HollyFrontier Corporation Reports Quarterly Results

  • Reported net income attributable to HollyFrontier stockholders of
    $253.1 million, or $1.47 per diluted share, and adjusted net income of
    $93.2 million, or $0.54 per diluted share, for the first quarter
  • Reported EBITDA of $492.3 million and adjusted EBITDA of $281.8
    million for the first quarter
  • Returned $134.7 million to shareholders through dividends and share
    repurchases in the first quarter
  • Acquisition of Sonneborn, further strengthening our finished
    lubricants and specialty products business

DALLAS–(BUSINESS WIRE)–HollyFrontier Corporation (NYSE:HFC) (“HollyFrontier” or the “Company”)
today reported first quarter net income attributable to HollyFrontier
stockholders of $253.1 million, or $1.47 per diluted share, for the
quarter ended March 31, 2019, compared to $268.1 million, or $1.50 per
diluted share, for the quarter ended March 31, 2018.

The first quarter results reflect special items that collectively
increased net income by a total of $159.9 million. These items include a
lower of cost or market inventory valuation adjustment that increased
pre-tax earnings by $232.3 million, offset by Sonneborn acquisition and
integration costs totaling $12.6 million and incremental cost of
products sold attributable to our Sonneborn inventory value step-up of
$9.3 million. Excluding these items, net income for the current quarter
was $93.2 million ($0.54 per diluted share) compared to $137.3 million
($0.77 per diluted share) for the first quarter of 2018, which excludes
certain items that collectively increased earnings by $130.8 million for
the three months ended March 31, 2018. Total operating expenses for the
quarter were $331.6 million compared to $320.3 million for the first
quarter of last year.

HollyFrontier’s President & CEO, George Damiris, commented,
“HollyFrontier posted a solid first quarter despite seasonally weak
product cracks and maintenance at our Tulsa and El Dorado refineries. We
continue our long term efforts to improve reliability across our
refining system. With a rebound in the gasoline market and no major
planned downtime until September, we are well positioned for strong
financial performance heading into the summer driving season.”

The Refining and Marketing segment reported adjusted EBITDA of $193.4
million compared to $200.9 million for the first quarter of 2018. This
decrease was primarily driven by lower crude differentials which
resulted in a consolidated refinery gross margin of $12.74 per produced
barrel, a 1% decrease compared to $12.83 for the first quarter of 2018.
Crude oil charge averaged 400,430 barrels per day (“BPD”) for the
current quarter compared to 415,260 BPD for the first quarter 2018. The
lower crude charge was primarily due to the planned turnaround at our
Tulsa East refinery and unplanned maintenance at our El Dorado refinery.

Our Lubricants and Specialty Products segment reported adjusted EBITDA
of $20.4 million, despite the challenging base oil market. Rack Forward
adjusted EBITDA was $52.8 million for the quarter, including two months
of EBITDA contribution from Sonneborn.

Holly Energy Partners, L.P. (“HEP”) reported EBITDA of $93.5 million for
the first quarter 2019 compared to $88.5 million in the first quarter of
2018.

For the first quarter of 2019, net cash provided by operations totaled
$216.8 million. During the period, we declared and paid a dividend of
$0.33 per share to shareholders totaling $56.8 million and spent $77.8
million in stock repurchases. At March 31, 2019, our cash and cash
equivalents totaled $496.1 million, a $658.6 million decrease over cash
and cash equivalents of $1,154.8 million at December 31, 2018,
reflecting our purchase of Sonneborn. Additionally, our consolidated
debt was $2,430.9 million. Our debt, exclusive of HEP debt, which is
nonrecourse to HollyFrontier, was $992.9 million at March 31, 2019.

The Company has scheduled a webcast conference call for today, May 2,
2019, at 8:30 AM Eastern Time to discuss first quarter financial
results. This webcast may be accessed at: https://services.themediaframe.com/dataconf/productusers/hfc/mediaframe/29219/indexl.html.
An audio archive of this webcast will be available using the above noted
link through May 16, 2019.

