Oil refiner and marketer
Western Refining Inc.
) came out with weak third quarter profits due to higher
operating expenses and lower refining margins.
The company reported earnings per share (excluding special items)
of 99 cents, much lower than prior-year quarter earnings of
$1.37. Earnings also fell well short of the Zacks Consensus
Estimate of $1.46 per share.
Quarterly net sales of $2.45 billion, however, surpassed the
Zacks Consensus Estimate by 9.90%. The results were better than
the year-ago level of $2.40 billion.
Refining Segment: Analysis
: Total refining throughput averaged 144,198 barrels per day
(Bbl/d), compared with 149,556 Bbl/d in the year-ago quarter.
Overall, throughput volumes at the El Paso refinery were slightly
up year over year to 124,364 Bbl/d, while those in the Gallup
unit were down 21.5% from the year-ago quarter at 19,834 Bbl/d.
: Gross refining margin (excluding unrealized losses on hedging)
slashed 33.3% year over year to $13.83 per barrel. In terms of
different regions, refining margin was up 3.3% at El Paso to
$28.40 per barrel and down 16.9% at Gallup to $29.48 per barrel.
: Direct operating expenses at El Paso during the quarter
averaged $5.21 per barrel, up 49.70% year over year. Costs at
Gallup were up 42.80% from the year-ago period to $10.97 per
barrel. Hence, direct operating expenses at the company's units
were $6.47 per barrel for the three months ended September 30,
2012, up from $5.41 per barrel in the year-ago period. The cost
increase was due to lesser crude oil throughputs with increased
turnaround cost at Gallup refinery.
Capital Expenditure & Balance Sheet
El Paso, Texas-headquartered Western's total capital spending
during the quarter was $71.3 million, much higher than $18.7
million in the third quarter of 2011. As of September 30, 2012,
Western had cash and cash equivalents of $509.8 million and total
debt of approximately $495.8 million, representing a
debt-to-capitalization ratio of 33.2%.
For the fourth quarter of 2012, total refinery throughput is
anticipated to be approximately 131,000-135,000 Bbl/d at the El
Paso refinery and 21,000-24,000 Bbl/d at the Gallup refinery. The
company expects capital spending for 2012 to be in the range of
$170.0 million to $180.0 million.
Recommendation & Rating
Among Western's peers,
) came out with weak third quarter 2012 profits, with earnings
per share of $2.05, against the Zacks Consensus Estimate of
Western Refining has recently doubled its quarterly dividend
payout to $0.08 per share ($0.32 per share annualized). The
company also announced a $200 million share repurchase program.
We believe that the hike in dividend and the buyback
authorization not only highlights Western Refining's commitment
to create value for shareholders but also underlines the
company's confidence in its future earnings momentum.
However, the inherent volatility of the refining business reduces
the accuracy and reliability of long-term earnings and revenue
estimates. Additionally, results are exposed to unplanned
shutdowns that may have a lingering impact.
For the short-term, Western Refining currently retains a Zacks #3
Rank (Hold rating).
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