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Tesoro Earnings & Revs Beat

Zacks Equity Research

Independent refiner Tesoro Corporation (TSO) reported bright first quarter 2013 results on the back of higher margins and favorable market conditions.

Earnings per share (excluding special items) came in at 73 cents, managing to beat the Zacks Consensus Estimate of 71 cents but significantly above the year-ago adjusted profit of 39 cents per share.

Tesoro reported revenues of $8,156.0 million for the three-month period ended Mar 31. This was 13.7% above our projection and was also up 4.3% year over year on the back of higher throughput and solid refining margins.

Segmental Analysis

Refining: The segment posted an operating income of $283 million, reflecting an increase from $191 million in the year-earlier quarter. The improvement can be attributed to higher refinery throughput rates.

Retail: The Retail unit earned $17 million during the March quarter against a loss of $4 million in the first quarter of 2012. The growth was aided by higher fuel margins.


Total refining throughput averaged 579 thousand barrels per day (MBbl/d) compared with 529 MBbl/d in the year-ago quarter.

Overall throughput volumes in California (consisting of the Golden Eagle and Los Angeles refineries) and the Mid-Continent (North Dakota & Utah) increased 36.0% and 5.9% year over year to 257 MBbl/d and 125 MBbl/d, respectively.

Throughput in Tesoro’s Mid-Pacific (Hawaii) operations remained unchanged from the first quarter of 2012 at 69 MBbl/d and decreased 16.1% to 130 MBbl/d for the Pacific Northwest (Alaska and Washington).

Refining Margins

Gross refining margin saw an increase of 12.6% year over year to $13.68 per barrel.

In terms of different regions, refining margin increased in California (by 47.0% year over year to $11.73 per barrel), in Mid-Pacific (by 122.2% to $4.60 per barrel) and Pacific Northwest (by 2.9% to $13.33 per barrel). But in Mid-Continent, refining margin decreased by 3.3% to $22.73 per barrel.

Realized Costs & Prices

Manufacturing costs before depreciation and amortization fell 2.2% from the year-earlier level to $4.86 per barrel, in keeping with Tesoro’s stated objectives of reducing operating costs and increasing throughput rates.

Total refined product sales during the quarter averaged 679 MBbl/d, up 3.3% year over year. Average price realized on product sales decreased 4.1% year over year to $121.92 per barrel and average cost per barrel also decreased 5.5% to $111.29 per barrel.

Capital Expenditure & Balance Sheet

Tesoro’s total capital spending during the quarter under review was $119 million (91.6% directed toward refining segment). The company expects capital spending for 2013 at around $560 million, together with turnaround spending of around $310 million.

As of Mar 31, 2013, Tesoro had $1,972.0 million cash on hand and total debt of $1,593.0 million, representing a debt-to-capitalization ratio of 24%.


Tesoro announced its quarterly dividend of 20 cents per share, or 80 cents per share annualized. The dividend is payable on Jun 14, 2013 to shareholders of record on May 31.

Zacks Rating

Tesoro currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, there are certain other companies in the energy sector that are expected to perform better in the short term. These include Zacks Ranked #1 (Strong Buy) EPL Oil & Gas Inc. (EPL), Harvest Natural Resources Inc. (HNR) and Newpark Resources Inc. (NR).

Read the Full Research Report on TSO

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