Oil refiner and marketer Western Refining Inc. (WNR) came out with weaker-than-expected second-quarter results, reflecting lower refinery throughput. The company reported earnings per share of 94 cents, versus the Zacks Consensus Estimate of $1.16.
However, the El Paso, Texas-headquartered downstream operator improved considerably from the second-quarter 2010 profit of 16 cents per share amid higher refining margins.
Net sales of $2.6 billion were up 19.2% from the year-ago level and also outpaced the Zacks Consensus Estimate by 14.4%.
Refining Segment Results
WNR's refining segment, which accounts for bulk of the company's sales/profits, recorded an operating income of $202.4 million. This compares with a profit of $71.5 million in the year-earlier quarter. Segment results were favorably impacted by higher gross margins.
Throughput
Total refining throughput averaged 152,945 barrels per day (Bbl/d), compared with 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. The situation was further aggravated by the suspension of operations at its 64,500 barrels-per-day Yorktown, Virginia, refinery in September last year, due to the challenging refining margin environment on the East Coast.
Refining Margins
Gross refining margin rose 140.5% year-over-year to $23.42 per barrel. In terms of different regions, refining margin was up approximately 113.1% in El Paso to $24.65 per barrel and up 61.6% in Four Corners to $29.35 per barrel.
Operating Expenses
Direct operating expenses in El Paso during the quarter averaged $4.12 per barrel, up 19.8% year over year, while costs in Four Corners increased 71.8% from the year-ago period to $10.65 per barrel.
Capital Expenditure & Balance Sheet
Western’s total capital spending during the quarter was $15.2 million, down from $18.2 million in the second quarter of 2010. As of June 30, 2011, Western had cash on hand of $173.2 million and total debt of approximately $1.1 billion, representing a debt-to-capitalization ratio of 57.1%.
Guidance
For the third quarter of 2011, total refinery throughput is anticipated to be approximately 125,000 – 130,000 barrels per day at the El Paso refinery and 25,000 – 27,000 barrels per day at the Gallup refinery. The company expects capital spending for 2011 to be approximately $69 million.
Our Recommendation
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), has a Zacks #1 Rank, which translates into a short-term Strong Buy rating.
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