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What's in the Offing for HollyFrontier (HFC) in Q3 Earnings?

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HollyFrontier Corporation (HFC - Free Report) is set to release third-quarter 2020 results before the opening bell on Nov 5. The current Zacks Consensus Estimate for the to-be-reported quarter is a loss of 50 cents per share on revenues of $2.4 billion.

Let’s delve into the factors that might have influenced the fuel supplier’s performance in the September quarter. But it’s worth taking a look at HollyFrontier’s previous-quarter performance first.

Highlights of Q2 Earnings & Surprise History

In the last-reported quarter, the Dallas, TX-based downstream operator beat the consensus mark due to stronger-than-expected refining margins and throughput. HollyFrontier reported adjusted net loss per share of 25 cents, narrower than the Zacks Consensus Estimate of a loss of 56 cents. However, the oil refiner’s quarterly revenues of $2.1 billion came below the Zacks Consensus Estimate of $2.3 billion, plagued by the coronavirus-induced collapse in demand for transportation fuels and lubricants.

As far as earnings surprises are concerned, HollyFrontier beat the Zacks Consensus Estimate in three of the last four quarters and missed in the other, delivering an earnings surprise of 22.32%, on average. 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

Trend in Estimate Revision

The Zacks Consensus Estimate for the third-quarter bottom line remained the same in the last seven days. However, the estimated figure indicates 129.8% deterioration year over year. The Zacks Consensus Estimate for revenues, meanwhile, suggests 46.1% decline from the year-ago period.

Factors to Consider

The economic disruption caused by the coronavirus outbreak and the associated demand destruction for refined products and transportation fuels on account of widespread disruption is set to hurt earnings and cash flows of downstream operators like HollyFrontier over the next few quarters. As it is, the company has drastically reduced processing capacity to cope with the demand erosion caused by efforts to stem the spread of the coronavirus.

Adjusted EBITDA from the Refining segment, which is the main contributor to HollyFrontier’s earnings, was $25 million in the second quarter. This reflected a plunge 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. The downward trend is most likely to have continued in the third quarter as the travel restrictions induced by the coronavirus have severely hit oil product demand, particularly that of gasoline. With gasoline comprising more than half of HollyFrontier's overall refined product sales, the company's cash flows are likely to have been negatively impacted. Moreover, with demand weakness forcing HollyFrontier to cut refinery runs, volumes are likely to have gone down, thus adversely impacting sales revenues. Further, the demand destruction is likely to have pushed margins and utilization down.

However, on a somewhat positive note, the company’s cost-reduction efforts have been encouraging. In April, this independent U.S. oil refiner 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. This is expected to have provided some support to the company’s third-quarter earnings and cash flows.

What Does Our Model Say?

The 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: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, for this company is -6.80%.

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

Stocks to Consider

While an earnings beat looks uncertain for HollyFrontier, here are some firms from the energy  space that you may want to consider on the basis of our model:

NuStar Energy L.P. (NS - Free Report) has an Earnings ESP of +2.94% and a Zacks Rank #2. The firm is scheduled to release earnings on Nov 5.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Targa Resources Corp. (TRGP - Free Report) has an Earnings ESP of +33.33% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Nov 5.

Cheniere Energy, Inc. (LNG - Free Report) has an Earnings ESP of +31.36% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Nov 6.

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