HollyFrontier's CEO Discusses Q2 2012 Results - Earnings Call Transcript

HollyFrontier Corporation (HFC)

Q2 2012 Results Earnings Call

August 8, 2012 10:00 AM ET

Executives

Neale Hickerson – Vice President, Investor Relations

Mike Jennings – President and CEO

Doug Aron – Executive Vice President and CFO

Dave Lamp – Executive Vice President and COO

Analysts

Jeff Dietert – Simmons

Evan Calio – Morgan Stanley

Arjun Murti – Goldman Sachs

Chi Chow – Macquarie Capital

Ed Westlake – Credit Suisse

Doug Leggate – Bank of America Merrill Lynch

Paul Sankey – Deutsche Bank

Roger Reed – Wells Fargo

Paul Cheng – Barclays

Faisel Khan – Citigroup

Cory Garcia – Raymond James

Presentation

Operator

Welcome to HollyFrontier Corporation Second Quarter 2012 Conference Call and Webcast. Hosting the call today from HollyFrontier Corporation is Mike Jennings, President and Chief Executive Officer. He is joined by Doug Aron, Executive Vice President and Chief Financial Officer; and Dave Lamp, Executive Vice President and Chief Operating Officer.

At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. (Operator Instructions)

Please note that this conference is being recorded. It is now my pleasure to turn the floor over to Mr. Neale Hickerson. Mr. Hickerson, you may begin.

Neale Hickerson

Good morning, everyone. This morning we are proud to present our second quarter 2012 results. I’m Neale Hickerson, Vice President of Investor Relations at HollyFrontier. In addition to Mike, Dave and Doug, who Bravely has already introduced, we also have other team members of our management team here to assist us with the Q&A portion of our webcast.

We issued a press release this morning which announced our results for the second quarter 2012. This press release can be found on our website at www.hollyfrontier.com. For our call this morning Mike, Dave and Doug will have prepared remarks and details around our operating and financial performance for the second quarter. At the conclusion of these remarks, our team will be ready to take your questions.

Before we move to prepared remarks, please note the Safe Harbor disclosure statement that’s in our press release today. Statements today and in our press release are made under the Private Securities Litigation Reform Act of 1995.

In summary, the Safe Harbor statement says that statements made regarding management expectations, judgments or predictions are forward-looking statements. These statements are intended to be covered under the Safe Harbor provisions of federal securities laws.

There are many factors that could affect our actual results and outcomes. We’ve noted many of these in our 10-K, 10-Qs and other financial filings with the SEC. Today’s statements are not guarantees of future outcomes.

This morning’s webcast may also include presentation and discussion of non-GAAP financial measures that we use in analyzing our financial results. Please refer to today’s press release and our financial filings for required reconciliations to GAAP financial measures and other related disclosures.

And lastly, please note that information presented on the call today speaks only as of today, August 8, 2012 and any time-sensitive information provided may no longer be accurate at the time of any webcast replay, or rereading of the transcript of our call.

And now, I’d like to turn things over to Mike Jennings.

Mike Jennings

Okay. Thank you, Neale. Good morning. Thanks for joining us on HollyFrontier’s second quarter earnings call. Today we reported second quarter net income attributable to HFC shareholders of $493.5 million, or $2.39 per diluted share, which was a 157% improvement over the $192 million or $1.79 per diluted share posted by the company in the second quarter of 2011 that was for Holly Corporation standalone.

The prior year comparable results exclude Frontier Oil earnings but considered indicative given the stock-for-stock consideration in the merger. During the current quarter we generated $862 million in EBITDA, nearly 2.5 times the second quarter 2011 EBITDA of $350 million.

Unit profitability for the quarter was very strong with greater than $12 of net income per capacity barrel and refining gross margins ranging from $25 in Mid-Con to 35 in the Rockies.

During the second quarter, we continued to advance our capital allocation strategy as well with emphasis on cash distributions to shareholder along side prudent reinvestment in our refining capacity.

In May we raised our regular dividend by 50% from $0.10 a share per quarter to $0.15. This was the third time we raised the regular dividend in the less than a year and the regular dividend has doubled since our merger last July.

Also in May we declared our fourth consecutive quarterly special dividend of $0.50 per share. Our last 12 months cash dividend yield stands at 6.2% when compared to yesterday’s closing price of $39.42.

Additionally, we continue to repurchase shares opportunistically. Year-to-date, we’ve executed approximately $190 million of repurchases, plus an additional $100 million in the form of a structured repurchase transaction that is not yet matured.

Going forward, our primary focus is on growing free cash flow per share with our capital allocation strategy emphasizing distributions to shareholder via regular dividends, special dividends and repurchases.

We will also invest in our core refining business to maintain our production capacity and grow this business in areas where we have a distinct competitive advantage. Most typically, involving unique access to crude and other feedstocks that support attractive and more predictable refining margins.

Last quarter we announced the Woods Cross Refinery expansion in conjunction with long-term crude supply agreement. We are continuing to advance this project through permitting and engineering phases with expected startup still at year end 2014.

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