Oil refiner and marketer
Western Refining Inc.
) came out with bright second quarter profits, owing to better
refinery activities plus a slowdown in operating expenses.
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The company reported earnings per share (excluding special items)
of $1.89, almost doubling from the prior-year quarter's profit of
97 cents. The result also moved ahead of our projection of $1.68
Quarterly net sales of $2.47 billion surpassed the Zacks Consensus
Estimate by 12.6%. However, the result dipped 3.5% from the
year-ago level of $2.56 billion.
Refining Segment: Analysis
Total refining throughput averaged 157,960 barrels per day (Bbl/d),
compared with 152,945 Bbl/d in the year-ago quarter. Overall,
throughput volumes in the El Paso refinery nudged up 1.3% year over
year to 132,157 Bbl/d, while that in the Gallup unit jumped 14.7%
from the year-ago quarter at 25,803 Bbl/d.
Gross refining margin (excluding unrealized losses on hedging)
surged 47.7% year over year to $34.58 per barrel. In terms of
different regions, refining margin was up approximately 29.5% in El
Paso to $31.91 per barrel and up 8.9% in Gallup to $31.95 per
barrel. The higher profitability could be attributed to the
company's use of the less expensive West Texas crude oil as
Direct operating expenses in El Paso during the quarter averaged
$3.91 per barrel, down 5.1% year over year and costs in Gallup
dropped 25.9% from the year-ago period to $7.98 per barrel. Hence,
direct operating expenses at the company's units were $5.33 per
barrel for the three months ended June 30, 2012, down from $6.18
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
The El Paso, Texas-headquartered Western's total capital spending
during the quarter was $37.2 million, up from $15.2 million in the
second quarter of 2011. As of June 30, 2012, Western had cash and
cash equivalents of $346.1 million and total debt of approximately
$491.8 million, representing a debt-to-capitalization ratio of
For the third quarter of 2012, total refinery throughput is
anticipated to be approximately 125,000-129,000 Bbl/d at the El
Paso refinery and 20,000-23,000 Bbl/d at the Gallup refinery. The
company expects capital spending for 2012 to be approximately
Recommendation & Rating
) declared better-than-expected second-quarter 2012 results, with
earnings per share of $2.87, breezing past the Zacks Consensus
Estimate of $2.28.
We are maintaining our long-term Outperform recommendation for
Western Refining shares on the basis of favorable trends in the
refining industry, along with the company's initiatives to improve
reliability and reduce operating costs.
For the short-term, though (1-3 months), Western Refining currently
retains a Zacks #2 Rank (Buy rating).