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 owns and operates refineries located
in Kansas, Oklahoma, New Mexico, Wyoming and Utah and 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 produces base oils and other
specialized lubricants in the U.S., Canada and the Netherlands, and
exports products to more than 80 countries. HollyFrontier also owns a
57% limited partner interest and a non-economic general partner interest
in Holly Energy Partners, L.P., a master limited partnership that
provides petroleum product and crude oil transportation, terminalling,
storage and throughput services to the petroleum industry, including
HollyFrontier Corporation subsidiaries.

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
March 31,
Change from 2018
2019     2018 Change     Percent
(In thousands, except per share data)
Sales and other revenues $ 3,897,247 $ 4,128,427 $ (231,180 ) (6 )%
Operating costs and expenses:
Cost of products sold:
Cost of products sold (exclusive of lower of cost or market
inventory valuation adjustment)
3,199,205 3,347,125 (147,920 ) (4 )
Lower of cost or market inventory valuation adjustment   (232,346 )   (103,838 )   (128,508 ) 124
2,966,859 3,243,287 (276,428 ) (9 )
Operating expenses 331,592 320,288 11,304 4
Selling, general and administrative expenses 88,034 64,664 23,370 36
Depreciation and amortization   121,421     104,341     17,080   16
Total operating costs and expenses   3,507,906     3,732,580     (224,674 ) (6 )
Income from operations 389,341 395,847 (6,506 ) (2 )
 
Other income (expense):
Earnings of equity method investments 2,100 1,279 821 64
Interest income 6,375 2,590 3,785 146
Interest expense (36,647 ) (32,723 ) (3,924 ) 12
Gain on foreign currency transactions 2,265 5,560 (3,295 ) (59 )
Other, net   557     1,346     (789 ) (59 )
  (25,350 )   (21,948 )   (3,402 ) 16
Income before income taxes 363,991 373,899 (9,908 ) (3 )
Income tax expense   87,505     85,037     2,468   3
Net income 276,486 288,862 (12,376 ) (4 )
Less net income attributable to noncontrolling interest   23,431     20,771     2,660   13
Net income attributable to HollyFrontier stockholders $ 253,055   $ 268,091   $ (15,036 ) (6 )%
 
Earnings per share attributable to HollyFrontier stockholders:
Basic $ 1.48   $ 1.51   $ (0.03 ) (2 )%
Diluted $ 1.47   $ 1.50   $ (0.03 ) (2 )%
Cash dividends declared per common share $ 0.33   $ 0.33   $   %
Average number of common shares outstanding:
Basic 170,851 176,617 (5,766 ) (3 )%
Diluted 172,239 177,954 (5,715 ) (3 )%
EBITDA $ 492,253 $ 487,602 $ 4,651 1 %
Adjusted EBITDA $ 281,797 $ 315,655 $ (33,858 ) (11 )%
       
 

Balance Sheet Data

 
March 31, December 31,
2019 2018
(In thousands)
Cash and cash equivalents $ 496,139 $ 1,154,752
Working capital $ 1,652,053 $ 2,128,224
Total assets $ 12,123,430 $ 10,994,601
Long-term debt $ 2,430,934 $ 2,411,540
Total equity $ 6,594,574 $ 6,459,059
 
 

Segment Information

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 HollyFrontier Asphalt Company
LLC (“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 Petro-Canada
Lubricants Inc.’s (“PCLI”) 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, the operations of Red Giant Oil, one of the
largest suppliers of locomotive engine oil in North America and the
operations of Sonneborn, a producer of specialty hydrocarbon chemicals
such as white oils, petrolatums and waxes with manufacturing facilities
in the United States and Europe.

