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HollyFrontier Corporation Reports Quarterly Results

DALLAS--(BUSINESS WIRE)--

HollyFrontier Corporation (HFC) (“HollyFrontier” or the “Company”) today reported third quarter net income attributable to HollyFrontier stockholders of $342.5 million or $1.93 per diluted share for the quarter ended September 30, 2018, compared to $272.0 million or $1.53 per diluted share for the quarter ended September 30, 2017.

The third quarter results include a lower of cost or market inventory valuation adjustment that decreased pre-tax earnings by $17.8 million. Excluding this item, net income for the current quarter was $350.7 million ($1.98 per diluted share) compared to $202.4 million ($1.14 per diluted share) for the third quarter of 2017, which excludes certain items that collectively decreased earnings by $69.6 million for the three months ended September 30, 2017. Total operating expenses for the quarter were $317.2 million compared to $322.3 million for the third quarter of last year.

HollyFrontier’s President & CEO, George Damiris, commented, “HollyFrontier's strong financial results reflect our ability to capture the favorable crude discounts across our refining system. In line with our cash priorities, during the third quarter we reinvested in our plants through both capital and maintenance spending, paid our regular dividend and returned an additional $124.0 million to shareholders in the form of share repurchase. Looking into the fourth quarter, we see normal seasonality in the gasoline markets and sustained attractive crude markets. We are currently undergoing turnarounds at our El Dorado and Mississauga facilities and plan to return to normal operations in November.”

The Refining and Marketing segment reported adjusted EBITDA of $507.2 million compared to $326.4 million for the third quarter of 2017. This increase was primarily driven by lower laid-in crude costs which resulted in a consolidated refinery gross margin of $19.41 per produced barrel, a 38% increase compared to $14.05 for the third quarter of 2017. Crude oil charge averaged 441,990 barrels per day (“BPD”) for the current quarter compared to 454,790 BPD for the third quarter 2017. The lower crude charge is due to the planned turnaround at El Dorado that began in the last week of September, coupled with Woods Cross running at reduced rates throughout July and August.

Our Lubricants and Specialty Products segment reported EBITDA of $42.3 million, driven by consistent Rack Forward sales volumes and margins. Rack Forward EBITDA was $57.1 million for the quarter and HollyFrontier continues to expect Rack Forward EBITDA in the $200.0 million to $220.0 million range for 2018. Rack Back EBITDA was negatively impacted by weakness in the base oil markets. Additionally, we closed on our previously announced acquisition of Red Giant Oil Company on August 1, 2018.

Holly Energy Partners, L.P. ("HEP") reported EBITDA of $86.9 million for the third quarter 2018 compared to $75.0 million in the third quarter of 2017. This growth was driven by the acquisition of the SLC and Frontier Pipelines as well as volume growth in HEP’s Permian crude gathering system.

For the third quarter of 2018, net cash provided by operations totaled $401.8 million. During the period, we declared and paid a dividend of $0.33 per share to shareholders totaling $58.4 million and spent $124.0 million in stock repurchases. At September 30, 2018, our cash and cash equivalents totaled $1,075.7 million, a $95.8 million increase over cash and cash equivalents of $979.9 million at June 30, 2018. Additionally, our consolidated debt was $2,409.1 million. Our debt, exclusive of HEP debt, which is nonrecourse to HollyFrontier, was $992.4 million at September 30, 2018.

The Company has scheduled a webcast conference call for today, October 31, 2018, at 8:30 AM Eastern Time to discuss third quarter financial results. This webcast may be accessed at: https://78449.themediaframe.com/dataconf/productusers/hfc/mediaframe/26441/indexl.html. An audio archive of this webcast will be available using the above noted link through November 14, 2018.

HollyFrontier Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier operates through its subsidiaries a 135,000 barrels per stream day (“BPSD”) refinery located in El Dorado, Kansas, two refinery facilities with a combined capacity of 125,000 BPSD located in Tulsa, Oklahoma, a 100,000 BPSD refinery located in Artesia, New Mexico, a 52,000 BPSD refinery located in Cheyenne, Wyoming and a 45,000 BPSD refinery in Woods Cross, Utah. HollyFrontier markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, HollyFrontier, through its subsidiary, owns Petro-Canada Lubricants Inc., whose Mississauga, Ontario facility produces 15,600 barrels per day of base oils and other specialized lubricant products, and also owns a 57% interest and a non-economic general partner interest in Holly Energy Partners, L.P.

