HollyFrontier (HFC) Q2 Earnings Miss, Refining Margins Up


Editorial Staff Wcryptn

Date: 03.08.2018

U.S. refiner HollyFrontier Corp. HFC reported net income per share (excluding special items) of $1.45, missing the Zacks Consensus Estimate of $1.63 as operating expenses jumped 19% and throughput fell.

However, the bottom line was significantly ahead of the year-ago period profit of 66 cents thanks to improving refining margins.  

Revenues of $4.5 billion surpassed the Zacks Consensus Estimate of $4.3 billion and climbed 29% from the second-quarter 2017 sales of $3.5 billion.

Segmental Information

Refining: Net income from the Refining segment, which is the main contributor to HollyFrontier's earnings, was $429.3 million. This reflected a massive improvement from the year-ago quarter's income of $45.8 million, thanks to wider gross margins, which jumped 46% to $16.57 per barrel.

Total refined product sales volumes averaged 453,830 barrels per day (bpd), down 4% from 472,870 bpd in the year-ago quarter as an outage forced the company's Woods Cross plant to run at lower rates throughout the quarter. Moreover, throughput decreased from 498,300 bpd in the year-ago quarter to 490,200 bpd. Meanwhile, capacity utilization was 101.4%, down from 102.2% in second-quarter 2017.

Lubricants and Specialty Products: Income from the segment totaled $29.4 million, lower than $33.8 million reported in the year-ago quarter on base oil market weakness. Product sales averaged 31,000 bpd, decreasing from the prior-year level of 36,300 bpd. Throughput fell 13% year over year to 18,610 bpd in the reported quarter. 

HEP: This unit includes HollyFrontier's 59% interest in Holly Energy Partners L.P. HEP , a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets.

Segment profitability was $56.9 million, up from $52.1 million in second-quarter 2017. Earnings were buoyed by higher volume growth in its Permian crude gathering system, along with the buyouts of SLC and Frontier pipelines.

Balance Sheet

As of Jun 30, 2018, HollyFrontier had approximately $979.9 million in cash and cash equivalents, and $2.4 billion in net long-term debt, representing a debt-to-capitalization ratio of 27.2%.

During the quarter, the company paid $58.6 million in dividends and bought back shares worth $28.6 million.

Zacks Rank & Stock Picks

HollyFrontier currently retains a Zacks Rank #2 (Buy).

Apart from HollyFrontier, one can also look at energy players like Penn Virginia Corporation PVAC and Eclipse Resources Corporation ECR . Both the companies sport a Zacks Rank #1 (Strong Buy).

Penn Virginia is an oil and gas exploration and production company with operations primarily focused on the Eagle Ford shale in south Texas. In the last 60 days, three earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 18% in the same period.

Eclipse Resources is engaged in the exploration and production of oil and natural gas properties in the Appalachian Basin, including the Utica and Marcellus Shales. In the last 60 days, four earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 50% in the same period.

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