Oil refiner and marketer Western Refining Inc. (WNR) reported mixed second quarter fiscal 2011 results on August 4, reflecting higher gross margins, which were partially offset by weak refinery throughput.
Second Quarter Recap
The quarter’s earnings of 94 cents per share lagged the Zacks Consensus Estimate of $1.16 due to lower refinery throughput. However, the company generated revenue of $2.6 billion, surpassing our projection by 14.4%
Western Refining’stotal refining throughput averaged 152,945 barrels per day (Bbl/d), down from 216,948 Bbl/d in the year-ago quarter. Overall, throughput volumes in the Four Corners refinery decreased 9.6% year over year to 22,492 Bbl/d, while that in the El Paso refinery remained almost flat at 130,453 Bbl/d.
(Read our full coverage on this earnings report: WNR Profit Soars but Misses View)
Agreement of Analysts
Looking at the estimates’ revision trends, it becomes clear that the analysts project a mixed outlook for Western Refining’s third quarter 2011 earnings.
Of the total 9 analysts covering the stock, 3 have raised their estimates, while the same number of analysts has moved in the opposite direction over the last 30 days. For fiscal 2011, one analyst has upped the estimates, while 2 analysts went for a downward revision in the last 30 days.
However, over the last 7 days, no earnings estimate revision was witnessed.
Magnitude of Estimate Revisions
Taking into effect the analysts’ earnings revisions, the Zacks Consensus Estimate for the third quarter went up to $1.00 from 92 cents 30 days ago. For the full year, the earnings estimate increased to $2.87 from $2.84 in the 30 days.
However, over the last 7 days, the earnings estimate remained unchanged at $1.00 and $2.87 for the third quarter and full year, respectively.
Earnings Surprise
With respect to earnings surprise, Western Refining shows a negative trend in the last 4 quarters. The company has recorded a negative surprise of 200.0% in the fourth quarter of 2010 to the maximum of 44.4% in the third quarter of 2010. On average, the earnings surprise was a negative 54.5%.
Our Recommendation
Supported by favorable trends in the refining industry coupled with an uptrend in the overseas economic activity and prospects for stronger fuel demand in the domestic market, we expect Western Refining to generate profits over the next few quarters. The company’s retail and wholesale operations also compliment its refineries and provide a stable base of cash flow and an earnings stream.
Additionally, we believe the company’s strategic actions –– to improve its performance and competitiveness in a cost-effective manner –– will provide it an edge over its peers Valero Energy Corp. (VLO), Tesoro Corp. (TSO) and Sunoco Inc. (SUN). Hence, we believe Western Refining is well positioned going forward and maintain our long-term Outperform rating on the stock.
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WESTERN REFING (WNR): Free Stock Analysis Report
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