The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995: The statements in this press release relating to matters that are not historical facts are “forward-looking statements” based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties, including those contained in our filings with the Securities and Exchange Commission. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Any differences could be caused by a number of factors, including, but not limited to, risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in the Company’s markets, the demand for and supply of crude oil and refined products, the spread between market prices for refined products and market prices for crude oil, the possibility of constraints on the transportation of refined products, the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, effects of governmental and environmental regulations and policies, the availability and cost of financing to the Company, the effectiveness of the Company’s capital investments and marketing strategies, the Company’s efficiency in carrying out construction projects, the ability of the Company to acquire refined product operations or pipeline and terminal operations on acceptable terms and to integrate any future acquired operations, the possibility of terrorist and cyber attacks and the consequences of any such attacks, general economic conditions and other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission filings. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS

Financial Data (all information in this release is unaudited)

    Three Months Ended
September 30,
      Change from 2017
2018     2017 Change     Percent
(In thousands, except per share data)
Sales and other revenues $ 4,770,799 $ 3,719,247 $ 1,051,552 28 %
Operating costs and expenses:
Cost of products sold:
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 3,752,234 2,888,549 863,685 30
Lower of cost or market inventory valuation adjustment   17,837     (111,128 )   128,965   (116 )
3,770,071 2,777,421 992,650 36
Operating expenses 317,196 322,277 (5,081 ) (2 )
Selling, general and administrative expenses 71,130 68,252 2,878 4
Depreciation and amortization   108,885     102,884     6,001   6
Total operating costs and expenses   4,267,282     3,270,834     996,448   30
Income from operations 503,517 448,413 55,104 12
 
Other income (expense):
Earnings of equity method investments 1,114 5,072 (3,958 ) (78 )
Interest income 5,136 1,074 4,062 378
Interest expense (32,399 ) (28,731 ) (3,668 ) 13
Gain on foreign currency transactions 281 19,122 (18,841 ) (99 )
Other, net   741     1,153     (412 ) (36 )
  (25,127 )   (2,310 )   (22,817 ) 988
Income before income taxes 478,390 446,103 32,287 7
Income tax expense   116,258     158,386     (42,128 ) (27 )
Net income 362,132 287,717 74,415 26
Less net income attributable to noncontrolling interest   19,666     15,703     3,963   25
Net income attributable to HollyFrontier stockholders $ 342,466   $ 272,014   $ 70,452   26 %
 
Earnings per share attributable to HollyFrontier stockholders:
Basic $ 1.95   $ 1.53   $ 0.42   27 %
Diluted $ 1.93   $ 1.53   $ 0.40   26 %
Cash dividends declared per common share $ 0.33   $ 0.33   $   %
Average number of common shares outstanding:
Basic 175,097 176,149 (1,052 ) (1 )%
Diluted 176,927 176,530 397 %
EBITDA $ 594,872 $ 560,941 $ 33,931 6 %
Adjusted EBITDA $ 612,709 $ 454,029 $ 158,680 35 %
 
         
Nine Months Ended
September 30,
Change from 2017
2018     2017 Change     Percent
(In thousands, except per share data)
Sales and other revenues $ 13,370,462 $ 10,258,594 $ 3,111,868 30 %
Operating costs and expenses:
Cost of products sold:
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 10,695,275 8,283,183 2,412,092 29
Lower of cost or market inventory valuation adjustment   (192,927 )   (15,323 )   (177,604 ) 1,159
10,502,348 8,267,860 2,234,488 27
Operating expenses 933,699 946,264 (12,565 ) (1 )
Selling, general and administrative expenses 204,469 185,303 19,166 10
Depreciation and amortization 323,605 304,206 19,399 6
Asset impairment       19,247     (19,247 ) (100 )
Total operating costs and expenses   11,964,121     9,722,880     2,241,241   23
Income from operations 1,406,341 535,714 870,627 163
 
Other income (expense):
Earnings of equity method investments 4,127 10,965 (6,838 ) (62 )
Interest income 10,660 2,069 8,591 415
Interest expense (97,446 ) (85,534 ) (11,912 ) 14
Loss on early extinguishment of debt (12,225 ) 12,225 (100 )
Gain on foreign currency transactions 5,516 19,517 (14,001 ) (72 )
Gain on foreign currency swap contracts 24,545 (24,545 ) (100 )
Other, net   3,451     2,550     901   35
  (73,692 )   (38,113 )   (35,579 ) 93
Income before income taxes 1,332,649 497,601 835,048 168
Income tax expense   318,742     173,593     145,149   84
Net income 1,013,907 324,008 689,899 213
Less net income attributable to noncontrolling interest   57,843     39,695     18,148   46
Net income attributable to HollyFrontier stockholders $ 956,064   $ 284,313   $ 671,751   236 %
 
