HollyFrontier (HFC) Incurs Narrower-Than-Expected Loss in Q2

U.S. refiner HollyFrontier Corporation HFC reported second-quarter 2020 net loss per share (excluding special items) of 25 cents, narrower than the Zacks Consensus Estimate of a loss of 56 cents. The outperformance reflects stronger-than-expected refining margins and throughput.

However, the bottom line compared unfavorably with the year-ago adjusted profit of $2.18. The underperformance mainly stemmed from the coronavirus-induced collapse in demand for transportation fuels and lubricants.

Revenues of $2.1 billion missed the Zacks Consensus Estimate of $2.3 billion and slumped 56.9% from the second-quarter 2019 sales of $4.8 billion.

Segmental Information

Refining: Adjusted EBITDA from the Refining segment, which is the main contributor to HollyFrontier’s earnings, was $25 million. This reflected a massive from the year-ago quarter’s income of $556.1 million, primarily due to sharply narrower gross margins, which was down 57% to $8.44 per barrel as coronavirus destroyed product demand. Nevertheless, margins outpaced the Zacks Consensus Estimate of $8.08 per barrel.

Total refined product sales volumes averaged 382,910 barrels per day (bpd), down 18.4% from 469,100 bpd in the year-ago quarter. Moreover, throughput decreased from 484,890 bpd in the year-ago quarter to 377,500 bpd but outpaced the Zacks Consensus Estimate of 354,000 bpd. Meanwhile, capacity utilization was 76.5%, down from 99.1% in second-quarter 2019.

Lubricants and Specialty Products: The segment EBITDA totaled $15.2 million, 47.3% lower than $28.9 million reported in the year-ago quarter on industrial and automotive end market demand weakness. Product sales averaged 26,990 bpd, decreasing from the prior-year level of 34,660 bpd. Further, throughput fell 3.6% year over year to 16,370 bpd in the reported quarter.

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

Segment EBITDA was $112.5 million, up from $88.6 million in second-quarter 2019. Earnings were buoyed by a $33.8 million gain on sales-type leases.

Balance Sheet

As of Jun 30, HollyFrontier had approximately $902.5 million in cash and cash equivalents, and $2.5 billion in long-term debt, representing a debt-to-capitalization of 29.5%.

During the quarter, the company paid $57.2 million in dividends.

Zacks Rank & Key Picks

HollyFrontier carries a Zacks Rank #4 (Sell).

Meanwhile, investors interested in the energy space could look at some better options like Bonanza Creek (NYSE:BCEI) Energy, Inc. BCEI and Royal Dutch Shell (LON:RDSa) plc RDS.A. Bonanza Creek sports a Zacks Rank #1 (Strong Buy), while Royal Dutch Shell carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bonanza Creek Energy has an excellent earnings surprise history having surpassed estimates in each of the last four quarters, the average being 8.7%.

Over 30 days, the Hague, Netherlands-based Shell has seen the Zacks Consensus Estimate for 2020 surge 141.9%.

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