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Monday, May 7, 2018VOLUME 14 ISSUE 19
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BP, Valvoline, FUCHS, HollyFrontier Report Earnings

BP, Valvoline, FUCHS Petrolub and HollyFrontier reported their most recent quarterly earnings. BP reported increased earnings and revenues. Valvoline reported an increase in adjusted net income. FUCHS reported a 4% revenue increase. HollyFrontier reported an earnings increase compared to a loss last year.
BP reported first-quarter 2018 results last Tuesday. The company posted adjusted diluted earnings per American depositary share (ADS) of $0.78 on revenues of $68.17 billion. In the same period a year ago, the company reported earnings per ADS of $0.46 on revenues of $55.86 billion. One ADS is equal to six ordinary shares.
BP’s adjusted replacement cost profit (essentially the company’s adjusted net income/loss) in the first quarter totaled $2.59 billion, compared with $1.51 billion in the year-ago quarter, an increase of 71%. Unadjusted, BP posted a replacement cost profit of $2.47 billion, $0.72 per ADS, compared with a profit of $1.41 billion and a net profit per ADS of $0.43 in the first quarter of 2017.
After adjusting for non-operating items and fair value accounting effects, underlying replacement cost profit before interest and tax for the segment was $3,157 million, considerably higher than $1,370 million in the year-ago quarter.
The company’s upstream division posted its strongest quarter since the third-quarter of 2014. Unadjusted replacement cost profit totaled $3.16 billion, compared with $1.37 billion in the year-ago quarter. U.S. profit totaled $526 million, compared to $166 million in the first quarter of last year, and non-U.S. profit rose from $1.2 billion to $2.63 billion.
Downstream profits (Underlying RC profit before interest and tax) improved to $1,826 million from $1,742 million in the year-ago quarter. The lubricants business reported an underlying replacement cost profit before interest and tax of $331 million for the first
quarter, compared with $393 million for the same period in 2017. The result for the quarter reflects continued premium brand growth, more than offset by the adverse lag impact of increasing base oil prices.
The Rosneft segment recorded profits of $247 million, up from $99 million a year ago.
Cash flow from operations, excluding payments related to spill, was $5.4 billion in the first quarter. The company paid out $1.6 billion on a pretax basis for the Deepwater Horizon disaster, including a final $1.2 billion payment to the U.S. Department of Justice. Payments are expected to be just over $3 billion in 2018, weighted to the first half of the year.
BP said the outlook for the second quarter calls for seasonally higher industry refining margins but lower discounts for North American heavy crude oil. BP also expects a significantly higher level of turnaround activity.
Valvoline Inc. last Wednesday reported financial results for its second fiscal quarter ended March 31, 2018.

Reported second-quarter 2018 net income was $67 million. The results included after-tax income of $7 million related to non-service pension and other post-employment benefit (OPEB) income and after-tax expenses of $6 million for legacy and other separation-related costs and $2 million related to U.S. tax reform.
Reported second-quarter 2017 net income was $71 million, which included after-tax income of $10 million related to non-service pension and OPEB income and after-tax expenses of $4 million for legacy and other separation-related costs.
Adjusted second-quarter 2018 net income, excluding the impact of tax reform, pension income and legacy and other separation-related costs, was $68 million, compared to adjusted net income of $65 million in the prior year period.
Second-quarter results were driven by the ongoing strength of SSS (same store sales) in VIOC and strong margin and joint venture performance in International, which were partially offset by weaker Core North America branded volumes and margin. Adjusted EBITDA of $122 million grew 6 percent compared to the prior year period.
Core North America's total lubricant volume at 24.6 million gallons. was flat in the quarter, resulting from gains in non-branded volume, offset by a modest decline in branded volume. The decline in branded volume was in the DIY channel. Branded premium mix continued to improve, increasing by 320 basis points to 49.7 percent. Benefits of premium mix and pricing actions were offset by transitory items, including the timing of promotional expenses, costs related to the transition to new packaging and negative price-cost lag. These factors, combined with unfavorable channel mix, led to the decline in segment profitability. Operating income declined 19% to $46 million, EBITDA declined 17% to $50 million.
Quick Lubes VIOC SSS increased 9.6% overall, 11.2% for company-owned stores and 8.5% for franchised stores. Operating income grew 23% to $38 million and EBITDA grew 28% to $46 million. VIOC ended the quarter with 1,141 total stores, a net increase of 2 during the period and 33 over the prior year. The Quick Lubes operating segment, a key growth engine for the company, had an exceptional quarter. Growth in SSS was the result of both increased transactions and average ticket. Transactions benefited from the strength of VIOC's ongoing customer acquisition and retention programs, while pricing and record premium mix in the quarter were the primary drivers of improvements in average ticket.
Sales and segment EBITDA growth were driven by increased SSS and the addition of 33 net new stores as compared to the prior year, as well as the acquisition of 56 franchise locations in the first quarter.
Innational Lubricant volume grew 1% to 15.0 million gallons, 3% including unconsolidated joint ventures. Lubricant volume from unconsolidated joint ventures grew 5%, to 9.6 million gallons. Operating income grew 33% to $24 million, EBITDA grew 37% to $26 million. International segment EBITDA grew $7 million in the quarter, with $5 million resulting from pricing actions, improved margins and strong performance from our joint ventures in India and China, along with a $2 million benefit from foreign exchange. Volume grew modestly compared to strong volume in the prior year period, although less than the company's long-term growth expectations. Valvoline anticipates stronger second-half volume, leading to mid-single digit volume growth for the full year.

