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Tesoro Tops Earnings, Ups Dividend

Zacks Equity Research

Independent refiner Tesoro Corporation (TSO) reported better-than-expected second quarter 2013 results on the back of higher throughput.

Earnings per share (excluding special items) came in at $1.56, beating the Zacks Consensus Estimate of $1.43.

However, the results fell 42.2% year over year (from $2.70 to $1.56) due to significantly lower refining margins and turnaround activities.

Tesoro reported revenues of $8,897.0 million for the three-month period ended Jun 30. This was 15.9% above our projection and was up 21.3% year over year.

Segmental Analysis

Refining: The segment posted an operating income of $395.0 million, reflecting a decrease from $610.0 million in the year-earlier quarter. Significant increase in manufacturing expenses hurt the operating result.

Retail: The unit earned $25.0 million during the June quarter, down from $72.0 million earned in the second quarter of 2012. Substantial rise in operating costs affected the result.


Total refining throughput averaged 624 thousand barrels per day (MBbl/d) compared with 523 MBbl/d in the year-ago quarter.

Overall throughput volumes in California (consisting of Martinez and Los Angeles refineries) increased 39.6% year over year to 374 MBbl/d. However, throughput volumes in the Mid-Continent (North Dakota & Utah) decreased 7.1% year over year to 104 MBbl/d.

Moreover, throughput in Tesoro’s Pacific Northwest (Alaska and Washington) operation increased 2.1% year over year to 146 MBbl/d.

Refining Margins

Gross refining margin saw a decrease of 26.4% year over year to $15.42 per barrel.

In terms of different regions, refining margin decreased in California (1.1% year over year to $13.05 per barrel), in Mid-Continent (29.1% to $27.32 per barrel) and Pacific Northwest (40.3% to $12.92 per barrel).  

Realized Costs & Prices

Manufacturing costs before depreciation and amortization increased 10.7% from the year-earlier level to $5.39 per barrel owing to refinery maintenance activities.

Total refined product sales during the quarter averaged 748 MBbl/d, up 20.5% year over year.

Average price realized on product sales decreased 6.9% year over year to $115.93 per barrel and average cost per barrel also decreased 5.0% to $104.55 per barrel.

Capital Expenditure & Balance Sheet

Tesoro’s total capital spending during the quarter under review was $170.0 million (91.8% directed toward refining segment). The company increased its projected capital spending for 2013 by $130.0 million to $690.0 million. Tesoro also increased its expected turnaround spending for 2013 by $90 million to $400 million.

As of Jun 30, 2013, Tesoro had $428.0 million cash on hand and total debt of $3,367.0 million, representing a debt-to-capitalization ratio (excluding capital leases associated with discontinued operations) of 39%.

Dividend & Share Repurchases

Tesoro announced its quarterly dividend of 25 cents per share ($1.0 per share annualized) representing a sequential hike of 25%. The dividend will be paid on Sep 13, 2013 to shareholders of record on Aug 30.

Moreover, Tesoro returned roughly $100.0 million to shareholders by purchasing more than 1.8 million of its shares during the reported quarter.

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, one can look at other firms in the energy sector like Ferrellgas Partners LP (FGP), Dril-Quip Inc. (DRQ) and Range Resources Corporation (RRC) that offer value. All these firms sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on RRC

Read the Full Research Report on TSO

Read the Full Research Report on DRQ

Read the Full Research Report on FGP

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