change

Percent

(In thousands, except per share data)

Sales and other revenues

$

11,162,160

$

4,577,123

$

6,585,037

144

%

Operating costs and expenses:

Cost of products sold:

Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)

8,579,915

3,825,729

4,754,186

124

Lower of cost or market inventory valuation adjustment

34,543

(118,825

)

153,368

(129

)

8,614,458

3,706,904

4,907,554

132

Operating expenses (exclusive of depreciation and amortization)

606,127

334,191

271,936

81

Selling, general and administrative expenses (exclusive of depreciation and amortization)

110,875

77,754

33,121

43

Depreciation and amortization

164,044

124,042

40,002

32

Total operating costs and expenses

9,495,504

4,242,891

5,252,613

124

Income from operations

1,666,656

334,232

1,332,424

399

Other income (expense):

Earnings of equity method investments

5,447

3,423

2,024

59

Interest income

1,844

1,029

815

79

Interest expense

(38,961

)

(28,942

)

(10,019

)

35

Gain (loss) on foreign currency transactions

(905

)

583

(1,488

)

(255

)

Gain on sale of assets and other

2,320

7,927

(5,607

)

(71

)

(30,255

)

(15,980

)

(14,275

)

89

Income before income taxes

1,636,401

318,252

1,318,149

414

Income tax expense

383,493

123,485

260,008

211

Net income

1,252,908

194,767

1,058,141

543

Less net income attributable to noncontrolling interest

31,646

25,917

5,729

22

Net income attributable to HF Sinclair stockholders

$

1,221,262

$

168,850

$

1,052,412

623

%

Earnings per share attributable to HF Sinclair stockholders:

Basic

$

5.43

$

1.03

$

4.40

427

%

Diluted

$

5.43

$

1.03

$

4.40

427

%

Cash dividends declared per common share

$

0.40

$

$

0.40

100

%

Average number of common shares outstanding:

Basic

222,952

162,523

60,429

37

%

Diluted

222,952

162,523

60,429

37

%

EBITDA

$

1,805,916

$

444,290

$

1,361,626

306

%

Adjusted EBITDA

$

1,853,008

$

334,501

$

1,518,507

454

%

Six Months Ended
June 30,

Change from 2021

2022

2021

Change

Percent

(In thousands, except per share data)

Sales and other revenues

$

18,620,910

$

8,081,416

$

10,539,494

130

%

Operating costs and expenses:

Cost of products sold:

Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)

15,081,927

6,786,034

8,295,893

122

Lower of cost or market inventory valuation adjustment

25,992

(318,862

)

344,854

(108

)

15,107,919

6,467,172

8,640,747

134

Operating expenses (exclusive of depreciation and amortization)

1,083,561

734,100

349,461

48

Selling, general and administrative expenses (exclusive of depreciation and amortization)

221,297

159,729

61,568

39

Depreciation and amortization

308,645

248,121

60,524

24

Total operating costs and expenses

16,721,422

7,609,122

9,112,300

120

Income from operations

1,899,488

472,294

1,427,194

302

Other income (expense):

Earnings of equity method investments

9,073

5,186

3,887

75

Interest income

2,841

2,060

781

38

Interest expense

(73,820

)

(67,328

)

(6,492

)

10

Gain on tariff settlement

51,500

(51,500

)

(100

)

Loss on foreign currency transactions

(766

)

(734

)

(32

)

4

Gain on sale of assets and other

6,215

9,817

(3,602

)

(37

)

(56,457

)

501

(56,958

)

(11,369

)

Income before income taxes

1,843,031

472,795

1,370,236

290

Income tax expense

404,822

95,178

309,644

325

Net income

1,438,209

377,617

1,060,592

281

Less net income attributable to noncontrolling interest

56,973

60,550

(3,577

)

(6

)

Net income attributable to HollyFrontier stockholders

$

1,381,236

$

317,067

$

1,064,169

336

%

Earnings per share attributable to HollyFrontier stockholders:

Basic

$

6.86

$

1.92

$

4.94

257

%

Diluted

$

6.86

$

1.92

$

4.94

257

%

Cash dividends declared per common share

$

0.40

$

0.35

$

0.05

14

%

Average number of common shares outstanding:

Basic

199,149

162,501

36,648

23

%

Diluted

199,149

162,501

36,648

23

%

EBITDA

$

2,165,682

$

725,634

$

1,440,048

198

%

Adjusted EBITDA

$

2,229,715

$

381,809

$

1,847,906

484

%

Balance Sheet Data

June 30,

December 31,

2022

2021

(In thousands)

Cash and cash equivalents

$

1,702,286

$

234,444

Working capital

$

3,636,627

$

1,696,990

Total assets

$

19,177,854

$

12,916,613

Long-term debt

$

3,348,103

$

3,072,737

Total equity

$

9,874,910

$

6,294,465

Segment Information

Effective the first quarter of 2022, we revised our reportable segments to align with certain changes in how our chief operating decision maker manages and allocates resources to our businesses. Accordingly, we created two new reportable segments, Renewables and Marketing. Our operations are now organized into five reportable segments, Refining, Renewables, Marketing, Lubricants and Specialty Products and HEP. Our operations that are not included in one of these five reportable segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations. Corporate and Other and Eliminations are aggregated and presented under the Corporate, Other and Eliminations column.

As a result of the Sinclair Transactions that closed on March 14, 2022, the operations of the acquired Sinclair businesses are reported in the Refining, Renewables, Marketing and HEP segments.