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 March 31, 2019
Sales and other revenues:
Revenues from external customers $ 3,372,666 $ 493,334 $ 31,138 $ 109 $ 3,897,247
Intersegment revenues $ 74,744   $   $ 103,359 $ (178,103 ) $  
$ 3,447,410 $ 493,334 $ 134,497 $ (177,994 ) $ 3,897,247
Cost of products sold (exclusive of lower of cost or market
inventory)
$ 2,962,540 $ 389,017 $ $ (152,352 ) $ 3,199,205
Lower of cost or market inventory valuation adjustment $ (232,346 ) $ $ $ $ (232,346 )
Operating expenses $ 264,497 $ 53,559 $ 37,513 $ (23,977 ) $ 331,592
Selling, general and administrative expenses $ 26,977 $ 39,719 $ 2,620 $ 18,718 $ 88,034
Depreciation and amortization $ 74,415 $ 20,171 $ 23,830 $ 3,005 $ 121,421
Income (loss) from operations $ 351,327 $ (9,132 ) $ 70,534 $ (23,388 ) $ 389,341
Earnings of equity method investments $ $ $ 2,100 $ $ 2,100
Capital expenditures $ 41,762 $ 7,860 $ 10,718 $ 3,395 $ 63,735
 
Three Months Ended March 31, 2018
Sales and other revenues:
Revenues from external customers $ 3,655,867 $ 444,840 $ 27,457 $ 263 $ 4,128,427
Intersegment revenues $ 93,318   $   $ 101,427 $ (194,745 ) $  
$ 3,749,185 $ 444,840 $ 128,884 $ (194,482 ) $ 4,128,427
Cost of products sold (exclusive of lower of cost or market
inventory)
$ 3,211,704 $ 307,531 $ $ (172,110 ) $ 3,347,125
Lower of cost or market inventory valuation adjustment $ (103,838 ) $ $ $ $ (103,838 )
Operating expenses $ 238,484 $ 64,908 $ 36,203 $ (19,307 ) $ 320,288
Selling, general and administrative expenses $ 26,371 $ 30,654 $ 3,122 $ 4,517 $ 64,664
Depreciation and amortization $ 67,175 $ 8,864 $ 25,141 $ 3,161 $ 104,341
Income (loss) from operations $ 309,289 $ 32,883 $ 64,418 $ (10,743 ) $ 395,847
Earnings of equity method investments $ $ $ 1,279 $ $ 1,279
Capital expenditures $ 42,774 $ 8,538 $ 12,612 $ 5,615 $ 69,539
 
March 31, 2019
Cash and cash equivalents $ 5,310 $ 110,119 $ 11,540 $ 369,170 $ 496,139
Total assets $ 7,338,824 $ 2,368,141 $ 2,202,110 $ 214,355 $ 12,123,430
Long-term debt $ $ $ 1,438,054 $ 992,880 $ 2,430,934
 
December 31, 2018
Cash and cash equivalents $ 7,236 $ 80,931 $ 3,045 $ 1,063,540 $ 1,154,752
Total assets $ 6,465,155 $ 1,506,209 $ 2,142,027 $ 881,210 $ 10,994,601
Long-term debt $ $ $ 1,418,900 $ 992,640 $ 2,411,540
 
 

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.

    Three Months Ended
March 31,
2019     2018
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1) 213,180 227,690
Refinery throughput (BPD) (2) 230,050 246,070
Sales of produced refined products (BPD) (3) 217,600 253,080
Refinery utilization (4) 82.0 % 87.6 %
 
Average per produced barrel (5)
Refinery gross margin $ 11.14 $ 10.65
Refinery operating expenses (6)   6.66     5.14  
Net operating margin $ 4.48   $ 5.51  
 
Refinery operating expenses per throughput barrel (7) $ 6.30 $ 5.28
 
Feedstocks:
Sweet crude oil 50 % 43 %
Sour crude oil 26 % 30 %
Heavy sour crude oil 17 % 20 %
Other feedstocks and blends   7 %   7 %
Total   100 %   100 %
 
Sales of produced refined products:
Gasolines 53 % 55 %
Diesel fuels 28 % 30 %
Jet fuels 9 % 5 %
Fuel oil 1 % 1 %
Asphalt 3 % 3 %
Base oils 4 % 4 %
LPG and other   2 %   2 %
Total   100 %   100 %
 
Three Months Ended
March 31,
2019 2018
Southwest Region (Navajo Refinery)
Crude charge (BPD) (1) 106,030 106,110
Refinery throughput (BPD) (2) 116,220 116,560
Sales of produced refined products (BPD) (3) 123,390 122,260
Refinery utilization (4) 106.0 % 106.1 %
 
