If you're like me, you marvel each year at how the holiday season decorations come out even before the kids have finished eating their Halloween candy. Watching this company's third-quarter earnings at the same moment could have some Fools wanting to deck their halls with boughs of Holly.

Though weighing in at less than one-tenth the market capitalization of refining giant Valero (NYSE:VLO), Holly (NYSE:HOC) entered the earnings ring this week packing a one-two punch of improved gross refining margins and a pristine balance sheet. One year ago, Holly shares sold at more than three times today's levels near $20. With that in mind, net earnings of almost $50 million -- only 14% less than the prior year period -- suggests once again that the Panic of 2008 may have caused investors to go beyond the fundamental realities in dumping shares of certain companies. Even energy titan ConocoPhillips (NYSE:COP) saw earnings from refining operations slip 35% over the prior year period.

Impressively, Holly posted an 18% improvement to gross refining margins for the third quarter, despite down time at one of its two refineries that dropped capacity utilization there to just 55.4%. Like Valero, Holly also benefits from its ability to process cheaper sour crude, which represents 64% of its feedstock.

Another enticing quality Holly has in the present financial environment is the state of its balance sheet. Holly boasts $225 million in cash and marketable securities, carries no long-term debt of its own, and has drawn nothing on a $175 million credit facility. Please note, though: the company recently reconsolidated Holly Energy Partners (NYSE:HEP) onto its books, which carries $341 million in debt in addition to raising Holly's operating expenses substantially.

I continue to view the refining industry as a difficult sector to call either way just now. On the one hand, Valero points out that the major decline in oil and gasoline prices should stoke demand, and Holly noted marked improvement in the gasoline crack spread versus the first two quarters of 2008. On the other hand, I expect a weakening U.S. dollar to send oil prices roaring back before long, and worry that refiners like Holly, Tesoro (NYSE:TSO), and Western Refining (NYSE:WNR) may yet again feel the margin squeeze. For investors with a preference for income like that offered by Income Investor pick Calumet Specialty Products (NASDAQ:CLMT), take a look at Holly Energy Partners, which boasts a 12% dividend.

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