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Western Refining (WNR) Posts Q4 Loss, Sales Miss Estimates

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Oil refiner and marketer Western Refining Inc. reported fourth-quarter 2016 results, wherein the company incurred a loss of 7 cents as against the Zacks Consensus Estimate of earnings of 8 cents. Moreover, the bottom line suffered a decline from the year-ago adjusted earnings of 56 cents per share.

The loss is mainly attributable to lower gross margins and increased operating expenses.

Quarterly net sales of $2,115 million also missed the Zacks Consensus Estimate of $2,197 million. However, the revenue in the reported quarter increased by 2.1% when compared with the year-ago quarter.

Refining Segment: Analysis

Throughput: Total refining throughput averaged 252,063 barrels per day (Bbl/d) compared with 255,847 Bbl/d in the year-ago quarter. Throughput volumes at the El Paso refinery rose 10.5% year over year to 141,307 Bbl/d. The Gallup unit recorded throughput volumes of 25,295 Bbl/d, down 1.2% from the year-ago level. St. Paul Park Refinery unit generated throughput volumes of 85,461 Bbl/d, down 16.5% from the year-ago period.          

Refining Margins: Gross refining margin recorded a year-over-year decline to $8.06 per barrel from $13.13. Geographically, refining margin rose 10.6% to $10.57 per barrel at El Paso and decreased nearly 15.9% to $11.45 per barrel at Gallup. The refining margin witnessed a huge decline of 61% to $5.54 per barrel at St. Paul Park Refinery. This major decline was due to the lower realized prices for gasoline and asphalt, fees associated with logistic assets and turnaround of St.Paul Park Refinery.    

Operating Expenses: Direct operating expenses at El Paso averaged $3.86 per barrel, down 8.5% year over year. Direct operating expenses at Gallup increased about 38.5% year over year to $11.91 per barrel. Direct operating expenses at St Paul Park Refinery went up by 29.6% year over year to $5.34 per barrel. Combined direct operating expenses at Western Refining units were $5.46 per barrel in the three months ended Dec 31, 2016 compared with $4.94 per barrel in the year-ago period. 

Capital Expenditure & Balance Sheet

El Paso, TX-based Western Refining’s total capital spending during the quarter was $65.9 million as compared with $94.9 million in fourth-quarter 2015, reflecting a decline of 30.5%. As of Dec 31, 2016, Western Refining had cash and cash equivalents of $268.5 million and total debt of approximately $1,936.4 million. This represents a debt-to-capitalization ratio of 45.7%.

Fourth Quarter Performance

In the fourth quarter, the Zacks categorized Oil and Gas Refining & Marketing industry recorded growth of 17.7%. However, shares of Western Refining significantly outperformed the industry by gaining around 41%.

Outlook

Western Refining has its capital expenditure budget for 2017 at $266 million with $146 million set aside for discretionary spending for logistics projects and El Paso expansion. The company is optimistic about its pending Tesoro Corp. transaction and aims to mitigate its costs and attain operational efficiency in the coming quarters.

Total refining throughput for El Paso is expected to lie within the range of 128-132 thousand barrels per day (mbpd) for the first quarter 2017. Expected refinery throughput for Gallup and St Paul Park is 26-28 mbpd and 101-105 mbpd for the first quarter 2017.

Zacks Rank and Key Picks

Western Refining currently carries a Zacks Rank #3 (Hold).

Some better-ranked players from the broader energy sector include Crescent Point Energy Corp. (CPG - Free Report) and Denbury Resources Inc. . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Crescent Point Energy reported a positive earnings surprise in each of the trailing four quarters, the average being 127.16%.

Denbury Resources posted average positive earnings surprise of 212.50% in the last four quarters.

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