FUCHS PETROLUB increased its sales revenues by 4% to EUR 643 million in the first quarter of 2018 compared with EUR 618 during the 2017 first quarter. The Group grew organically by 10%, mainly driven by volume. All three regions of the world contributed. As a result of the strong euro, there was a negative currency effect of -6% regarding translation into the Group currency.
The income statement for the first quarter was also significantly impacted by the effects of the exchange rate development. EBIT was therefore below previous year's level by 2% at EUR 92 million. Earnings after tax climbed to EUR 67 million compared with EUR 66 during the 2017 first quarter, due to a decrease in the tax rate.
At EUR 21 million (compared with EUR 42 million during the 2017 first quarter), free cash flow before acquisitions was lower than in the previous year as expected. Main reason is the higher amount of funds tied up in working capital as a result of increased business volume.
The Europe region posted organic growth in almost all countries. Sales revenues rose by 8% to EUR 396 million (compared with EUR 368 million during the 2017 first quarter). With organic growth in sales revenues of 18%, the Asia-Pacific, Africa region saw the strongest growth in relative terms. This was countered by a significant negative currency translation effect of -8%. Overall, the region therefore grew by 10% to EUR 199 million (compared with EUR 181 million during the 2017 first quarter). The North and South America region posted pleasing organic growth (+7%), particularly in North America. Sales revenues in the region declined by 9% overall to EUR 95 million (compared with EUR 104 million during the 2017 first quarter) due to currency impacts.
The EBIT development was also impacted by negative currency translation effects outside Europe. EBIT in the Europe region increased by EUR 3 million to EUR 49 million (compared with EUR 46 million during the 2017 first quarter). By contrast, EBIT in the Asia-Pacific, Africa region fell by EUR 1 million to EUR 33 million (compared with EUR 34 million during the 2017 first quarter) and in the North and South America region it declined by EUR 3 million to EUR 14 million compared with EUR 17 million during the 2017 first quarter.
"Operationally, we started good in the year 2018. We generated significant increases in sales volumes and sales revenues and exceeded the previous year's EBIT after adjusting for currency effects. Sales revenues and earnings were significantly negatively impacted by the exchange rate development in the first quarter. This effect will diminish most likely over the course of 2018. In the coming quarters, we continue to expect strong growth in sales revenues and a positive earnings development. We confirm our forecast for the full year for sales and earnings growth," states Stefan Fuchs, Chairman of the Executive Board of FUCHS PETROLUB SE.
The outlook for the entire year is confirmed. FUCHS PETROLUB is anticipating growth in sales revenues of between 3% and 6% and an increase in EBIT of between 2% and 4%. The Group expects the negative currency effect to weaken over the course of the year. With investments of around EUR 140 million, the planned expansion of capacities will be continued.
HollyFrontier last Thursday reported first quarter net income attributable to HollyFrontier stockholders of $268.1 million for the quarter ended March 31, 2018, compared to a net loss of $45.5 million for the quarter ended March 31, 2017.
The first quarter results reflect special items that collectively increased net income by a total of $130.8 million. These items include a lower of cost or market inventory valuation adjustment that increased pre-tax earnings by $103.8 million, a $71.7 million reduction to RINs costs as a result of our Cheyenne refinery's small refinery exemptions for the 2015 and 2017 calendar years and a charge of $3.6 million for integration costs related to the 2017 Petro-Canada Lubricants Inc. acquisition.
Excluding these items, net income for the current quarter was $137.3 million compared to a net loss of $33.4 million for the first quarter of 2017, which excludes an inventory valuation adjustment, PCLI acquisition and integration costs, incremental cost of products sold attributable to our PCLI inventory value step-up, a gain on foreign currency swap contracts that fixed the USD/CAD conversion rate on our PCLI purchase price and a loss on early extinguishment of debt. Collectively, these items decreased prior year earnings by $12.0 million. Adjusted for these items, net income increased $170.7 million compared to the same period of 2017 due to higher sales volumes and margins in the company's refining business as well as a full quarter contribution from its PCLI acquisition. Total operating expenses for the quarter were $320.3 million compared to $307.7 million for the first quarter of last year.
Lubes and Specialty Products segment reported EBITDA of $41.7 million, driven by strong Rack Forward sales volumes and margins. Rack Forward EBITDA was $56.0 million for the quarter and HollyFrontier continues to expect Rack Forward EBITDA in the $180.0 million to $200.0 million range for 2018.
In the fourth quarter of 2017, HollyFrontier revised its reportable segments to align with certain changes in how its chief operating decision maker manages and allocates resources to its business. Accordingly, the company's Tulsa refineries' lubricants operations, previously reported in the Refining segment, are now combined with the operations of its Petro-Canada Lubricants business (acquired February 1, 2017) and reported in the Lubricants and Specialty Products segment. Segment information for the three months ended March 31, 2017 has been retrospectively adjusted to reflect the current segment presentation.
Our operations are organized into three reportable segments, Refining, Lubricants and Specialty Products and HEP. Our operations that are not included in the Refining, Lubricants and Specialty Products and HEP segments are included in Corporate and Other.
HollyFrontier's Lubricants and Specialty Products segment involves PCLI's production operations, located in Mississauga, Ontario, that include lubricant products such as base oils, white oils, specialty products and finished lubricants and the operations of its Petro-Canada Lubricants business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China. Additionally, the Lubricants and Specialty Products segment includes specialty lubricant products produced at theTulsa Refineries that are marketed throughout North America and are distributed in Central and South America.

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