Tesoro Corporation Misses on Q4 Earnings, Improves Y/Y - Analyst Blog

Independent refiner Tesoro Corporation ( TSO ) reported fourth-quarter 2014 adjusted earnings from continuing operations of $1.46 per share, which failed to meet the Zacks Consensus Estimate of $1.48. Higher operating expenses and lower realizations affected the results. Following the announcement, shares of Tesoro witnessed a fall of over 2% in the after-hours trading session.

The bottom line, however, showed a massive improvement from the year-ago quarter adjusted earnings per share of 4 cents. Record performance by the Retail segment and a substantially higher contribution from the Refining segment led to the improvement.

Tesoro Corporation - Earnings Surprise | FindTheBest

Tesoro Corporation reported quarterly revenues of $8,445 million, which decreased from $10,116 million in the comparable quarter last year. Moreover, it failed to meet the Zacks Consensus Estimate of $9,235 million.

For the year ended Dec 31, 2014, earnings per share of Tesoro came in at an all-time yearly high of $6.79, significantly improving from the year-ago profit of $2.79 per share. However, it lagged the Zacks Consensus Estimate of $6.94 per share.

Full-year revenues came in at $40,633 million compared with $37,601 million in 2013.

Segmental Analysis

Refining: The segment posted an operating income of $151 million, considerably higher than $107 million earned in the year-earlier quarter. Improvement in refining margins aided the results.

TLLP: During fourth-quarter 2014, TLLP contributed $37 million in operating profit, compared with $21 million in the year-ago quarter. The improvement can be attributed to higher volumes from the High Plains System, in addition to increased contribution from the West Coast Logistics Assets.

Retail: The segment earned $195 million, a significant increase from $24 million in the fourth quarter of 2013. Low crude prices resulting in increased sales led to the improvement.


Total refining throughput averaged 808 thousand barrels per day (MBbl/d), higher than 786 MBbl/d in the prior-year quarter.

Overall throughput volumes in California (consisting of Martinez and Los Angeles refineries) increased 2.8% year over year to 508 MBbl/d. Throughput in Tesoro Corporation's Pacific Northwest (Alaska and Washington) operations was almost flat year over year at 168 MBbl/d. Moreover, throughput volumes in Mid-Continent (North Dakota and Utah) grew 5.6% year over year to 132 MBbl/d.

Refining Margins

Gross refining margin jumped 17.2% year over year to $11.08 per barrel.

Region-wise, refining margin recorded an increase of over 52% to $9.25 per barrel in California, over 11% to $22.91 per barrel in Mid-Continent and a decline of over 34% to $7.20 per barrel in Pacific Northwest, all on a year-over-year basis.

Realized Costs & Prices

Manufacturing costs before depreciation and amortization increased 2.8% from the year-earlier level to $5.54 per barrel.

Total refined product sales averaged 946 Mbbl/d, higher than 905 Mbbl/d in the fourth quarter of 2013.

Average price realized on product sales fell 18.8% year over year to $91.71 per barrel and average cost per barrel was down 17.2% to $87.17 per barrel.

Operating Cost

Tesoro Corporation's operating costs in the reported quarter came in at $589 million, marking an increase of 5.2% from the year-ago quarter.

Share Repurchases & Dividends

In fourth-quarter 2014, Tesoro Corporation returned about $187 million to stockholders through share buybacks and dividend payments.

The company increased quarterly cash dividend to 42.5 cents per share, up 40%. The dividend will be paid on Mar 13 to shareholders on record as of Feb 27.

Capital Expenditure & Balance Sheet

Tesoro Corporation's total capital spending in the reported quarter (including TLLP) totaled $315 million (54.3% directed toward refining segment).

As of Dec 31, 2014, the company had $1,000 million of cash on hand and long-term debt of $4,254 million, representing a debt-to-capitalization ratio of 38%.


Tesoro Corporation expects 2015 capital spending to be around $570 million (excluding the TLLP investment). The company anticipates TLLP capital spending at $450.

The company projects turnaround costs of around $280 million for 2015.

Zacks Rank

Tesoro Corporation currently holds a Zacks Rank #2 (Buy).

Other players from the same industry worth considering include Global Partners LP ( GLP ), Murphy USA Inc. ( MUSA ) and World Fuel Services Corp. ( INT ). All these stocks hold the same Zacks Rank as Tesoro Corporation.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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