CVR Energy, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; financial statements are unaudited. CVR Energy operates petroleum refining and marketing and, through CVR Partners, nitrogen fertilizer manufacturing. It also produces renewable diesel. Icahn Enterprises and affiliates owned approximately 71% of CVR Energy at quarter-end.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $2.286 billion | $2.373 billion |
| Operating income | $330 million | $220 million |
| Net income | $259 million | $153 million |
| Net income attributable to CVR Energy stockholders | $195 million | $94 million |
| Diluted EPS | $1.94 | $0.93 |
| Operating cash flow | $247 million | $322 million |
| Capital expenditures and turnaround expenditures | $53 million | $41 million |
- Operating margin was approximately 14.4%, versus 9.3% a year earlier; the improvement came despite lower sales.
- Cash and cash equivalents were $601 million at March 31, 2023, up from $510 million at year-end. Total reported liquidity was approximately $891 million, including $255 million available under the Petroleum ABL and $35 million under the Nitrogen Fertilizer ABL.
- Total debt and finance lease obligations, including current portions, were $1.590 billion. Debt was broadly unchanged from year-end; the company reported covenant compliance. Senior notes include $600 million due 2025 and $400 million due 2028; CVR Partners has $550 million of secured notes due 2028.
- Current assets were $1.637 billion and current liabilities $1.347 billion. The RFS obligation, recorded in current liabilities, was $582 million, down from $692 million at year-end.
- Management reported free cash flow of $213 million, compared with $281 million. Its reconciliation includes a $19 million return on an equity-method investment; operating cash flow less capital and turnaround expenditures alone was $194 million.
Material changes and segment results
- Petroleum: Operating income increased to $237 million from $130 million. Refining margin rose to $411 million, or $23.24 per throughput barrel, from $297 million, or $16.75. Stronger crack spreads and lower RFS-related expenses helped; lower sales prices and volumes, a planned Coffeyville turnaround, higher operating costs, and unfavorable inventory valuation partially offset gains. Throughput was nearly flat at 196,494 barrels per day.
- Nitrogen fertilizer: Operating income increased to $109 million from $104 million. Higher production and sales volumes offset lower prices: ammonia and UAN realized prices fell 16% and 8%, respectively. Ammonia utilization improved to 105% from 88%, and the company reported record combined first-quarter ammonia and UAN production.
- Consolidated sales declined about 4%, while operating income rose 50% and attributable net income more than doubled. Results benefited from improved refining margins and stronger fertilizer volumes; prior-year favorable inventory impacts make the comparison less straightforward.
- Operating cash flow fell by $75 million, primarily reflecting working-capital movements, including inventory, partly offset by higher net income.
Outlook, management commentary and risks
- Management said cash from operations, existing cash and available borrowings are expected to cover anticipated needs for at least the next 12 months, while noting that capital and compliance costs could exceed current expectations.
- Estimated 2023 capital expenditures are $200–$226 million. The Wynnewood renewable-feedstock pretreater is expected to be completed in Q3 2023, at an estimated project cost of $91 million. The Coffeyville refinery turnaround began in February and was completed in mid-April 2023.
- Based on March RIN prices and other assumptions, management estimated 2023 consolidated RFS compliance costs of $140–$150 million, net of estimated renewable-diesel RIN generation of $205–$215 million, and before any small-refinery exemptions. RIN prices, EPA decisions and litigation outcomes remain significant uncertainties.
- Management is exploring a potential spin-off of its nitrogen fertilizer business; completion, structure, timing and benefits are uncertain, and exploration is expected to incur additional costs.
- In January 2023, CVR Partners entered a carbon-capture transaction intended to monetize Section 45Q credits. It received approximately $18.1 million net initially and could receive up to $60 million in additional payments through March 2030 if milestones are met. Failure to meet carbon-oxide delivery requirements may trigger fees, subject to a $45 million aggregate cap.
- Material contingencies include disputes over RFS small-refinery exemptions and ongoing Clean Air Act claims involving the Coffeyville refinery. The company cannot determine the outcomes or potential financial effects. It also continues to pursue insurance recovery related to settlement of CVR Refining call-option litigation.
- Key operating risks include volatile crude, refined-product, fertilizer and feedstock prices; refining margins and demand; RIN costs and regulation; facility reliability and turnarounds; weather; and geopolitical and economic uncertainty. Management stated there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much of the earnings improvement reflects sustainable operating performance versus crack spreads, derivative results, RIN revaluation and inventory effects.
- The actual RFS liability, compliance costs and RIN exposure, including the impact of pending EPA actions and exemption litigation.
- Progress, costs and returns for the Wynnewood pretreater, and the assumptions and milestones behind the Section 45Q transaction payments.
- Cash generation and liquidity after dividends, capital spending and turnaround costs; dividends and CVR Partners distributions are discretionary and may change.
- Potential costs, timing and terms of the proposed fertilizer-business spin-off and the outcomes of material legal and environmental matters.