Earnings per share attributable to HollyFrontier stockholders:
Basic $ 5.42   $ 1.60   $ 3.82   239 %
Diluted $ 5.37   $ 1.60   $ 3.77   236 %
Cash dividends declared per common share $ 0.99   $ 0.99   $   %
Average number of common shares outstanding:
Basic 175,865 176,143 (278 ) %
Diluted 177,557 176,616 941 1 %
EBITDA $ 1,685,197 $ 845,577 $ 839,620 99 %
Adjusted EBITDA $ 1,413,620 $ 845,558 $ 568,062 67 %
 

Balance Sheet Data

    September 30,     December 31,
2018 2017
(In thousands)
Cash and cash equivalents $ 1,075,677 $ 630,757
Working capital $ 2,317,090 $ 1,640,118
Total assets $ 11,495,126 $ 10,692,154
Long-term debt $ 2,409,148 $ 2,498,993
Total equity $ 6,563,512 $ 5,896,940
 

Segment Information

In the fourth quarter of 2017, we revised our reportable segments to align with certain changes in how our chief operating decision maker manages and allocates resources to our business. Accordingly, our Tulsa refineries' lubricants operations, previously reported in the Refining segment, are now combined with the operations of our Petro-Canada Lubricants business (acquired February 1, 2017) and reported in the Lubricants and Specialty Products segment. Segment information for the three and nine months ended September 30, 2017 has been retrospectively adjusted to reflect our current segment presentation.

Our operations are organized into three reportable segments, Refining, Lubricants and Specialty Products and HEP. Our operations that are not included in the Refining, Lubricants and Specialty Products and HEP segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations. Corporate and Other and Eliminations are aggregated and presented under Corporate, Other and Eliminations column. The Refining segment includes the operations of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries and HFC Asphalt (aggregated as a reportable segment). Refining activities involve the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. HFC Asphalt operates various terminals in Arizona, New Mexico and Oklahoma.

The Lubricants and Specialty Products segment involves PCLI's production operations, located in Mississauga, Ontario, that include lubricant products such as base oils, white oils, specialty products and finished lubricants and the operations of our Petro-Canada Lubricants business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China. Additionally, the Lubricants and Specialty Products segment includes specialty lubricant products produced at our Tulsa refineries that are marketed throughout North America and are distributed in Central and South America and the operations of Red Giant Oil, one of the largest suppliers of locomotive engine oil in North America.

The HEP segment involves all of the operations of HEP, a consolidated variable interest entity, which owns and operates logistics assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery process units in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The HEP segment also includes a 75% interest in UNEV Pipeline, LLC (an HEP consolidated subsidiary), and a 50% ownership interest in each of Osage Pipeline Company, LLC and Cheyenne Pipeline LLC. Revenues from the HEP segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations. Due to certain basis differences, our reported amounts for the HEP segment may not agree to amounts reported in HEP's periodic public filings.

    Refining     Lubricants and Specialty Products     HEP     Corporate, Other and Eliminations     Consolidated Total
(In thousands)
Three Months Ended September 30, 2018
Sales and other revenues:
Revenues from external customers $ 4,270,835 $ 474,260 $ 25,596 $ 108 $ 4,770,799
Intersegment revenues $ 101,334   $ 1,626   $ 100,188 $ (203,148 ) $  
$ 4,372,169 $ 475,886 $ 125,784 $ (203,040 ) $ 4,770,799
Cost of products sold (exclusive of lower of cost or market inventory) $ 3,572,593 $ 359,742 $ $ (180,101 ) $ 3,752,234
Lower of cost or market inventory valuation adjustment $ 17,837 $ $ $ $ 17,837
Operating expenses $ 262,010 $ 40,288 $ 35,995 $ (21,097 ) $ 317,196
Selling, general and administrative expenses $ 30,394 $ 33,514 $ 2,498 $ 4,724 $ 71,130
Depreciation and amortization $ 70,793 $ 11,139 $ 24,367 $ 2,586 $ 108,885
Income (loss) from operations $ 418,542 $ 31,203 $ 62,924 $ (9,152 ) $ 503,517
Earnings of equity method investments $ $ $ 1,114 $ $ 1,114
Capital expenditures $ 47,088 $ 8,094 $ 9,541 $ 5,214 $ 69,937
 
