(Updates with details, CEO comment and analyst comment)
-Post-merger HollyFrontier increases refining utilization
-Revenue more than doubles but earnings fall short of forecast
-CEO 'remains optimistic' despite new pipeline threatening WTI discount
By Ben Lefebvre
HollyFrontier Corp.'s (>> HollyFrontier Corp) fourth-quarter earnings soared as the refiner took advantage of its post-merger size and strong refining margins but ultimately missed analyst expectations.
The company, which was formed through the July 2011 merger of Holly Corp. and Frontier Oil Corp., has benefited from its access to mid-continent crude oil, which is less expensive than other crudes. The combined company realized operating margins nearly quadruple those from the end of 2010 while it increased its operating rate to 91.8% during the fourth quarter of 2011 from 86.6% the year before.
"HollyFrontier is certainly laying the pedal to the metal with higher runs," said Raymond James analyst Cory Garcia.
In its second quarter as a combined company, HollyFrontier reported a profit of $223.4 million, or $1.06 a share, up from $14.7 million, or 13 cents a share, a year earlier. The latest period included merger integration costs of $8 million.
Revenue more than doubled to $4.97 billion thanks to the inclusion of legacy Frontier refineries and a 19% year-to-year growth in refined products sales prices. Analysts polled by Thomson Reuters most recently projected earnings of $1.20 on revenue of $4.29 billion.
However, analysts ahead of the report had expressed concerns that a narrowing of the discount may give refiners such as HollyFrontier less of an advantage. TransCanada Corp. (TRP) said Monday it would build a pipeline connecting the oil hub in Cushing to the Gulf Coast refining belt, a move that could raise WTI prices and shrink Western's refining margins. WTI traded at $108 Tuesday morning, $15 below Brent prices.
The mid-continent refining advantage should persist despite the new pipeline because their proximity to oil fields gives them a transportation cost advantage, HollyFrontier Chief Executive Mike Jennings said.
The region has "enduring advantages due to near-term logistical bottlenecks and long-term transportation costs," Jennings said during a call with investors. "We remain optimistic about refining margins in the mid-continent, Rockies and Southwest markets."
HollyFrontier's refinery gross margins soared to $15.32 a barrel from $7.87 a year earlier, and were especially strong at its Rocky Mountain operations.
Shares of HollyFrontier were $31.67, down 4.4%.
-By Ben Lefebvre, Dow Jones Newswires; 713-547-9201; [email protected]
-Tess Stynes contributed