HF Sinclair Earnings Disappoint Market Despite Jump

HF Sinclair DINO reported a large increase in fourth-quarter earnings from the year before, but fell short of market expectations on weaker-than-expected West Coast refining results and disappointing operational performance in the renewables segment. Adjusted income of $597.8 million in the fourth quarter improved from an adjusted loss of $17.6 million a year ago thanks to a strong refining market. Full-year 2022 adjusted earnings amounted to $3.0 billion compared with an adjusted income of $250.1 million the year before. On the back of this strong 2022 performance, HF Sinclair increased the dividend $0.05 to $0.45 per share. During the quarter it also repurchased $394.7 million in shares. For the full year, it returned $1.6 billion in dividends and buybacks, far exceeding its post-Sinclair acquisition target of $1 billion for 2022. While avoiding specific guidance on its repurchase pace, management continues to target a 50% payout ratio of adjusted net income. Our $63 fair value estimate and narrow moat rating are unchanged, leaving HF Sinclair the cheapest refiner in our coverage.

The refining segment’s adjusted EBITDA improved to $863.8 million from adjusted EBITDA of $25.0 million a year ago as realized refining margins during the quarter widened to $23.47 per barrel from $8.70/bbl a year ago. Crude throughput also increased during the quarter to 628.2 mb/d from 421.0 mb/d last year, due to acquisitions. Full-year realized refining more than doubled to $26.78/bbl from $10.89/bbl the year before. We expect another year of strong refining margins in 2023 as demand remains robust and supply tight from past refinery closures and Russian sanctions-related disruptions.

Lubricants’ performance declined during the quarter with adjusted EBITDA falling to $66.6 million from $74.9 million a year ago on the first-in, first-out accounting impact from consumption of higher-priced feedstock inventory.