See Steep Q3 Miss on Refinery Pressure (from Scotia)
See Steep Q3 Miss on Refinery Pressure; Negative for '24 Guide + Leverage
OUR TAKE: Negative. We expect Q3 EBITDA to fall far short of Street expectations, possibly by up to 15%, as weak discretionary spending + crack spread compression continue to pressure the business. As a result, PKI may no longer hit its already-once-revised ‘24 guide of $1.9B to $2.0B. Another reduction in ‘24 EBITDA expectations will also move leverage in the wrong direction, furthering PKI from its B/S goal of the low-end of 2x to 3x by the end of ‘25. Simply put, economic softness has pressured demand for refined products, which in turn, has impacted the capture rate of a refinery already facing crack spread compression (Exhibits 1+2). Over-supply in refining capacity is at its worst level since ‘18, largely as expectations for a healthy summer driving season fell short. Q4 is highly unlikely to make up for the shortfall - perhaps not even partially. Accordingly, and with another step back in its near-term cash flow outlook and B/S normalization plan, PKI will need to provide the Street with greater comfort on its ‘28 FCF plan of $8.50/sh - the crux of our $60 PT and Sector Outperform thesis. PKI reports on October 30.