HollyFrontier profit beats, shares slip on weak lubricant sales

(Reuters) - U.S. oil refiner HollyFrontier Corp’s quarterly profit beat was overshadowed by weak performance in its lubricants and specialty products business, sending its shares down as much as 4 percent on Wednesday.

The company has been building up its lubricants and specialty products business through acquisitions to provide a more steady revenue stream. As part of the strategy, HollyFrontier bought specialty hydrocarbons maker Sonneborn and locomotive engine oil supplier Red Giant Oil Co last year.

Sales in the unit, which sells higher-margin products such as greases, waxes and white oils, fell about 7 percent in the fourth-quarter ended Dec. 31.

Rack Back, or the value between feedstock cost and base oil market prices, at the unit was negatively impacted by “very weak base oil markets and the turnaround at the Mississauga plant,” Chief Executive Officer George Damiris said on a post-earnings call with analysts.

Like other refiners, HollyFrontier also highlighted the steep drop in the difference between Canadian crude and U.S. benchmark prices following the output curbs imposed by the provincial government in Alberta to ease a supply glut.

“We saw differentials go from $47 down to $9,” said Thomas Creery, a vice president at HollyFrontier, during the call.

When Alberta implemented the quarter system, it tended to “over correct” the problem, he said.

The steep gap, fueled by pipeline bottlenecks that hampered moving out surging Canadian oil production, has helped U.S. refiners report fattened refining margins.

In the fourth quarter, HollyFrontier’s refinery gross margins, or the difference between the cost of crude oil and the average selling price of refined products, surged 77 percent to $22.17 per barrel.

Excluding items, the company posted a profit of $2.25 per share, beating the average analyst estimate of $1.92, according to IBES data from Refinitiv.

Net profit attributable to the company’s shareholders fell to $141.9 million, or 81 cents per share, in the quarter, from $521.1 million, or $2.92 per share, a year earlier.

Sales and other revenue rose 8.8 percent to $4.34 billion.

Shares of the company were down almost 2 percent at $56.6 Wednesday morning.

Reporting by Arundhati Sarkar and Shradha Singh in Bengaluru; Editing by Sriraj Kalluvila