Holly Dances Through a Tight Spot

To better know a company, gauge how it responds to adversity.

The insight into a company's management culture and competitive capacity made visible by the largest financial upheaval of our lifetimes provides an endless source of fascination for this market-watching Fool.

The refining industry certainly has not been spared the rod, what with dizzying fluctuations in oil prices and weakened demand for refined products. Shunning adverse conditions with counter-cyclical growth, Holly (NYSE: HOC) distinguished itself from peers with a 28% increase in net earnings to $14.6 million. Although gross refining margins of just $7.82 per barrel whittled revenue down 41% to $1.04 billion, the corresponding 41% increase in production volume offset much of the impact.

Rendering the accomplishment more remarkable, sector giant Valero (NYSE: VLO) lost $317 million for the quarter, and Tesoro (NYSE: TSO) lost $45 million despite a gross margin that outperformed Holly's by $0.70 per refined barrel. Smaller operators failed to find profitability as well, including Western Refining (NYSE: WNR) and Calumet Specialty Products (Nasdaq: CLMT).

Thanks to completed capacity expansions at both of Holly's flagship facilities, and the 85,000 barrels-per-day Tulsa refinery purchased from Sunoco (NYSE: SUN) in June, Holly succeeded in growing its way through a very difficult quarter. Holly intends to increase throughput at Tulsa to about 85% of capacity by September, pushing beyond the 78% company-wide utilization targeted by Valero.

Record results from Holly's midstream spinoff Holly Energy Partners (NYSE: HEP), in which Holly holds a 46% interest, also bolstered results. To fuel further growth in this high-yielding income equity, Holly sold a pipeline and transportation loading facilities at Tulsa to Holly Energy Partners during the quarter. Since I last urged Fools to examine Holly Energy Partners in November, shares have appreciated more than 40%, while the company's five-year track record of increasing dividends has continued.