Holly Dances Through a Tight Spot

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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.

While refiners and producers may continue to feel some pain, the midstream segments for both oil and natural gas are showing signs of strength. If you have an opinion about midstream stocks you'd like to share, log on to Motley Fool CAPS today and contribute your thoughts to the wonder of community intelligence.