HF Sinclair Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Refining Progress: Achieved sequential improvements in throughput, capture, and operating expenses per barrel. Gross margin per barrel benefited from strong cracks and SREs. Record low operating expense of $7.12 per throughput barrel was achieved.
• Marketing Segment: Record EBITDA of $29 million, adjusted gross margin of $0.11 per gallon. Added 146 branded sites in Q3 '25, with over 130 sites under contract to come online in 6-12 months.
• Shareholder Returns: Returned $254 million to shareholders in Q3, including $166 million in share repurchases and $94 million in dividends. Since Sinclair acquisition in 2022, over $4.5 billion returned to shareholders, reducing share count by over 61 million.
• Strategic Updates: Completed CARB project at PSR refinery, enabling more CARB gasoline/component production for California. Announced jet project at PSR refinery for flexibility in producing jet from diesel. Evaluating multiphase midstream expansion in PADD 4 and 5 to address West Coast supply needs due to announced refinery closures.

Segment Performance

• Refining: Third quarter adjusted EBITDA was $661 million, compared to $110 million in the third quarter of 2024. Crude oil charge averaged 639,000 barrels per day for the quarter, the second highest quarter. Gross margin per barrel benefited from strong cracks and small refinery exemptions (SREs) granted by the EPA.
• Renewables: Excluding a $20 million lower cost or market inventory valuation adjustment charge, adjusted EBITDA was negative $13 million for the third quarter compared to $1 million in the third quarter of 2024. Total sales volumes were 57 million gallons for Q3 2025 vs. 69 million gallons in Q3 2024.
• Marketing: Reported EBITDA of $29 million for the third quarter, compared to $22 million in Q3 2024. Driven by higher margins and high-grading of store mix.
• Lubricants and Specialties: Bounced back from heavy turnaround workload in 2Q, reported EBITDA of $78 million vs. $76 million in Q3 2024. Driven by improved mix and FIFO benefit, partially offset by higher operating expenses.
• Midstream: Reported EBITDA of $114 million in Q3, compared to $111 million of adjusted EBITDA in the same period of 2024. Driven by lower operating expenses, partially offset by lower throughput volumes.

Guidance

• Capital Spending: Full year 2025 expected to spend approximately $775 million in sustaining capital (including turnaround and catalysts) and $100 million in growth capital investments across business segments.
• Refining Segment: Q4 2025 crude oil charge expected to run between 550,000 and 590,000 barrels per day due to the planned turnaround at the Puget Sound refinery.
• Turnarounds: Anticipate lower turnaround costs and fewer turnaround events in 2026, as the company is through the peak of turnaround workloads.

Risks

• Regulatory Uncertainty: Changes in EPA regulations regarding small refinery exemptions could impact the magnitude and consistency of SRE benefits.
• Market Volatility: Fluctuations in crude oil prices, product demand, and RIN market dynamics could affect refining margins and overall financial performance.
• Execution Risks: Delays or cost overruns in the multiphase midstream expansion projects could impede the ability to address West Coast supply needs as planned.

Question and Answer

• Q: On the competitive edge of the multiphase midstream expansion A: Steven Ledbetter and Tim Go state the company has strategic advantage due to existing infrastructure and ability to deliver product competitively to address the growing supply shortfall in PADD 5.
• Q: Clarification on SRE benefits A: Atanas Atanasov and Tim Go explain the $115 million SRE benefit to cost of sales and $56 million from RIN trading, and ongoing SRE applications for 5 refineries.
• Q: Capital spending for pipeline projects A: Steven Ledbetter and Tim Go indicate they evaluate financing options but do not disclose specific financing details at this time.
• Q: Lubricant market and M&A A: Matt Joyce discusses a healthy lubricant market and ongoing exploration of M&A opportunities to build the portfolio.
• Q: Q4 crude charge guidance and 2026 turnarounds A: Steven Ledbetter explains Q4 crude charge guidance is due to Puget Sound turnaround, and Valeria Pompa anticipates lower turnaround costs and fewer events in 2026.
• Q: Return of capital strategy A: Atanas Atanasov and Tim Go state the priority is to return excess cash to shareholders, with target of dividends plus buybacks being 50% or higher of net income.