Holly Energy Partners Finished 2016 on a Strong Note
After last quarter's rare dip in distributable cash flow, Holly Energy Partners (NYSE: HEP) came back strong in the fourth quarter with an impressive earnings report. The addition of new assets was the reason for these impressive results. Let's take a look at Holly Energy Partners' most recent results to see how the company was able to so quickly reverse course after a tough prior quarter.
Image source: Getty Images.
By the numbers
*in millions, except per-share data. Source: Holly Energy Partners earnings release.
The big uptick this past quarter came from the addition of new assets including the Woods Cross refinery units that were brought on in the prior quarter. The addition of new assets added $18.3 million in new revenue, which also offset some modest revenue declines at its existing pipeline and storage facilities. Not all of that additional revenue flowed to the bottom line because there were also some increased interest expenses. To fund the acquisition of its newest refining assets, the company took out $400 million in 6% senior notes back in June. These added about $6 million in quarterly interest expenses that were part of the reason we saw lower earnings per share compared to this time last year.
What matters more to Holly Energy Partners investors, though, is the cash flow results, and the company didn't disappoint on that end. Total distributable cash flow increased by 9% compared to this time last year, which gave management enough confidence to raise its distribution by 7.5% compared to the prior quarter. This marked the 49th consecutive quarter with a distribution increase.
As far as operations, it was a pretty quiet quarter. The acquisition of its new refining assets at parent company HollyFrontier's (NYSE: HFC) Woods Cross refinery were brought online at the beginning of the month and we got to see what a full quarter of those assets will do for the bottom line. Pipeline volumes for refined product and crude oil pipelines was less than several of its clients' contracted minimum volumes, and as a result it received$2.7 million in prior shortfalls billed to shippers. Holly Energy Partners expects these shortfall payments will continue for some time as several shippers are not meeting minimum volume commitments at this time.
On a little housekeeping note, the company did break out its results into five segments: Refinedproduct pipelines, intermediate pipelines, crude pipelines, terminal, tankage, and lading racks, and refinery processing units. Expect future quarterly results to be broken down based on these lines.
What management had to say
CEO George Damiris on the company's performance following the acquisition of the Woods Cross refining units:
What a Fool believes
Based on the initial results from the Wood Cross refining acquisition, it looks as though it has so far met expectations. Distributable cash flow is up and is helping to offset some weakness in its pipeline segments. This should help to keep the company's quarterly distribution increase streak alive for a few more quarters. Investors in Holly Energy Partners should be encouraged by these results, but should keep an eye out for future growth because the backlog of new projects is looking quite thin.
10 stocks we like better than Holly Energy PartnersWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Holly Energy Partners wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017
Tyler Crowe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.