Oil refiner and marketer Western Refining Inc. (WNR) came out with in-line first quarter profits, as refinery throughput matched expectations. The company reported earnings per share (excluding special items) of 81 cents, same as the Zacks Consensus Estimate.
The El Paso, Texas-headquartered downstream operator improved considerably from the first quarter 2011 profit of 27 cents per share, amid gross margin improvement in both its refineries.
Net sales of $2.3 billion were up 27.2% from the year-ago level and also outpaced the Zacks Consensus Estimate by 4.8%.
Refining Segment: Analysis
Throughput: Total refining throughput averaged 144,831 barrels per day (Bbl/d), compared with 121,549 Bbl/d in the year-ago quarter. Overall, throughput volumes in the El Paso refinery increased 24.6% year over year to 120,394 Bbl/d, while that in the Gallup unit remained almost flat at 24,437 Bbl/d.
Refining Margins: Gross refining margin (excluding unrealized losses on hedging) rose 18.7% year-over-year to $20.34 per barrel. In terms of different regions, refining margin was up approximately 13.9% in El Paso to $21.30 per barrel and up 9.3% in Gallup to $21.54 per barrel. The higher profitability could be attributed to the company’s use of the less expensive West Texas crude oil as refinery inputs.
Operating Expenses: Direct operating expenses in El Paso during the quarter averaged $4.57 per barrel, down 22.7% year over year, while costs in Gallup increased 27.8% from the year-ago period to $8.56 per barrel. Overall, direct operating expenses at the company’s units were $5.70 per barrel for the three months ended March 31, 2012, down from $7.42 per barrel in the year-ago period. The cost reduction can be attributed to improved throughputs, together with lower natural gas catalyst and chemical expenses.
Capital Expenditure & Balance Sheet
Western’s total capital spending during the quarter was $22.2 million, up from $10.8 million in the first quarter of 2011. As of March 31, 2012, Western had cash and cash equivalents of $221.0 million and total debt of approximately $777.0 million, representing a debt-to-capitalization ratio of 50.4%.
Guidance
For the second quarter of 2012, total refinery throughput is anticipated to be approximately 128,000 - 133,000 Bbl/d at the El Paso refinery and 24,000 - 26,000 Bbl/d at the Gallup refinery. The company expects capital spending for 2012 to be approximately $162.1 million.
Recommendation & Rating
We have a long-term Neutral recommendation on Western Refining, which competes in the ‘Oil Refining and Marketing’ industry with other established firms like Valero Energy Corp. (VLO) and Tesoro Corp. (TSO).
For the short-term, though (1-3 months), Western Refining currently retains a Zacks #2 Rank (Buy rating).
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