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HF Sinclair(DINO) - 2019 Q1 - Earnings Call Transcript
DINOHF Sinclair(DINO)2019-05-02 20:09

Financial Data and Key Metrics Changes - The company reported a net income attributable to shareholders of 253millionor253 million or 1.47 per diluted share, with adjusted net income of 93millionor93 million or 0.54 per diluted share, down from 137millionor137 million or 0.77 per diluted share in the same period last year [7] - Adjusted EBITDA for the period was 282million,adecreaseof282 million, a decrease of 34 million compared to the first quarter of 2018, primarily due to maintenance in the Refining and Marketing segment and weaker base oil margins [8] - Cash flow from operations was 217million,includingturnaroundspendingof217 million, including turnaround spending of 79 million, with total capital expenditures of 53millionforthequarter[24]BusinessLineDataandKeyMetricsChanges−TheLubricantsandSpecialtyProductsbusinessreportedadjustedEBITDAof53 million for the quarter [24] Business Line Data and Key Metrics Changes - The Lubricants and Specialty Products business reported adjusted EBITDA of 20 million despite challenging market conditions [8] - Rack Forward adjusted EBITDA was 53millionforthequarter,withanadjustedEBITDAmarginof1253 million for the quarter, with an adjusted EBITDA margin of 12% of sales [9] - Holly Energy Partners reported EBITDA of 94 million for the first quarter, compared to 88millioninthesameperiodlastyear,withoverallpipelinevolumesincreasingby588 million in the same period last year, with overall pipeline volumes increasing by 5% year-over-year [10] Market Data and Key Metrics Changes - Gasoline inventories in the Magellan system decreased from 8.9 million barrels at the start of the year to 7.7 million barrels at the end of the quarter, with current inventories at 6.7 million barrels, below the 5-year average [16] - First quarter consolidated refinery gross margin was 12.74 per produced barrel sold, representing a 1% decrease compared to 12.83inthefirstquarterof2018[22]−Midlanddifferentialsaveraged12.83 in the first quarter of 2018 [22] - Midland differentials averaged 2.57 in the first quarter, currently trading at 4.16belowCushingduetodelaysinnewpipelinecapacity[21]CompanyStrategyandDevelopmentDirection−Thecompanyaimstoimprovereliabilityandreducecostsacrossitsrefiningsystem,withafocusonstrongfinancialperformanceheadingintothesummerdrivingseason[11]−TheintegrationofSonnebornisprogressingwell,withrunratesynergiesof4.16 below Cushing due to delays in new pipeline capacity [21] Company Strategy and Development Direction - The company aims to improve reliability and reduce costs across its refining system, with a focus on strong financial performance heading into the summer driving season [11] - The integration of Sonneborn is progressing well, with run rate synergies of 7 million achieved and expectations of long-term synergies of 20millionperyear[9]−Thecompanyiscautiousaboutacquisitions,focusingonvalue−orientedopportunitiesratherthangrowthforgrowth′ssake,particularlyinthemidstreamandrefiningspaces[46][80]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpressedoptimismfortheremainderoftheyearasproductfundamentalsimproveandgasolineanddistillateinventoriesremainlow[15]−Thecompanyanticipatesareboundinthebaseoilmarket,expectingdemandgrowthtoabsorbsupplyadditionsoverthenextfewyears[38]−Managementdoesnotforeseeanymaterialdifferencesinoperationalcapabilitiespost−turnaround,withplanstooptimizeformaximumdieselproductionasmarketconditionsdictate[74]OtherImportantInformation−Thecompanyreturned20 million per year [9] - The company is cautious about acquisitions, focusing on value-oriented opportunities rather than growth for growth's sake, particularly in the midstream and refining spaces [46][80] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for the remainder of the year as product fundamentals improve and gasoline and distillate inventories remain low [15] - The company anticipates a rebound in the base oil market, expecting demand growth to absorb supply additions over the next few years [38] - Management does not foresee any material differences in operational capabilities post-turnaround, with plans to optimize for maximum diesel production as market conditions dictate [74] Other Important Information - The company returned 135 million to shareholders through dividends and share repurchases during the quarter [11] - Total liquidity stood at over 1.8billion,withacashbalanceof1.8 billion, with a cash balance of 496 million, aligning with the target cash balance of 500million[25]−Thecompanyexpectstospendbetween500 million [25] - The company expects to spend between 470 million and 510 million for standalone capital and turnarounds in 2019 [28] Q&A Session Summary Question: What was the working capital impact during the quarter? - Working capital in the quarter was about a 64 million benefit, with capital expenditures expected to be back-end loaded due to a heavy turnaround schedule in the fourth quarter [29] Question: Any updates on small refinery exemptions? - Management indicated that the lack of announcement regarding small refinery exemptions is a matter of timing, expecting them to continue being granted [30] Question: What is the outlook for the base oil market? - The base oil market remains cyclically weak, but management believes it is bottoming out in the first half of 2019, with expectations for gradual improvement [38] Question: How does the company view the current crude differentials? - The widening of differentials is primarily driven by pipeline start-up delays, with three major pipelines expected to come online later in the year [40] Question: What is the company's strategy regarding cash balances and potential acquisitions? - The company aims to maintain a minimum cash balance of $500 million, with excess cash being considered for share repurchases or acquisition opportunities as they arise [44] Question: How does the IMO 2020 regulation impact the company's margins? - Management does not expect a major impact on base oil margins from IMO 2020, but anticipates increased demand for diesel fuel [72]