Average per produced barrel (5)
Refinery gross margin $ 15.95 $ 9.85
Refinery operating expenses (6)   4.94     4.00  
Net operating margin $ 11.01   $ 5.85  
 
Refinery operating expenses per throughput barrel (7) $ 5.24 $ 4.19
 
Feedstocks:
Sweet crude oil 16 % 31 %
Sour crude oil 75 % 60 %
Other feedstocks and blends   9 %   9 %
Total   100 %   100 %
 
Sales of produced refined products:
Gasolines 54 % 54 %
Diesel fuels 37 % 38 %
Fuel oil 3 % 2 %
Asphalt 3 % 3 %
LPG and other   3 %   3 %
Total   100 %   100 %
 
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Crude charge (BPD) (1) 81,220 81,460
Refinery throughput (BPD) (2) 87,450 89,420
Sales of produced refined products (BPD) (3) 82,040 90,180
Refinery utilization (4) 83.7 % 84.0 %
 
Average per produced barrel (5)
Refinery gross margin $ 12.14 $ 22.98
Refinery operating expenses (6)   10.73     9.54  
Net operating margin $ 1.41   $ 13.44  
 
Refinery operating expenses per throughput barrel (7) $ 10.07 $ 9.62
 
Feedstocks:
Sweet crude oil 36 % 33 %
Heavy sour crude oil 35 % 37 %
Black wax crude oil 22 % 21 %
Other feedstocks and blends   7 %   9 %
Total   100 %   100 %
 
Three Months Ended
March 31,
2019 2018
Sales of produced refined products:
Gasolines 54 % 56 %
Diesel fuels 34 % 34 %
Fuel oil 3 % 3 %
Asphalt 5 % 3 %
LPG and other   4 %   4 %
Total   100 %   100 %
 
Consolidated
Crude charge (BPD) (1) 400,430 415,260
Refinery throughput (BPD) (2) 433,720 452,050
Sales of produced refined products (BPD) (3) 423,030 465,520
Refinery utilization (4) 87.6 % 90.9 %
 
Average per produced barrel (5)
Refinery gross margin $ 12.74 $ 12.83
Refinery operating expenses (6)   6.95     5.69  
Net operating margin $ 5.79   $ 7.14  
 
Refinery operating expenses per throughput barrel (7) $ 6.78 $ 5.86
 
Feedstocks:
Sweet crude oil 38 % 38 %
Sour crude oil 34 % 32 %
Heavy sour crude oil 16 % 18 %
Black wax crude oil 4 % 4 %
Other feedstocks and blends   8 %   8 %
Total   100 %   100 %
 
Consolidated
Sales of produced refined products:
Gasolines 53 % 55 %
Diesel fuels 32 % 33 %
Jet fuels 5 % 3 %
Fuel oil 2 % 1 %
Asphalt 3 % 3 %
Base oils 2 % 2 %
LPG and other   3 %   3 %
Total   100 %   100 %
(1)   Crude charge represents the barrels per day of crude oil processed
at our refineries.
(2) Refinery throughput represents the barrels per day of crude and
other refinery feedstocks input to the crude units and other
conversion units at our refineries.
(3) Represents barrels sold of refined products produced at our
refineries (including HFC Asphalt) and does not include volumes of
refined products purchased for resale or volumes of excess crude oil
sold.
(4) Represents crude charge divided by total crude capacity (“BPSD”).
Our consolidated crude capacity is 457,000 BPSD.
(5) Represents average amount per produced barrel sold, which is a
non-GAAP measure. Reconciliations to amounts reported under GAAP are
provided under “Reconciliations to Amounts Reported Under Generally
Accepted Accounting Principles” below.
(6)

Represents total refining segment operating expenses, exclusive of
depreciation and amortization, divided by sales volumes of refined
products produced at our refineries.

(7) Represents total refining segment operating expenses, exclusive of
depreciation and amortization, divided by refinery throughput.
 
