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 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.
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.
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.
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.
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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