Three Months Ended September 30, 2017
Sales and other revenues:
Revenues from external customers $ 3,291,417 $ 413,074 $ 15,227 $ (471 ) $ 3,719,247
Intersegment revenues $ 82,705   $   $ 95,137 $ (177,842 ) $  
$ 3,374,122 $ 413,074 $ 110,364 $ (178,313 ) $ 3,719,247
Cost of products sold (exclusive of lower of cost or market inventory) $ 2,774,722 $ 270,279 $ $ (156,452 ) $ 2,888,549
Lower of cost or market inventory valuation adjustment $ (109,690 ) $ (1,438 ) $ $ $ (111,128 )
Operating expenses $ 246,409 $ 59,726 $ 36,061 $ (19,919 ) $ 322,277
Selling, general and administrative expenses $ 26,582 $ 30,796 $ 3,626 $ 7,248 $ 68,252
Depreciation and amortization $ 74,070 $ 7,734 $ 18,601 $ 2,479 $ 102,884
Income (loss) from operations $ 362,029 $ 45,977 $ 52,076 $ (11,669 ) $ 448,413
Earnings of equity method investments $ $ $ 5,072 $ $ 5,072
Capital expenditures $ 30,979 $ 9,815 $ 10,151 $ 5,122 $ 56,067
 
                   
Refining Lubricants and Specialty Products HEP Corporate, Other and Eliminations Consolidated Total
(In thousands)
Nine Months Ended September 30, 2018
Sales and other revenues:
Revenues from external customers $ 11,915,797 $ 1,376,531 $ 77,799 $ 335 $ 13,370,462
Intersegment revenues $ 284,538   $ 11,884 $ 295,629 $ (592,051 ) $  
$ 12,200,335 $ 1,388,415 $ 373,428 $ (591,716 ) $ 13,370,462
Cost of products sold (exclusive of lower of cost or market inventory) $ 10,179,509 $ 1,040,414 $ $ (524,648 ) $ 10,695,275
Lower of cost or market inventory valuation adjustment $ (192,927 ) $ $ $ $ (192,927 )
Operating expenses $ 764,415 $ 125,101 $ 106,731 $ (62,548 ) $ 933,699
Selling, general and administrative expenses $ 82,966 $ 99,425 $ 8,293 $ 13,785 $ 204,469
Depreciation and amortization $ 210,957 $ 30,023 $ 74,117 $ 8,508 $ 323,605
Income (loss) from operations $ 1,155,415 $ 93,452 $ 184,287 $ (26,813 ) $ 1,406,341
Earnings of equity method investments $ $ $ 4,127 $ $ 4,127
Capital expenditures $ 132,050 $ 23,138 $ 41,111 $ 12,779 $ 209,078
 
Nine Months Ended September 30, 2017
Sales and other revenues:
Revenues from external customers $ 9,033,148 $ 1,178,343 $ 47,826 $ (723 ) $ 10,258,594
Intersegment revenues $ 268,208   $ $ 277,315 $ (545,523 ) $  
$ 9,301,356 $ 1,178,343 $ 325,141 $ (546,246 ) $ 10,258,594
Cost of products sold (exclusive of lower of cost or market inventory) $ 7,949,813 $ 818,981 $ $ (485,611 ) $ 8,283,183
Lower of cost or market inventory valuation adjustment $ (15,365 ) $ 42 $ $ $ (15,323 )
Operating expenses $ 743,493 $ 154,795 $ 102,773 $ (54,797 ) $ 946,264
Selling, general and administrative expenses $ 71,591 $ 71,877 $ 8,882 $ 32,953 $ 185,303
Depreciation and amortization $ 218,934 $ 20,570 $ 56,515 $ 8,187 $ 304,206
Asset impairment $ 19,247 $ $ $ $ 19,247
Income (loss) from operations $ 313,643 $ 112,078 $ 156,971 $ (46,978 ) $ 535,714
Earnings of equity method investments $ $ $ 10,965 $ $ 10,965
Capital expenditures $ 130,238 $ 20,772 $ 30,675 $ 11,432 $ 193,117
 
September 30, 2018
Cash and cash equivalents $ 6,915 $ 72,652 $ 6,375 $ 989,735 $ 1,075,677
Total assets $ 7,044,358 $ 1,498,586 $ 2,146,124 $ 806,058 $ 11,495,126
Long-term debt $ $ $ 1,416,748 $ 992,400 $ 2,409,148
 
December 31, 2017
Cash and cash equivalents $ 7,488 $ 41,756 $ 7,776 $ 573,737 $ 630,757
Total assets $ 6,474,666 $ 1,610,472 $ 2,191,984 $ 415,032 $ 10,692,154
Long-term debt $ $ $ 1,507,308 $ 991,685 $ 2,498,993
 

Refining Segment Operating Data

The following tables set forth information, including non-GAAP (Generally Accepted Accounting Principles) performance measures about our refinery operations. Refinery gross and net operating margins do not include the non-cash effects of lower of cost or market inventory valuation adjustments and depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” below.

