Western Refining, Inc. (WNR)

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Western Refining, Inc (WNR)

Q1 2010 Earnings Call

May 06, 2010 10:00 am ET

Executives

Jeff Beyersdorfer - SVP, Treasurer, and Director, IR

Jeff Stevens - President & CEO

Gary Dalke - CFO

Mark Smith - President - Refining and Marketing

Analysts

Jeff Dietert - Simmons

Jacques Rousseau - RBC

Ben Hur - Morgan Stanley

Arjun Murti - Goldman Sachs

Paul Sankey - Deutsche Bank

Chi Chow - Macquarie Capital

Sandy Liang - Cobalt Capital

Gary Stromberg - Barclays Capital

Kelly Krenger - Bank of America/Merrill Lynch

Jim Hom - Miller Tabak

Presentation

Operator

Good morning and welcome to the first quarter 2010 Western Refining Earnings Conference Call. After the speakers' opening remarks, there will a question-and-answer period. (Operator Instructions).

I'd now like to turn the call over to Mr. Jeff Beyersdorfer, Treasurer and Director of Investor Relations of Western Refining. Mr. Beyersdorfer, please go ahead.

Jeff Beyersdorfer

Thank you and good morning. I would like to thank you for taking the time to listen in today. We appreciate your continued interest in Western Refining. My name is Jeff Beyersdorfer. I'm the company's Treasurer and Director of Investor Relations.

Joining me for today's call are Jeff Stevens, CEO; Gary Dalke, our CFO; Mark Smith, President, Refining and Marketing and other members of our senior management team. If you need a copy of the earnings release, you may obtain one from the Investor Relations section of our website at wnr.com.

Before we proceed, I need to make the following Safe Harbor statement. Today's presentation will contain forward-looking statements and I incorporate and refer you to the forward-looking statements section of our earnings release and most recent filings with the SEC.

We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results which can be found in the press release which is posted on the IR section of our website.

I’ll now turn the call to Jeff Stevens.

Jeff Stevens

Thank you, Jeff. Welcome to everyone on the call. We appreciate your interest in Western Refining. Today, we will discuss our Q1 results and provide some details on how Western’s addressing the current market environment. After I provide commentary on our operations and an update on market conditions, Gary will review our earnings in more detail and provide operating guidance for Q2 2010.

After Gary’s comments, we will open the call for your questions. As stated in our press release, we reported a net loss of $30.7 million or $0.35 per diluted share for the quarter ended March 31st, 2010. This compares to Q1 2009 earnings of $58.9 million or $0.86 per diluted share. Excluding special items, Q1 2009 earnings were $51.79 million or $0.76 per diluted share. The year-over-year decline primarily reflected lower refinery margins as a result of reduced demand for refined products compared to 2009.

Our results were also impacted by the major turnaround work that was performed at El Paso and the planned maintenance at Gallup during the quarter. During the quarter, refinery margins showed significant improvement relative to very low margins that we experienced in Q4 2009. The Gulf Coast 321 benchmark crack in Q1 improved by more than $3 or 75% relative to Q4 2009.

In the East Coast, the 211 crack spread was more than $2 higher or 37% above Q4, 2009. In addition, the light-heavy and sour-crude differentials continued to widen during the first quarter leading to improved gross margins at El Paso and Yorktown. Overall refining gross margins were $6.38, up by more than 30% compared to Q4, 2009. As I mentioned we completed a major maintenance turnaround at El Paso and a catalyst regeneration at Gallup during the quarter.

We are pleased on how these projects were completed and we are very encouraged by the resulting rate and yield improvements at both of these facilities. The El Paso refinery is currently operating at maximum throughputs in achieving excellent yields of high value products. Our wholesale business has been significantly affected by the economy in recent quarters. However, operating income during Q1 was up by more than $5 million compared to Q1, 2009.

The higher operating income was primarily due to the improvements we made in the cost structure of that business. Our retail business was impacted negatively by poor weather in several of our key markets during much of the quarter.

Retail fuel volumes and margins were down compared to Q1 2009, however we believe business will improve as we enter the driving season and rebound longer term as the economy continues to improve. In previous calls we have discussed the cost improvement initiatives that we are implementing. As you can see in our quarterly results we are beginning to see the financial benefit of these decisions.

By consolidating the operations of our Four Corners refineries we have realized more than $6 million in cost saving during the quarter and we believe the full-year saving will meet the original annualized estimate of $25 million.

In additional to cost savings, the key factor in our Four Corners consolidation decision was improved utilization at Gallup facility. I am happy to report that Gallup is running well, enabling us to achieve one of our goals of processing all available cost effect accrued in the area.

Throughputs today are similar to the volumes achieved historically by both Gallup and Bloomfield and will result in approximately $3 per barrel improvement in operating cost going forward. We have also completed a number of previously announced saving initiatives which are reflected in our Q1 cost performance. We are encouraged by our progress to-date and are on track to exceed our estimated 25 million in savings for 2010.

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