The Refining segment represents the operations of our El Dorado, Tulsa, Navajo and Woods Cross refineries and HollyFrontier Asphalt Company LLC ("HFC Asphalt"). Also, effective with our acquisition that closed November 1, 2021, the Refining segment includes our Puget Sound refinery, and effective with our acquisition that closed on March 14, 2022, includes our Sinclair and Casper refineries. Refining activities involve the purchase and refining of crude oil and wholesale marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountains extending into the Pacific Northwest geographic regions of the United States. HFC Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma.

The Renewables segment represents the operations of the Cheyenne RDU, which was mechanically complete in the fourth quarter of 2021 and fully operational in the first quarter of 2022, the PTU at our Artesia, New Mexico facility, which was completed and fully operational in the first quarter of 2022 and the Artesia RDU, which was completed and fully operational in the second quarter of 2022. Also, effective with our acquisition that closed on March 14, 2022, the Renewables segment includes the Sinclair RDU. During the construction phase of our RDUs and PTU, operating expense and capital expenditures were reported in the Corporate and Other segment, and this financial information has been retrospectively adjusted to reflect our current segment presentation.

Effective with our acquisition that closed on March 14, 2022, the Marketing segment includes branded fuel sales through more than 300 distributors to more than 1,300 branded sites in the United States and licensing fees for the use of the Sinclair brand at more than 300 additional locations throughout the country.

The Lubricants and Specialty Products segment represents Petro-Canada Lubricants, Inc.’s ("PCLI") production operations, located in Mississauga, Ontario, that includes lubricant products such as base oils, white oils, specialty products and finished lubricants, and the operations of our Petro-Canada Lubricants business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China. Additionally, the Lubricants and Specialty Products segment includes specialty lubricant products produced at our Tulsa refineries that are marketed throughout North America and are distributed in Central and South America and the operations of Red Giant Oil Company LLC, one of the largest suppliers of locomotive engine oil in North America. Also, the Lubricants and Specialty Products segment includes Sonneborn, a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe.

The HEP segment includes all of the operations of HEP, which owns and operates logistics and refinery assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units in the Mid-Continent, Southwest and Rocky Mountains geographic regions of the United States. The HEP segment also includes 50% ownership interests in each of the Osage Pipeline, the Cheyenne Pipeline and Cushing Connect, a 25.06% ownership interest in the Saddle Butte Pipeline and a 49.995% ownership interest in the Pioneer Pipeline. Revenues from the HEP segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations. Due to certain basis differences, our reported amounts for the HEP segment may not agree to amounts reported in HEP’s periodic public filings.

Refining

Renewables

Marketing

Lubricants
and Specialty
Products

HEP

Corporate,
Other and
Eliminations

Consolidated
Total

(In thousands)

Three Months Ended June 30, 2022

Sales and other revenues:

Revenues from external customers

$

8,839,662

$

115,939

$

1,336,302

$

845,024

$

25,233

$

$

11,162,160

Intersegment revenues

1,448,919

78,639

4,917

110,537

(1,643,012

)

$

10,288,581

$

194,578

$

1,336,302

$

849,941

$

135,770

$

(1,643,012

)

$

11,162,160

Cost of products sold (exclusive of lower of cost or market inventory)

$

8,119,285

$

192,662

$

1,311,333

$

576,428

$

$

(1,619,793

)

$

8,579,915

Lower of cost or market inventory valuation adjustment

$

$

34,543

$

$

$

$

$

34,543

Operating expenses

$

469,304

$

29,273

$

$

74,470

$

53,899

$

(20,819

)

$

606,127

Selling, general and administrative expenses

$

39,123

$

1,001

$

1,049

$

43,555

$

4,683

$

21,464

$

110,875

Depreciation and amortization

$

102,780

$

10,371

$

4,418

$

20,605

$

26,371

$

(501

)

$

164,044

Income (loss) from operations

$

1,558,089

$

(73,272

)

$

19,502

$

134,883

$

50,817

$

(23,363

)

$

1,666,656

Income (loss) before interest and income taxes

$

1,558,120

$

(73,202

)

$

19,502

$

135,116

$

56,309

$

(22,327

)

$

1,673,518

Net income attributable to noncontrolling interest

$

$

$

$

$

1,929

$

29,717

$

31,646

Earnings of equity method investments

$

$

$

$

$

5,447

$

$

5,447

Capital expenditures

$

36,711

$

87,525

$

5,309

$

8,026

$

9,100

$

12,773

$

159,444

Refining

Renewables

Lubricants
and Specialty
Products

HEP

Corporate,
Other and
Eliminations

Consolidated
Total

(In thousands)

Three Months Ended June 30, 2021

Sales and other revenues:

Revenues from external customers

$

3,887,273

$

$

662,755

$

27,092

$

3

$

4,577,123

Intersegment revenues

205,186

6,434

99,142

(310,762

)

$

4,092,459

$

$

669,189

$

126,234

$

(310,759

)

$

4,577,123

Cost of products sold (exclusive of lower of cost or market inventory)

$

3,619,319

$

$

491,218

$

$

(284,808

)

$

3,825,729

Lower of cost or market inventory valuation adjustment

$

(118,825

)

$

$

$

$

$

(118,825

)

Operating expenses

$

231,422

$

11,231

$

61,310

$

42,068

$

(11,840

)

$

334,191

...