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Oil refiner and marketer, Western Refining Inc. (WNR - Analyst Report), reported better-than-expected second-quarter 2013 earnings owing to reduced operating expenses and higher throughput.

The company reported earnings per share (excluding special items) of $1.25, beating the Zacks Consensus Estimate of $1.21 per share. The figure, however, fell 33.9% short of the year-ago adjusted profit of $1.89 per share, primarily due to significantly lower refining margins.   

Quarterly net sales of $2.43 billion marginally failed to beat the Zacks Consensus Estimate of $2.45 billion. The results were also lower than the year-ago $2.47 billion.

Refining Segment: Analysis

Throughput: The total refining throughput averaged 161,985 barrels per day (Bbl/d), compared with 157,960 Bbl/d in the year-ago quarter. Overall, throughput volumes at the El Paso refinery were up 2.6% year over year to 135,636 Bbl/d, while the Gallup unit recorded throughput volumes of 26,349 Bbl/d which also increased by 2.1% from the year-ago level.   

Refining Margins: Gross refining margin (excluding unrealized losses on hedging) was down 36.3% year over year to $20.40 per barrel. In terms of different regions, refining margin was down 39.0% to $19.46 per barrel at El Paso and down 24.1% to $24.26 per barrel at Gallup.

Operating Expenses: Direct operating expenses at El Paso during the quarter averaged $3.30 per barrel, down 15.6% year over year. Western Refining's expenses fell due to the refund of an overpaid property tax for 2012.

Direct operating expenses at Gallup were up 30.5% from the year-ago period to $10.41 per barrel, owing to rising maintenance and environment expenditures.

Direct operating expenses at Western Refining’s units were $4.98 per barrel for the three months ended Jun 30, 2013, down from $5.33 per barrel in the year-ago period.

Capital Expenditure & Balance Sheet

El Paso, Texas-headquartered Western Refining’s total capital spending during the quarter was $36.2 million, lower than $37.2 million in the second quarter of 2012. As of Jun 30, 2013, Western Refining had cash and cash equivalents of $372.3 million and total debt of approximately $550.8 million, representing a debt-to-capitalization ratio of 37.9%.

Dividend & Share Repurchase

Western Refining announced 18 cents per share of dividend for third-quarter 2013, representing a 50% sequential hike. The dividend is payable on Aug 15, 2013, to shareholders of record as of Jul 31, 2013.

Western Refining has repurchased roughly 10.7 million shares from the start of the share repurchase program, till Jul 26, 2013, for an average $29.43 per share.

Guidance

For the third quarter of 2013, the total refinery throughput is anticipated to be approximately 130,000 - 134,000 Bbl/d at the El Paso refinery and 26,000 - 28,000 Bbl/d at the Gallup refinery. Western Refining maintains its expected capital spending for 2013 at $206 million.  

Zacks Rating

Western Refining currently retains a Zacks Rank #5 (Strong Sell), implying that it is expected to significantly underperform the broader U.S. equity market over the next 1 to 3 months.

However, one can look at energy firms like Ferrellgas Partners LP (FGP - Analyst Report), SunPower Corporation (SPWR - Analyst Report) and Range Resources Corporation (RRC - Analyst Report) that offer value. All the firms sport a Zacks Rank #1 (Strong Buy).
 

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