Oil refiner and marketer Western Refining Inc. (WNR) posted mixed fourth-quarter and full-year 2011 results, reflecting the efficient execution of its strategic plan, strong margins and lower interest expense, partially offset by lower throughput.
The company reported earnings per share, excluding special items, of 48 cents in the quarter, missing the Zacks Consensus Estimate of 51 cents. However, results improved considerably from the fourth-quarter 2010 loss of 4 cents per share aided by higher refining margins.
For the full year, earnings per share, excluding one-time costs, were $3.03, ahead of our projection of $2.91 per share. Comparing year over year, the reported results improved heavily from a loss of 11 cents.
Net sales of $2,276.4 million were up 21.9% from the year-ago level and also outpaced the Zacks Consensus Estimate by 18.1%.
Western Refining generated revenues of $9,071.0 million in fiscal 2011, compared with $7,965.0 million in 2010.
Segment Results
The refining segment, which accounts for the bulk of the company's sales/profits, recorded quarterly revenue of $2,151.3 million. This compares favorably with $1,974.2 million in the year-earlier quarter.
During the quarter, Western Refining’s wholesale segment registered sales of $1,200.0 million (up 74.3% year over year), while retail segment revenue upped 49.8% from the prior-year period to $270.2 million.
Throughput
Total refining throughput averaged 144,643 barrels per day (Bbl/d) in the fourth quarter of 2011, compared with 157,044 Bbl/d in the year-ago quarter.
Overall, throughput volumes in the Gallup refinery declined 5.4% to 23,781 Bbl/d, while that in the El Paso refinery dropped 8.4% from prior-year level to 120,862 Bbl/d.
The refinery at Yorktown, Virginia, was sold off during this quarter along with a part of an underutilized crude oil pipeline in southeastern New Mexico for $220 million.
Refining Margins
Gross refining margin rose 313.3% year over year to $41.83 per barrel in the quarter. In terms of different regions, refining margin was up approximately 134.5% in El Paso at $20.71 per barrel and up 37.8% in Gallup at $19.47 per barrel.
Operating Expenses
Direct operating expenses in El Paso during the quarter averaged $4.84 per barrel, up 35.6% year over year, while costs in Gallup increased 19.7% from the year-ago period to $8.27 per barrel.
Capital Expenditure & Balance Sheet
Western’s total capital spending was $39.1 million during the quarter (up from $21.3 million in the prior-year quarter) and $83.9 million in 2011 (versus $78.1 million in 2010).
As of December 31, 2011, Western had cash on hand of $170.8 million and total debt of approximately $804.0 million, representing a debt-to-capitalization ratio of 49.5%.
Our Recommendation
We believe that Western Refining’s strategic actions will continue to showcase an impressive performance in the coming months. Moreover, the company’s strong retail and wholesale operations, along with an exposure to the profitable Southwest refining assets, add to the positive sentiment.
However, Western Refining is faced with high crude prices (and therefore rising feedstock costs), which are expected to limit its ability to generate positive earnings surprises. Additionally, the inherent volatility of the refining business also reduces the accuracy and reliability of long-term earnings and revenue projection.
Hence, we maintain a long-term Neutral rating on Western Refining, which competes in the Oil Refining and Marketing industry with other established firms like Valero Energy Corp. (VLO), Tesoro Corp. (TSO) and Sunoco Inc. (SUN).
Western refining currently holds a Zacks #3 Rank (Hold) stock, implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
SUNOCO INC (SUN): Free Stock Analysis Report
TESORO CORP (TSO): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis Report
WESTERN REFING (WNR): Free Stock Analysis Report
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