CVR Energy 2026 Q2 Earnings Call

Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy second quarter 2026 earnings call. With me today are Dane Neumann, our Chief Executive Officer, Mike Wright, our Chief Operating Officer, and other members of management. Prior to discussing our 2026 second quarter results, let me remind you that this conference call may contain forward-looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results as specified in the forward-looking statements.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2026 second-quarter earnings release that we filed with the SEC in Form 10-Q for the period and will be discussed during the call. With that said, I'll turn the call over to Dane.

Thank you, Richard. Good afternoon, everyone, and thank you for joining our earnings call. We posted another quarter of strong operating results with crude utilization of 98% and an ammonia plant utilization of 99%. The ongoing global conflicts have created tightness across energy and fertilizer markets, which directly benefited our asset base during the second quarter. We are pleased to announce the second quarter 2026 dividend of $0.10 per share, and we believe current market conditions could present opportunities to reduce leverage and add value for our shareholders. Now let me turn the call over to Richard to discuss our financial highlights.

Thank you, Dane, and good afternoon, everyone. For the second quarter of 2026, our consolidated net income was $46 million. Losses per share were $0.03. EBITDA was $161 million. Our second-quarter results include an unfavorable change in our RFS liability of $73 million, favorable inventory valuation impacts of $19 million, and unrealized derivative gains of $6 million. Excluding the above-mentioned items, adjusted EBITDA for the quarter was $209 million. Adjusted earnings per share was $0.34. Adjusted EBITDA on the petroleum segment was $106 million for the second quarter, compared to $38 million for the second quarter of 2025. Elevated Group 3 crack spreads and higher throughput volumes drove the majority of the increase from the prior year period, offset somewhat by higher Brent expenses, significant backwardation in WTI, and realized derivative losses.

Combined total throughput for the second quarter of 2026 was approximately 213,000 barrels per day. Crude utilization for the quarter was approximately 98% of nameplate capacity. Light product yield was 92% on total throughput volumes. Benchmark cracks for the second quarter of 2026 increased from the prior year period, with the Group 3 2-1-1 averaging $44.91 per barrel, compared to $24.02 per barrel in the second quarter of 2025. Our second quarter realized margin, adjusted for the change in RFS liability, inventory valuation, and unrealized derivative gains, was $12.43 per barrel, representing a 28% capture rate on the Group 3 2-1-1 benchmark. RIN prices increased significantly from second quarter 2025 levels, up over 125% to average nearly $14 per barrel for the second quarter of 2026.

Net RINs expense for the quarter, excluding the change in RFS liability, was $216 million, or $11.16 per barrel, which negatively impacted our capture rate for the quarter by approximately 25%. The estimated accrued RFS obligation on the balance sheet was $408 million at June 30th, representing 169 million RINs, mark-to-market at an average price of $2.41. EPA has still not ruled on our pending 2025 petition. As such, we will continue to recognize 100% of Wynnewood Refining Company's RIN obligation in our financials, which for the second quarter of 2026 was approximately $77 million. Had Wynnewood Refining Company received the 100% SRE we believe it is entitled to, our consolidated capture rate for the quarter would have been improved by approximately 9%. EPA is now nine months delinquent in ruling on Wynnewood Refining Company's 2025 SRE petition.

The current compliance date for 2025 is approximately one month away. We still do not know what our compliance obligation will be. RIN prices have gotten completely out of hand due to the blending obligations EPA established in Set 2, effectively creating a short market that will require imported biofuels in order to potentially meet the required obligations, the complete opposite of the stated intent of the RFS. Meanwhile, RIN prices are adding nearly $0.40 a gallon to the price of gasoline in the U.S. RFS compliance costs are more than twice all the other combined operating costs for many refineries. As we have stated numerous times, if the administration is serious about lowering fuel prices, it should start with the RFS. Our second quarter 2026 results included derivative losses totaling $75 million, comprised of an $81 million realized loss and a $6 million unrealized gain.

The realized loss for the quarter was related to the crack spread swaps that we discussed on the first quarter call. We settled approximately 4.4 million barrels of crack spread swap positions during the second quarter, leaving open positions totaling approximately 8.2 million barrels. For the remainder of 2026, there were approximately 4.6 million barrels of diesel hedged and 400,000 barrels of gasoline hedged, with the diesel exposure fairly split between the third and fourth quarters and all of the gasoline exposure in the third quarter. The total notional value of the open crack spread swaps for the third quarter is approximately $102 million. For 2027, we are approximately 3.2 million barrels of diesel hedged fairly ratably across the year.

We'll continue to actively monitor these positions and plan to be opportunistic in managing our exposure going forward, which could include closing out these positions or adding other positions depending on market conditions. Direct operating expenses in the petroleum segment were $5.93 per barrel for the second quarter, compared to $6.45 per barrel in the second quarter of 2025. The decrease in direct operating expenses per barrel was primarily due to increased throughput volumes as the Coffeyville Refinery was coming out of turnaround in the second quarter of 2025. Adjusted EBITDA in the fertilizer segment was $107 million for the second quarter, compared to $67 million for the prior year period. Ammonia utilization rate was 99%, with both plants running well and experiencing minimal downtime during the quarter.

The board of directors of CVR Partners General Partner declared a distribution of $6.08 per common unit for the second quarter of 2026. As CVR Energy owns approximately 37% of CVR Partners common units, we will receive a proportionate cash distribution of approximately $24 million. Cash flow from operations for the second quarter of 2026 was $307 million, and free cash flow was $264 million. Significant uses of cash in the quarter included $43 million of capital spending, $27 million paid for the non-controlling interest portion of the CVR Partners first quarter 2026 distribution, $20 million for cash interest, and $10 million for dividends. Total consolidated capital spending on an accrual basis was $46 million, which included $29 million in the petroleum segment and $17 million in the fertilizer segment. For the full year 2026, we estimate total consolidated capital spending to be approximately $215 million to $240 million.

Turning to the balance sheet, we ended the quarter with a consolidated cash balance of $737 million, which includes $137 million of cash in the fertilizer segment. Total liquidity as of June 30th, excluding CVR Partners, was approximately $1.1 billion, which was comprised primarily of $600 million of cash and availability under the ABL facility of $540 million. We remain committed to our deleveraging goal and plan to continue working towards a gross leverage target of $1 billion, excluding debt at CVR Partners. Looking ahead to the third quarter of 2026, for our petroleum segment, we estimate total throughput to be approximately 205,000 to 220,000 barrels per day, direct operating expenses to range between $110 million and $120 million, and total capital spending to be between $41 million and $50 million.

For the fertilizer segment, we estimate our ammonia utilization rate to be between 75%-80%, which will be impacted by the upcoming planned turnaround at the East Dubuque facility. We estimate direct operating expenses, excluding inventory and turnaround impacts, to be between $57 million-$62 million, turnaround expenses to be between $30 million-$35 million, and total capital spending to be between $40 million-$49 million. With that, Dane, I'll turn it back over to you.

Thank you, Richard. In summary, we had another good quarter of operations in our refining and fertilizer businesses. We are optimistic about the near-term outlook for both segments and believe we could remain above mid-cycle conditions well into 2027. The ongoing geopolitical conflicts across the globe continue to create volatility. However, the U.S. has remained fairly insulated and able to benefit from these conditions with its relatively abundant supplies of available crude oil, natural gas, and critical refining infrastructure. Starting with the refining segment, the ongoing conflicts in the Middle East have so far been more impactful for refined products than crude oil. In addition to reduced flows of crude oil from the closure of the Strait of Hormuz, a number of refineries in the Middle East have been damaged, and the status of those repairs and timelines on potential restarts remains unknown.