Tesoro Returns to Profit in 4Q - Analyst Blog
February 07 2013 - 4:20AM
Zacks
Independent refiner Tesoro
Corporation (TSO) swung back to profit in the fourth
quarter of 2012 compared to a net loss a year earlier on the back
of higher margins and a significant crude oil differentials
advantage.
Earnings per share (excluding special items) came in at $1.34,
missing the Zacks Consensus Estimate of $1.38 but improving
significantly from the year-ago adjusted loss of 87 cents.
The San Antonio, Texas-based firm reported revenue of $8,273.0
million for the three-month period ending Dec 31. This was 15.4%
above our projection and was also up 7.3% year over year on the
back of higher throughput and solid refining margins.
Segmental Analysis
Refining: Tesoro’s Refining segment
posted an operating income of $106 million against loss of $123
million in the year-earlier quarter. The improvement can be
attributed to higher refinery throughput rates.
Retail: The Retail unit earned $44
million during the December quarter, up from $27 million in the
fourth quarter of 2011. The growth was aided by higher fuel
margins.
Throughput
Total refining throughput averaged 604 thousand barrels per day
(MBbl/d) compared with 567 MBbl/d in the year-ago quarter.
Overall throughput volumes in California (consisting of the Golden
Eagle and Los Angeles refineries), Pacific Northwest (Alaska and
Washington) and the Mid-Continent (North Dakota & Utah)
increased 3.3%, 15.1% and 7.0% year over year to 249 MBbl/d, 160
MBbl/d and 123 MBbl/d, respectively.
However, throughput in the company’s Mid-Pacific (Hawaii)
operations remained unchanged from the fourth quarter of 2011 at 72
MBbl/d.
Refining Margins
Gross refining margin saw a robust increase of 136.7% year over
year to $14.25 per barrel.
In terms of different regions, refining margin increased in
California (by 547.7% year over year to $11.14 per barrel), in
Mid-Pacific (by 182.4% to $3.57 per barrel), in Pacific Northwest
(by 125.2% to $13.42 per barrel) and Mid-Continent (by 30.4% to
$27.88 per barrel).
Realized Costs & Prices
Manufacturing costs before depreciation and amortization fell 6.6%
from the year-earlier level to $4.70 per barrel, in keeping with
Tesoro’s stated objectives of reducing operating costs and
increasing throughput rates.
Total refined product sales during the quarter averaged 694 MBbl/d,
up 2.2% year over year. Average price realized on product sales
decreased 2.8% year over year to $115.72 per barrel and average
cost per barrel also decreased 6.8% to $105.18 per barrel.
Capital Expenditure & Balance Sheet
Tesoro’s total capital spending during the quarter under review was
$176 million (82% directed toward refining segment). The company
informed that it expects capital spending for 2013 at around $530
million, together with turnaround spending of around $310
million.
As of Dec 31, 2012, Tesoro had $1,639.0 million cash on hand and
total debt of $1,590.0 million, representing a
debt-to-capitalization ratio of 25%.
Dividend Hike
Tesoro announced a 33.0% increase in its quarterly dividend to 20
cents per share, or 80 cents per share annualized. The dividend is
payable on Mar 15, 2013 to shareholders of record on Feb 28.
Zacks Rating
The company currently retains a Zacks Rank #3 (Hold), implying that
it is expected to perform in line with the broader U.S. equity
market over the next one to three months.
Management at Tesoro is paying greater attention to improving
business processes, reducing operating costs, enhancing the
integration of the refining portfolio and investing in organic
growth. Tesoro is involved with a number of high-return projects
that are expected to be cost effective. These projects will not
only boost the company’s competitive position among its peer group,
but will also provide significant earnings and cash flow growth
visibility.
However, the inherent volatility of the refining business reduces
the accuracy and reliability of long-term earnings and revenue
estimates. Additionally, results are exposed to unplanned
shut-downs that may have a lingering impact.
But there are certain other companies in the oil refining and
marketing industry that are expected to perform well in the coming
one to three months. These include CVR Energy Inc.
(CVI) with a Zacks Rank #1 (Strong Buy), and Alon USA
Energy, Inc. (ALJ) and HollyFrontier
Corporation (HFC) with Zacks Rank #2 (Buy).
ALON USA ENERGY (ALJ): Free Stock Analysis Report
CVR ENERGY INC (CVI): Free Stock Analysis Report
HOLLYFRONTIER (HFC): Free Stock Analysis Report
TESORO CORP (TSO): Free Stock Analysis Report
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