This summary is based on the third quarter fiscal 2008 earnings call conducted by Tesoro Corp. (TSO) on October 30, 2008.
Management:
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Chairman, President and CEO: Bruce A. Smith
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Sr. VP, CFO and Treasurer: Otto C. Schwethelm
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EVP and COO: Everett Lewis
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Sr. VP, Refining: Dan Porter
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Director of IR: Scott Phipps
Key Investors Issues
- Revenues increased 47% to $8.7 billion from $5.9 billion in the prior year.
- Income was $258 million or $1.86 a share, up over 400%.
- The board approved a regular quarterly cash dividend of 10 cents per share.
Year to Date Highlights:
- Revenue increased to $24 billion from $15.4 billion in 2007.
- Net income was $181 million or $1.30 per share, versus $606 million, or $4.35 per share a year ago.
Third Quarter Highlights
Income was $258 million or $1.86 a share, up from $47 million or 34 cents a share in the prior year due to improved margins and declines in crude prices.
- Refining operating income was $476 million and almost $400 million improvement versus the prior quarter due to the improved capture rates and lower energy costs in addition to lower impact from derivative positions.
- Retail operating income was $34 million as fuel margins averaged 30 cents a gallon during the quarter.
Revenues increased 47% to $8.7 billion from $5.9 billion in the prior year.
- Throughput was 32,000 barrels per day lower than the third quarter 2007 as the firm optimized production to meet lower product demand.
- Corporate and unallocated expense was $58 million versus $47 million during the second quarter of 2008 with the $11 million difference primarily due to the stock-based compensation expense and catch-up bonus accrual.
- Interest expense before interest income was $30 million, which is $5 million higher than guidance due to lower expected capitalized interest and labor.
At the end of the quarter, the firm was un-borrowed on the revolver with a $184 million in cash on the balance sheet.
- Net debt to net capitalization was 30%, which is the lowest ratio the company has reported since fourth quarter of 2006.
- The firm generated $782 million in cash flow from operations and $500 million was spend on CapEx, $120 million to pay down borrowings on the revolver and $41 million for dividend payments.
- The board approved a regular quarterly cash dividend of 10 cents per share.
Operational Highlights:
- California gave an early window into the impact of higher prices than a slow economy could have on transportation fuel consumption and the firm has reacted by optimizing the system and going to appropriate levels of inventory and production.
- It is managing inventory levels and working capital requirements by shortening supply lines on both crude and product.
- The reduced inventory in addition to better matching working capital requirements or supply, means that crude and product prices, it is going to narrow the window with less risk exposure.
- In the Mid Continent regions, Tesoro continues to access advantage local crude production and in Hawaii, some simple system changes commit it to largely eliminate the need for expensive lives it cruises [ph].
The firm continues to generate reductions across the fixed operating cost categories from both capital and non-capital initiatives which are designed to improve performance in a lower margin environment.
- As the spread between diesel and gasoline continues to favor diesel production, the firm has continued to increase its dieseling yield.
- The distillate yield approached 40% versus 34% in the first quarter of this year without significant capital expenditure.
Fourth Quarter Outlook:
- Throughput in the Pacific Northwest is expected to be 140,000 to 160,000 barrels per day; 60,000 to 70,000 barrels per day in the Mid Pacific; Mid Continent of 105,000 to 115,000; and the California region 250,000 to 270,000 barrels per day.
- OpEx guidance is as follows: $4.05 in the Pacific Northwest, $2.85 in the Mid Pacific, $3.45 in the Mid Continent and $7.15 in the California region.
