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WNR Beats on Higher Margins

Zacks Equity Research

Oil refiner and marketer Western Refining Inc. (WNR) reported better-than-expected fourth quarter profits due to higher refining margins and strong product values in the Southwest U.S.

The company reported earnings per share (excluding special items) of $1.45, much higher than prior-year quarter’s earnings of 50 cents. Earnings were also above the Zacks Consensus Estimate of $1.37 per share.

Quarterly net sales of $2.25 billion also surpassed the Zacks Consensus Estimate of $2.15 billion. However, the results were lower than the year-ago level of $2.28 billion.

Refining Segment: Analysis

Throughput: Total refining throughput averaged 152,280 barrels per day (Bbl/d), compared with 144,643 Bbl/d in the year-ago quarter. Overall, throughput volumes at the El Paso refinery were up 8.2 % year over year to 130,785 Bbl/d, while those in the Gallup unit were down 9.6% from the year-ago quarter at 21,495 Bbl/d.

Refining Margins: Gross refining margin (excluding unrealized losses on hedging) was up 49.7% year over year to $30.75 per barrel. In terms of different regions, refining margin was up 48.6% at El Paso to $30.77 per barrel and 55.4% at Gallup to $30.26 per

Operating Expenses: Direct operating expenses at El Paso during the quarter averaged $4.36 per barrel, down 9.9% year over year. Costs at Gallup were up 38.2% from the year-ago period to $11.43 per barrel. Hence, direct operating expenses at the company’s units were $5.93 per barrel for the three months ended December 31, 2012, down from $6.59 per barrel in the year-ago period. The cost decrease was due to lesser crude oil expenses.

Capital Expenditure & Balance Sheet

El Paso, Texas-headquartered Western’s total capital spending during the quarter was $71.4 million, much higher than $39.2 million in the fourth quarter of 2011. As of Dec 31, 2012, Western had cash and cash equivalents of $454.0 million and total debt of approximately $499.9 million, representing a debt-to-capitalization ratio of 35.5%.


For the first quarter of 2013, total refinery throughput is anticipated to be approximately 105,000–110,000 Bbl/d at the El Paso refinery and 23,000–26,000 Bbl/d at the Gallup refinery. The company expects capital spending for 2013 to $206 million.

Zacks Rating

The company currently retains a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next 1 to 3 months.

Western Refining is one the largest independent oil refiners in the U.S. with a combined crude oil processing capacity of approximately 151,000 Bbl/d. A major advantage for the company is its proprietary access to pipelines, which inhibits lower-cost competitors from supplying Western Refining's key markets.

In particular, Western Refining’s easy access to the lower-priced West Texas Intermediate (WTI) crude gives a cost advantage that is reflected in the company’s high gross margins vis-à-vis its peers.  

There are other oil refiners in the energy sector that offer value and are worth buying now. These include Calumet Specialty Products Partners LP (CLMT), Global Partners LP (GLP) and NGL Energy Partners LP (NGL). All of these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on WNR

Read the Full Research Report on NGL

Read the Full Research Report on GLP

Read the Full Research Report on CLMT

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