 

Lubricants and Specialty Products Segment Operating Data

We acquired our Sonneborn business on February 1, 2019. For the three
months ended March 31, 2019 our lubricants and specialty product
operating results reflect the operations of our Sonneborn business for
the period February 1, 2019 through March 31, 2019.

The following table sets forth information about our lubricants and
specialty products operations.

    Three Months Ended
March 31,
2019     2018
Lubricants and Specialty Products
Throughput (BPD) 19,800 21,580
Sales of produced products (BPD) 34,770 32,450
 
Sales of produced products:
Finished products 49 % 45 %
Base oils 26 % 34 %
Other 25 % 21 %
Total 100 % 100 %
 

Our Lubricants and Specialty Products segment includes base oil
production activities, by-product sales to third parties and
intra-segment base oil sales to rack forward, referred to as “Rack
Back.” “Rack Forward” includes the purchase of base oils and the
blending, packaging, marketing and distribution and sales of finished
lubricants and specialty products to third parties. Supplemental
financial data attributable to our Lubricants and Specialty Products
segment is presented below:

    Rack Back (1)     Rack Forward (2)     Eliminations (3)    

Total Lubricants
and
Specialty Products

(In thousands)
Three months ended March 31, 2019
Sales and other revenues $ 156,455 $ 444,342 $ (107,463 ) $ 493,334
Cost of products sold (exclusive of lower of cost or market
inventory valuation adjustment)
$ 145,818 $ 350,662 $ (107,463 ) $ 389,017
Operating expenses $ 29,560 $ 23,999 $ $ 53,559
Selling, general and administrative expenses $ 13,479 $ 26,240 $ $ 39,719
Depreciation and amortization $ 10,526 $ 9,645 $ $ 20,171
Income (loss) from operations $ (42,928 ) $ 33,796 $ $ (9,132 )
EBITDA $ (32,402 ) $ 43,441 $ $ 11,039
 
Three months ended March 31, 2018
Sales and other revenues $ 173,432 $ 399,039 $ (127,631 ) $ 444,840
Cost of products sold (exclusive of lower of cost or market
inventory valuation adjustment)
$ 152,054 $ 283,108 $ (127,631 ) $ 307,531
Operating expenses $ 28,771 $ 36,137 $ $ 64,908
Selling, general and administrative expenses $ 6,819 $ 23,835 $ $ 30,654
Depreciation and amortization $ 5,628 $ 3,236 $ $ 8,864
Income from operations $ (19,840 ) $ 52,723 $ $ 32,883
EBITDA $ (14,212 ) $ 55,959 $ $ 41,747
(1)   Rack Back consists of the PCLI base oil production activities,
by-product sales to third parties and intra-segment base oil sales
to rack forward.
(2) Rack Forward activities include the purchase of base oils from rack
back and the blending, packaging, marketing and distribution and
sales of finished lubricants and specialty products to third parties.
(3) Intra-segment sales of Rack Back produced base oils to rack forward
are eliminated under the “Eliminations” column.
 
 

Reconciliations to Amounts Reported Under Generally Accepted
Accounting Principles

Reconciliations of earnings before interest, taxes, depreciation
and amortization (“EBITDA”) and EBITDA excluding special items
(“Adjusted EBITDA”) to amounts reported under generally accepted
accounting principles (“GAAP”) in financial statements.

Earnings before interest, taxes, depreciation and amortization, referred
to as EBITDA, is calculated as net income attributable to HollyFrontier
stockholders plus (i) interest expense, net of interest income, (ii)
income tax expense, and (iii) depreciation and amortization. Adjusted
EBITDA is calculated as EBITDA plus or minus (i) lower of cost or market
inventory valuation adjustments, (ii) acquisition and integration costs,
(iii) incremental cost of products sold attributable to our Sonneborn
inventory value step-up and (iv) RINs cost reduction related to our
Cheyenne Refinery small refinery exemptions.

Contacts

Richard L. Voliva III, Executive Vice President and
Chief Financial
Officer
Craig Biery, Director,
Investor Relations
HollyFrontier
Corporation
214-954-6510

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