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What's in the Cards For HollyFrontier (HFC) in Q2 Earnings?

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HollyFrontier Corporation (HFC - Free Report) is set to release second-quarter 2020 results on Aug 6, before the opening bell. The Zacks Consensus Estimate for the to-be-reported quarter’s loss is pegged at 58 cents per share and for revenues stands at $2.31 billion.

Let’s delve into the factors that might have impacted the company’s performance in the June quarter.

Factors to Consider

HollyFrontier’s cost-reduction efforts raise investors’ optimism. In April, this one of the largest independent US oil refiners announced plans to trim its 2020 capital spending guidance by nearly 15% to the $525-$625 million range from its prior expectation of $623-$729 million after considering the ongoing decline in commodity prices. These cost-saving measures are expected to have driven the company’s second-quarter earnings and cash flows higher.

On a further positive note, the company’s Lubricants and Specialty Products segment is likely to have performed well in the second quarter. The Zacks Consensus Estimate for the segmental loss is pegged at $26.72 million, indicating an improvement from the prior-year reported loss of $147 million.

On the flip side, the Zacks Consensus Estimate for gross refining margin in HollyFrontier’s Mid-Continent region (the company’s largest) is pegged at $6.14 per barrel, suggesting a 64.2% decline from $17.17 reported in the corresponding quarter of 2019. Consequently, the Zacks Consensus Estimate for HollyFrontier's net operating margin is pegged at a negative $1.35 a barrel. However, the year-ago reported figure was a profit of $12.15.

As a result, the consensus mark for the company’s second-quarter income from the Refining segment — the main contributor to HollyFrontier earnings — is pegged at a loss of $99 million. However, this industry player delivered a profit of $432 million in the corresponding period of last year.

What Does Our Model Say?

Our proven Zacks model does not conclusively predict an earnings beat for HollyFrontier this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: HollyFrontier has an Earnings ESP of +3.74%.

Zacks Rank: HollyFrontier currently has a Zacks Rank #4 (Sell).

Highlights of Q1 Earnings & Surprise History

In the last reported quarter, this Dallas, TX-based company reported net income per share (excluding special items) of 53 cents, beating the Zacks Consensus Estimate of 44 cents. This outperformance was led by better product sales at the Lubricants and Specialty Products segment and higher-than-expected refinery throughput.

However, the bottom line declined 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.

As far as earnings surprises are concerned, this downstream operator is on a decent footing as its earnings topped the Zacks Consensus Estimate in three of the last four quarterly reports and missed the mark on one occasion, the average surprise being 16.12%. This is depicted in the graph below:

HollyFrontier Corporation Price and EPS Surprise

HollyFrontier Corporation Price and EPS Surprise

HollyFrontier Corporation price-eps-surprise | HollyFrontier Corporation Quote

Stocks to Consider

While an earnings outperformance looks uncertain for HollyFrontier, here are some firms worth considering from the energy space as our model shows that these have the right combination of elements to outpace estimates this reporting cycle:

USA Compression Partners, LP (USAC - Free Report) has an Earnings ESP of +25.00% and a Zacks Rank of 1 at present. The firm is scheduled to release earnings on Aug 4. You can see the complete list of today’s Zacks #1 Rank stocks here.

Magnolia Oil & Gas Corporation (MGY - Free Report) has an Earnings ESP of +12.50% and is currently Zacks #3 Ranked. The company is scheduled to release earnings on Aug 6.

Canadian Natural Resources Limited (CNQ - Free Report) has an Earnings ESP of +6.48% and a Zacks Rank #3, presently. The firm is scheduled to release earnings on Aug 6.

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