This summary is based on the fourth quarter fiscal 2006 earnings call conducted by Tesoro Corp. (TSO) on January 29, 2007.
Key Investors Issues
- Net income increased 129%% to $158 million or $2.28 a share.
- Revenues dropped 8% from $4.4 billion in 2005 to $4 billion.
- The board approved a quarterly dividend of 10 cents a share.
Full Year Highlights:
- Net income of $801 million, or $11.46 was up 58% from the prior year.
- Revenue rose 9.2% to $18.1 billion from $16.6 billion in 2005.
- Gross refining margin of $13.82 a barrel was 17% higher than a year ago.
Fourth Quarter Highlights:
Earnings were up 129% to $158 million or $2.28 a share, from $69 million or 97 cents a share in 2005 on strong gross refining margins and non-capital synergies.
- Gross refining margin rose 16% compared to 2005 more than offsetting the lower throughput primarily caused by a turnaround at the Anacortes refinery.
- Heavy turnaround activity on the West Coast strengthened margins versus last year and Jet fuel demand strengthened during the quarter, leading to improved performance at the Alaska refinery.
- In addition, strong diesel demand in the mid-continent region contributed to the company''s profitability in this region.
Increasingly favorable dynamics in Salt Lake City and Mandan refining markets are improving the balance of the company''s earnings.
- Revenues dropped from $4.36 billion in the prior year to $4.02 billion as it successfully and safely increased throughput and the production of clean fuels
- A debt to cap ratio of 29% compared with 36% at the end of 2005 was reported, while capital and turnaround expenditures were $570 million.
- The firm had almost $1 billion in cash and repurchased 2.6 million shares for $163 million as part of the share repurchase program.
Interest expense net of capitalized interest was in the range $18 to $20 million and the firm posted the lowest recordable offshore incident rate in its history.
- Environmental incidents were well below the firm’s internal targets in 2005 actuals.
- In terms of reliability, the firm ran over 90% utilization during the second and third quarters when it was not in turnaround and most notably, 94% in the third quarter during a very high demand period.
The firm recorded a 2% increase of record sales across all channels of trade from 2005.
- Compared with 2005, gasoline and diesel sales increased 4% or 12,000 barrels a day for the retail and wholesale businesses.
- The fortune 150 company’s ToGo same-store sales grew 3.5% and its merchandising sales grew 8.5%.
Regional Highlights and Outlook:
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Pacific Northwest throughput rates for Pacific Northwest would be in the range of Pacific Northwest 160 to 165 barrels per day.
- For Pacific Northwest, overall operating expenses were expected to be around $3.
- Pacific Northwest was particularly strong with cracks up 8% from the third quarter and 54% from the fourth quarter of last year.
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Mid-Pacific throughput rates for Mid Pacific would be in the range of 85 to 90 barrels per day.
- Overall operating expenses were expected to be around $2.
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In Mid-Continent the firm improved by capturing 126% of the hypothetical group 3 to 1 cracked spread both on the crude side and the product side due to local crudes being discounted as well as strong demand for ultralow sulfur diesel.
- Throughput rates are expected to be in the range of 95 to 100,000 barrels per day.
- Overall operating expenses were expected to be around $3.25.
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In California: throughput rates for California would be in the range of 130 to 135,000 barrels per day.
- Overall operating expenses were affected by the turnaround and expected to be around $6.75.
- While the 3, 2, 1 crack spread declined 6% from the third quarter, it was 25% above the level of the fourth quarter of 2005.
Operational Updates:
- A turnaround of the fluid catalytic cracker at the Anacortes refinery was completed in the fourth quarter as well as some adjustments to better optimize fuel efficiency and product recovery.
- Golden Eagle’s expansion project was reported to be increasing crude flexibility by enabling the firm to supply 100% of that refinery’s crude requirements by water.
- That project is still set for completion during the second quarter with EBITDA contribution to be $30 million to $50 million this year.
Preliminary fourth quarter demand numbers of the West Coast for Pad5 indicated year-over-year demand increases of 2.5% growth for gasoline, almost 7% for diesel, and 1.5% for jet fuel due to lower and more stable prices for petroleum products.
