CVR Energy, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. CVR Energy operates petroleum refining and marketing, nitrogen fertilizer manufacturing through CVR Partners, and renewable diesel operations. Icahn Enterprises and affiliates owned approximately 66% of CVR Energy at quarter-end.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $2.522 billion | $2.699 billion | $7.045 billion | $8.216 billion |
| Operating income | $445 million | $103 million | $1.000 billion | $726 million |
| Net income | $354 million | $80 million | $781 million | $472 million |
| Net income attributable to CVR stockholders | $353 million | $93 million | $678 million | $351 million |
| EPS, basic and diluted | $3.51 | $0.92 | $6.74 | $3.49 |
| Operating cash flow | Not separately provided in the filing text | Not separately provided in the filing text | $984 million | $868 million |
| Free cash flow (non-GAAP) | $318 million | $93 million | $802 million | $649 million |
- Margins and segment performance: Petroleum refining margin (a non-GAAP measure) was $607 million, or $31.05 per throughput barrel, in Q3, versus $307 million, or $16.56, a year earlier. Nine-month refining margin was $1.351 billion versus $1.083 billion. Nitrogen Fertilizer operating income was $8 million in Q3 versus a $12 million loss; for nine months it was $184 million versus $218 million.
- Cash and liquidity: Cash and cash equivalents were $889 million, up from $510 million at December 31, 2022. Reported total liquidity was approximately $1.2 billion, including $251 million available on the Petroleum ABL and $48 million on the Nitrogen Fertilizer ABL. Nine-month investing cash use was $181 million and financing cash use was $424 million.
- Debt: Total debt and finance lease obligations, including current obligations, were $1.590 billion. Debt included CVR Energy notes of $600 million due 2025 and $400 million due 2028, and CVR Partners notes of $550 million due 2028. Management reported compliance with debt covenants. Net debt and lease obligations excluding the fertilizer segment were $243 million, or 0.21 times trailing EBITDA excluding that segment (non-GAAP).
- Significant liability: The estimated Renewable Fuel Standard (RFS) obligation was $413 million at quarter-end, down from $692 million at year-end 2022.
Changes and drivers versus prior periods
- Q3 sales declined about 7%, while operating income and stockholder-attributable income increased substantially. Management attributed petroleum improvement mainly to lower RFS-related expense and favorable inventory valuation. Lower refined-product prices reduced petroleum sales.
- Q3 GAAP EPS of $3.51 was materially affected by RFS liability revaluation, derivative losses, and inventory valuation. Adjusted EPS, a non-GAAP measure, was $1.89 versus $1.90 in Q3 2022; adjusted EBITDA was $313 million in both quarters.
- Nine-month petroleum results improved primarily on lower RFS-related expense. Refinery throughput averaged 203,388 barrels per day versus 200,098 a year earlier.
- Nitrogen fertilizer production recovered: Q3 ammonia utilization was 99% versus 52%, and nine-month utilization was 101% versus 76%. Higher volumes partly offset materially lower fertilizer prices; nine-month ammonia and UAN prices fell 40% and 33%, respectively.
- Nine-month operating cash flow increased $116 million year over year, but working-capital movements were a partial offset. Dividends paid to CVR Energy stockholders were $251 million in the first nine months, versus $342 million a year earlier.
Outlook, risks, and notable items
- The filing gives no specific earnings guidance. Management said cash from operations, cash on hand, and borrowing capacity are expected to cover anticipated requirements for at least the next 12 months, while noting capital and cash needs could exceed current expectations.
- Estimated 2023 capital expenditures are $200 million to $225 million, including $52 million to $63 million for the Wynnewood renewable-feedstock pretreater project. The project was expected to complete in Q4 2023. A Wynnewood refinery turnaround was scheduled for spring 2024, estimated at $44 million.
- On October 30, 2023, CVR declared a $0.50-per-share quarterly dividend and a $1.50-per-share special dividend, both payable November 20. CVR Partners declared a $1.55-per-unit distribution. These distributions are discretionary and may change.
- CVR Partners amended its ABL, extending maturity to September 2028 and increasing availability to $50 million, with a further $15 million incremental facility subject to conditions. The Petroleum ABL had $251 million available at quarter-end.
- Key operating exposures include volatile crude, refined-product, fertilizer, feedstock, utility, and RIN prices; refinery or fertilizer facility downtime; regulation and climate policy; and geopolitical and supply-chain disruption. Management described crack spreads as just above mid-cycle levels and noted potential market uncertainty.
- The RFS liability and related litigation remain material uncertainties. Wynnewood’s small-refinery exemption challenges are pending; a court stay covers enforcement for certain compliance years. An adverse outcome could materially affect results, financial position, or cash flows.
- The company’s insurer coverage litigation over defense costs and indemnity for settled call-option lawsuits remains unresolved; management cannot determine the outcome or potential financial impact. A Clean Air Act settlement concerning refinery flares was agreed in principle but awaited final approvals and court entry.
- East Dubuque fertilizer workers went on strike October 18, 2023; the facility continued operating and management expected normal operations during the strike. The Vitol crude supply agreement was terminated effective December 31, 2023.
- The 45Q carbon-capture arrangement may generate tax credits but includes minimum carbon-oxide delivery obligations and potential fees of up to $15 million annually, subject to a $45 million cap. CVR Partners guarantees specified obligations.
Most important facts for investors to verify
- Whether the $413 million RFS obligation, RIN pricing, exemptions, and pending EPA litigation materially change future cash costs.
- Whether Q3 earnings strength persists after separating recurring operating results from RFS revaluation, inventory effects, and derivatives; compare GAAP and non-GAAP measures.
- Whether fertilizer pricing and margins stabilize, and whether the East Dubuque strike or any operating disruption affects production.
- Actual completion cost and timing of the pretreater project and the planned 2024 refinery turnaround, against the stated capital spending range.
- Debt refinancing needs, particularly the $600 million notes due in 2025, available revolver capacity, and the cash impact of declared dividends.
- Developments in the call-option insurance case, RFS disputes, Clean Air Act settlement, and 45Q delivery obligations and credit realization.