Independent refiner Tesoro Corporation TSO reported better-than-expected second-quarter 2015 results backed by margin improvement and significant growth in its logistics business. These were partially offset by reduced throughput volume.
The company’s adjusted earnings from continuing operations were recorded at $4.62 per share, which beat the Zacks Consensus Estimate of $4.04. Moreover, the bottom line was significantly higher than the year-ago quarter level of $1.70.
Tesoro reported quarterly revenues of $8,232 million, which comfortably surpassed the Zacks Consensus Estimate of $6,973 million. However, the top line recorded a sharp fall from the year-ago quarter level of $11,104 million.
Segmental Analysis
Refining: The segment posted an operating income of $753 million, higher than $358 million earned in the year-earlier quarter on margin improvement and decreased operating cost. These were partly negated by planned maintenance work.
TLLP: During the second quarter, TLLP operating profit came at $109 million compared with $48 million in the year-ago quarter. Strong contribution from the Rockies natural gas business, and the High Plains Pipeline expansion and reversal project, led to the improvement.
Marketing: The segment earned $212 million, reflecting a significant increase from $88 million in the second quarter of 2014. Demand growth from consumers primarily led to the improvement.
Throughput
Total refining throughput averaged 783 thousand barrels per day (MBbl/d), substantially below 816 MBbl/d reported in the prior-year quarter.
Overall throughput volumes in California (comprising the Martinez and Los Angeles refineries) were in line with 523 MBbl/d in the year-ago quarter. Throughput in Tesoro's Pacific Northwest (Alaska and Washington) operations fell about 3.8% year over year to 154 MBbl/d. Throughput volumes in Mid-Continent (North Dakota and Utah) also decreased over 20% year over year to 106 MBbl/d.
Refining Margins
Gross refining margin increased 46% year over year to $19.13 per barrel.
Region wise, refining margin recorded an increase of over 65% to $20.10 per barrel in California and over 97% to $17.12 per barrel in Pacific Northwest. Mid-Continent refining margin, however, declined nearly 22.5% to $17.15 per barrel. All figures were reported on a year-over-year basis.
Realized Costs & Prices
Manufacturing costs before depreciation and amortization decreased 5.1% from the year-earlier level to $5.58 per barrel.
Total refined product sales averaged 963 Mbbl/d compared with 950 Mbbl/d in the second quarter of 2014.
Average price realized on product sales fell 28% year over year to $88.87 per barrel and average cost per barrel was down over 35% to $72.14 per barrel.
Operating Cost
Tesoro Corporation's operating costs in the reported quarter totaled $578 million, reflecting a decrease of nearly 3.4% from the year-ago quarter.
Share Repurchases & Dividend Increase
In the second quarter, Tesoro returned about $303 million to stockholders through share buybacks and dividend payments.
The company declared a quarterly cash dividend of 50 cents per share, reflecting an almost 18% hike from the previous payout. The dividend will be paid on Sep 14, 2015 to shareholders on record as of Aug 28.
Capital Expenditure & Balance Sheet
Tesoro’s total capital spending in the reported quarter (including TLLP) totaled $237 million (about 62.5% of which has been directed toward refining segment).
As of Jun 30, 2015, the company had $978 million of cash on hand and long-term debt of $3,808 million. This represents a debt-to-capitalization ratio of 36%.
Guidance
Tesoro expects throughput volume of 810–850 MBbl/d for the third quarter.
The company reaffirmed its 2015 capital spending at around $600 million (excluding the TLLP investment). The company anticipates TLLP capital spending at $450.
Zacks Rank
Tesoro currently carries a Zacks Rank #2 (Buy).
Some other energy players that investors can include in their portfolio are Seadrill Partners LLC SDLP, Valero Energy Partners LP VLP and CVR Refining, LP CVRR. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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