This article first appeared on GuruFocus.

Release Date: July 30, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

SK EnMove posted solid performance in Q2 2026, driven by its product competitiveness in the high-end Group 3 lubricant-based oil market and global production and sales network, which helped address supply chain uncertainties amid geopolitical risks.

SK On completed the unwinding of the Blue Oval SK joint venture with Ford, resulting in annual savings of approximately 300 billion won in depreciation and 200 billion won in interest expenses, easing financial burden.

SK On’s Q2 2026 operating profit improved significantly to 821.8 billion won, driven by cost reduction efforts and higher revenue from expanded sales volume in Asia and customer compensation payments.

SK Innovation’s overall Q2 2026 revenue increased by 4,866.2 billion won quarter-over-quarter to 29,157.2 billion won, with operating profit rising by 1,325.1 billion won to 3,487.3 billion won, driven by stronger profits in lubricants and battery businesses.

SK On is actively pursuing growth in the ESS market, targeting orders from hyperscalers and power utilities, and converting some EV lines for ESS production to improve asset utilization and profitability.

Negative Points

SK Energy’s Q2 2026 operating profit declined by 632 billion won quarter-over-quarter to 651.2 billion won, due to government caps on crude prices and turnarounds in May and June, despite inventory-related gains.

SK Geocentric’s Q2 2026 utilization decreased, and the outlook for Q3 is expected to be flat due to ongoing external uncertainties and volatile feedstock costs.

SK Earthon’s Q2 2026 operating profit fell by 34.8 billion won quarter-over-quarter to 29.9 billion won, driven by a decrease in sales volume from its equity crude in China.

SK Innovation recognized significant non-operating losses in Q2 2026, including approximately 1.2 trillion won in PRS derivative valuation losses related to SK On and SKIET, and 1.4 trillion won in SKIET-related impairment losses.

The company faces ongoing geopolitical risks, including disruptions in the Strait of Hormuz and Red Sea, which create volatility in crude prices and refining margins, and uncertainty in the battery market recovery, particularly in North America and Europe.

Q & A Highlights

Here are the key highlights from the SK Innovation Co Ltd (XKRX:096770) Q2 2026 earnings call.

Q: What is the strategy for the battery business turnaround, and what are the key drivers for profitability improvement? A: Kim Yong Guang, Head of Financial Support at SK On, stated that the turnaround is showing visible results driven by structural cost reduction. The strategy focuses on cutting material costs through supplier diversification and value engineering, improving yields, and lowering processing costs and SG&A through automation and AI. In North America, a volume recovery is expected in the second half, driven by the reintroduction of California EV subsidies and recovering demand. In Europe, discussions with major OEMs on volume stabilization and pricing are ongoing. The company is on track for gradual quarterly profit improvement and will drive a qualitative shift through ESS order growth.

Q: Can you provide an update on the restructuring of the Blue Oval SK (BOSK) joint venture with Ford and its financial impact? A: CFO Seo Gong Gi confirmed that the unwinding of the BOSK JV was completed in Q2 2026. The former Tennessee factory is now fully owned by SK On (SK On Tennessee), while the Kentucky factory is fully owned by Ford. This restructuring will allow SK On to save approximately 300 billion won in annual depreciation and 200 billion won in annual interest expenses, significantly easing the company’s financial burden.

Q: What is the outlook for the lubricants (SK Enmove) business, given the strong performance in Q2? A: Ian Kim Migyung, Head of Corporate Planning at SK Enmove, explained that the strong Q2 performance was due to inventory effects and higher margins from supply issues by peers due to the Middle East situation. While spreads are expected to gradually moderate if competitor supply issues are resolved, the company is leveraging its global production hubs and sales network to provide stable supply and respond flexibly to market changes. They will continue to solidify their leadership in the Group 3 market.

Q: How is SK Energy responding to the disruptions in crude supply caused by the Middle East conflict and the situation in the Strait of Hormuz? A: The Head of Corporate Planning at SK Energy stated that in Q2, the company responded by purchasing crude at alternative ports (Yambu and Fujaira) and drawing on swaps with government-held strategic reserves. They covered remaining volumes through non-Middle East imports. While reducing dependence on the Middle East is a long-term goal, they do not expect issues maintaining normal utilization levels for the time being by using secured cargoes and alternative sourcing.

Q: What are the company’s plans for the ESS (Energy Storage System) business, and what is the target for securing orders? A: Kim Yong Guang from SK On detailed that domestically, they won a 1.8-gigawatt long-duration ESS project in February 2026 and are targeting a meaningful award in the upcoming third round ESS tender. Overseas, they are building out their ESS base around U.S. customers like Flatiron and are working toward a previously announced global 20-gigawatt per hour order target. They are also reviewing the conversion of some existing EV lines for ESS production to utilize capacity more efficiently.

Q: Given the low utilization rates at SK On’s battery plants in the US and Europe, are there any strategic options being considered besides converting lines for ESS? A: Kim Yong Guang from SK On confirmed that they are reviewing a range of options as part of broader asset efficiency efforts, but nothing has been decided on repurposing facilities for other applications like AI data centers or semiconductor manufacturing at this point. They will share details if and when there is something concrete to report.

Q: Can you provide an update on SK Innovation E&S’s involvement in the Yongin Semiconductor Cluster and its mid-to-long-term plans? A: Kangyung Kwon, Head of Management Planning at SKI E&S, stated that a consortium with Kumipo is building a 1,050-megawatt LNG cogeneration power plant for the cluster. Construction started in December 2025, and commercial operations are expected to begin gradually from the second quarter of 2030. This facility will provide stable energy (steam) to the semiconductor fabs, contributing to their production competitiveness.

Q: What is the breakdown of inventory-related gains across the different business divisions for Q2 2026? A: Jeong Soyoung, Head of IR, provided the breakdown. The total company-wide inventory-related gains were 1,194.9 billion won. By company, this breaks down to: SK Energy at 562.3 billion won, SK Geocentric at 92.2 billion won, SK IPC at 446.9 billion won, and SK Enmove at 93 billion won. It was noted that these are accounting items that will fluctuate with market conditions.

Q: What is the status of SK On’s human resource restructuring and capacity adjustments in North America and Europe following the JV unwinding? A: The Head of the Planning Office at SK On confirmed that restructuring of human resources took place in Q1 at the HQ level and for overseas subsidiaries due to the slower-than-expected battery market recovery. The company remains committed to strong cost-saving measures and efficient asset utilization. They do not foresee further capacity adjustments in Europe but will continue to convert some EV lines for ESS to meet growing demand.

Q: What is the outlook for the refining business in the second half of 2026, and are there any scheduled turnarounds? A: The Head of Corporate Planning at SK Energy stated that the number three CDU is scheduled for maintenance from October to November. No other turnarounds are planned for the remaining upgraded facilities. The company expects crude prices and refining margins to remain volatile due to geopolitical uncertainties and will focus on flexible and quick operations to maintain optimal performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.