In the fourth quarter of 2017, we revised the following refining segment operating data computations: refinery gross margin; net operating margin; and operating expenses to better align with similar measurements provided by other companies in our industry and to facilitate comparison of our refining performance relative to our peers. Effective with this change, these measurements are now inclusive of all refining segment activities, including HFC Asphalt operations and revenues and costs related to products purchased for resale and excess crude oil sales. Refining segment operating data for the three and nine months ended September 30, 2017 has been retrospectively adjusted to reflect our current presentation.

    Three Months Ended
September 30,
      Nine Months Ended
September 30,
2018     2017 2018     2017
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1) 262,550 262,470 260,150 258,420
Refinery throughput (BPD) (2) 276,560 275,270 274,330 274,200
Sales of produced refined products (BPD) (3) 255,840 253,700 259,890 255,160
Refinery utilization (4) 101.0 % 101.0 % 100.1 % 99.4 %
 
Average per produced barrel (5)
Refinery gross margin (6) $ 16.43 $ 12.60 $ 12.99 $ 9.36
Refinery operating expenses (7)   5.48     5.02     5.18     5.17  
Net operating margin $ 10.95   $ 7.58   $ 7.81   $ 4.19  
 
Refinery operating expenses per throughput barrel (8) $ 5.07 $ 4.63 $ 4.90 $ 4.81
 
Feedstocks:
Sweet crude oil 59 % 65 % 54 % 62 %
Sour crude oil 21 % 14 % 24 % 17 %
Heavy sour crude oil 15 % 16 % 17 % 15 %
Other feedstocks and blends   5 %   5 %   5 %   6 %
Total   100 %   100 %   100 %   100 %
 
Sales of produced refined products:
Gasolines 49 % 50 % 51 % 50 %
Diesel fuels 34 % 34 % 33 % 33 %
Jet fuels 6 % 6 % 6 % 7 %
Fuel oil 1 % 1 % 1 % 1 %
Asphalt 4 % 3 % 3 % 3 %
Base oils 4 % 4 % 4 % 4 %
LPG and other   2 %   2 %   2 %   2 %
Total   100 %   100 %   100 %   100 %
...
         
Three Months Ended
September 30,
Nine Months Ended
September 30,
2018     2017 2018     2017
Southwest Region (Navajo Refinery)
Crude charge (BPD) (1) 109,560 112,060 109,200 96,350
Refinery throughput (BPD) (2) 117,880 122,890 118,300 105,190
Sales of produced refined products (BPD) (3) 122,210 130,740 120,900 107,890
Refinery utilization (4) 109.6 % 112.1 % 109.2 % 96.4 %
 
Average per produced barrel (5)
Refinery gross margin (6) $ 22.60 $ 14.64 $ 17.84 $ 12.21
Refinery operating expenses (7)   4.53     4.34     4.63     5.38  
Net operating margin $ 18.07   $ 10.30   $ 13.21   $ 6.83  
 
Refinery operating expenses per throughput barrel (8) $ 4.69 $ 4.62 $ 4.73 $ 5.52
 
Feedstocks:
Sweet crude oil 28 % 25 % 31 % 23 %
Sour crude oil 65 % 66 % 61 % 68 %
Other feedstocks and blends   7 %   9 %   8 %   9 %
Total   100 %   100 %   100 %   100 %
 
Sales of produced refined products:
Gasolines 49 % 49 % 50 % 50 %
Diesel fuels 41 % 40 % 40 % 40 %
Fuel oil 3 % 4 % 3 % 3 %
Asphalt 5 % 5 % 4 % 4 %
LPG and other   2 %   2 %   3 %   3 %
Total   100 %   100 %   100 %   100 %
 
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Crude charge (BPD) (1) 69,880 80,260 71,000 76,510
Refinery throughput (BPD) (2) 76,120 87,620 78,410 84,050
Sales of produced refined products (BPD) (3) 69,720 79,310 74,850 78,910
Refinery utilization (4) 72.0 % 82.7 % 73.2 % 78.9 %
 
Average per produced barrel (5)
Refinery gross margin (6) $ 24.75 $ 17.71 $ 24.95 $ 15.78
Refinery operating expenses (7)   12.80     10.47     11.97     10.36  
Net operating margin $ 11.95   $ 7.24   $ 12.98   $ 5.42  
 
Refinery operating expenses per throughput barrel (8) $ 11.72 $