This is a summary of the second quarter fiscal 2008 earnings call conducted by Tesoro Corporation (TSO) on July 31, 2008
Management:
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Chairman, President and Chief Executive Officer: Bruce A. Smith
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Sr. VP, CFO and Treasurer: Otto C. Schwethelm
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Sr. VP, External Affairs and Chief Economist: Lynn Westfall
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Sr. VP of Refining: Dan Porter
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EVP and COO: Everett Lewis
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Director of Investor Relations: Scott Phipps
Key Investors Issues:
- Net earnings were $4 million or 3 cents a share versus net income of $443 million or $3.17 a share in 2007.
- The firm approved a regular quarterly cash dividend of 10 cents per share.
Half Year Highlights:
- The firm reduced feed stock and product inventories by 1.3 million barrels.
Second Quarter Financial Highlights:
Net earnings were $4 million or 3 cents a share, down 99% from $443 million or $3.17 a share in 2007 as lower gross refining margins and higher operating costs were met with reduced refining throughput.
- The derivative positions of $81 million or 58cents a share mainly related to the long haul group program suspended in May.
- The firm had an after-tax LIFO gain of $48 million or 35 cents a share during the quarter.
- Manufacturing costs before depreciation and amortization were $297 million for the second quarter of 2008 versus $286 million a quarter ago.
- Total fuel oil production was 60 mbpd (thousands of barrels per day) versus a 2007 full year average of 53 mbpd due to planned maintenance activity at Golden Eagle refinery during the 2008 second quarter.
Higher energy cost of $27 million related to the increased use and price of natural gas were offset by an $11 million accrual reversal primarily associated with the retirement of the Golden Eagle fluid coker.
- Throughput total was 610,000 barrels per day above last quarter due to better margins, but limited by the Golden Eagle turnaround.
Segments Analysis:
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Refining reported an operating profit of $85 million, a result of better gross refining margins and higher throughput rates outside of the Golden Eagle turnaround.
- The Golden Eagle refinery completed last significant planned maintenance project for the year which included a total spend of $57 million associated with maintenance on several units including the delayed coker that was commissioned in late April.
- The opportunity cost of the turnaround to be after tax roughly $43 million or 31 cents a share for the quarter.
Gross refining margin was $10.10 and by product, West Coast gasoline margins failed to maintain their rally in late May and early June, but still averaged $6 per barrel over the first quarter.
- Diesel margin averaged $31 a barrel in the second quarter and Hawaii was once again impacted by the lag price effect.
- Tesoro index is derived using specific market indicators, to better reflect individual refinery configuration and market fundamentals and does not include factors embedded in the gross refining margins such as inventory impacts, derivate positions or distribution costs.
- The firm purchased crude 91cents a barrel more than the index for crude feed stock due to running a lighter crude slay and sold products 72cents a barrel better than the product index as a result of higher rates of diesel production.
- Refining, depreciation and amortization expense in the second quarter was $83 million.
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Retail operating loss was $11 million versus a loss of $28 million last quarter.
- Sales volumes were down 2% quarter-on-quarter totaling 343 million gallons for second quarter 2008.
- Margins for the quarter averaged 12 cents per gallon equal to those in the first quarter.
- Corporate and unallocated expenses were $47 million versus $62 million during the second quarter 2007.
The $15 million difference was primarily due to lower stock price causing a decrease in stock based compensation expense.
- Interest and financing cost was $34 million for the quarter versus $30 million a year ago, driven by interest accrual on the new $500 million senior unsecured notes related to the financing of last years LA acquisition in May, 2007.
- Reduced inventory by roughly 3 million barrels and intend for further reductions.
Guidance for 2008:
