A month has gone by since the last earnings report for HollyFrontier (HFC). Shares have lost about 7.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is HollyFrontier due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
HollyFrontier Q2 Loss Narrower Than Expected
HollyFrontier Corp. 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.
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 L.P., 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.
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.
However, the bottom fell marginally from the year-ago adjusted earnings of 54 cents due to weaker refinery gross margins.
Revenues of $3.4 billion fell shy of the Zacks Consensus Estimate of $3.79 billion and also dropped 12.8% from the first-quarter 2019 sales of $3.9 billion.
Refining: Adjusted EBITDA from the Refining segment, the main contributor to HollyFrontier’s earnings, was $175.9 million, down 9% from the year-ago quarterly income of $193.4 million. This downside is due to lower product margins and increased laid-in crude costs resulting in a consolidated refinery gross margin of $11.32 per produced barrel. The figure reflects an 11% decline from $12.74 in the first quarter of 2019.
Total refined product sales volumes averaged 452,290 barrels per day (bpd), up 6.9% from 423,030 bpd in the year-ago quarter. Moreover, throughput rose from 433,720 bpd in the year-ago quarter to 471,560 bpd. The same also outpaced the Zacks Consensus Estimate of 464,000 bpd. Further, capacity utilization was 95.5%, up from 87.6% in first-quarter 2019.
Lubricants and Specialty Products: The segment recorded an EBITDA worth $32.3 million in the quarter under review, skyrocketing 188% from $11.2 million in the year-ago period. Moreover, product sales averaged 36,800 bpd, up from the prior-year level of 34,770 bpd. Further, throughput improved 9.8% year over year to 21,750 bpd in the reported quarter from 19,800 in the prior-year period.
HEP: This unit includes HollyFrontier’s 57% 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. Segmental EBITDA was $64.4 million, down 31% from $93.5 million in first-quarter 2019.
U.S. refiner HollyFrontier’s total capital expenditure was $83.7 million in the first quarter. As of Mar 31, 2020, the company had approximately $909 million in cash and cash equivalents and $2.5 billion in long-term debt, representing a debt-to-capitalization of 29%.
The company paid out $57.2 million in dividends during the quarter and bought back shares worth $61.1 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -50% due to these changes.
Currently, HollyFrontier has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HollyFrontier has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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