Tesoro Foresees Fourth Quarter Loss

Independent refiner Tesoro Corporation (TSO - Analyst Report) expects to witness net loss per diluted share in the fourth quarter 2011, bruised by a low margin environment in California along with the weakening crude oil spread.

The company projects loss in the range of 55 cents to 80 cents per diluted share in the quarter, as against an impressive earnings figure posted in the previous quarter. The fourth quarter loss includes an estimated after-tax expense of approximately 9 cents per diluted share associated with the non-cash stock-based compensation.

In the third quarter, Tesoro came up with earnings per share of $2.39, comfortably surpassing the Zacks Consensus Estimate of $1.83 and way above the year-ago adjusted profit of 51 cents.

Notwithstanding the fourth quarter loss, Tesoro expects to report earnings per diluted share of $3.85 to $4.10 for full year 2011, reflecting better refinery utilization rates, gross margin improvements and strong operational efficiency.

Tesoro expects fourth quarter refinery throughput rates, manufacturing costs, depreciation, corporate and interest expense in accordance with the previously announced guidance.

As per the Zacks Consensus Estimate, Tesoro will report a loss of 44 cents per share in the fourth quarter and earnings per share of $4.34 for the full year.

San Antonio, Texas-based Tesoro is an independent refiner and marketer of refined petroleum products in the western U.S. The company operates in two segments: Refining (accounted for 72% of the company’s total 2010 operating income) and Retail (28%).

During the last few quarters, Tesoro’s strategic actions – to improve its performance and competitiveness in a cost-effective manner – have driven the company’s growth and boosted its stock valuation. In the near term, the company stands to benefit from management’s focus on balance sheet improvement. Additional positives for Tesoro include the scale and diversification benefits afforded by its portfolio of seven refineries.

However, Tesoro remains exposed to the risk of dampened U.S. economic growth and weak product demand. Its lack of geographic diversification and excessive dependence on the West Coast market will further limit the ability to generate positive earnings surprises. Given these headwinds, we expect Tesoro shares to perform in line with the broader market and maintain our long-term Neutral recommendation.

Tesoro, which competes in the ‘Oil Refining and Marketing’ industry with rival firms like Valero Energy Corp. (VLO - Analyst Report) and Western Refining Inc. (WNR - Analyst Report), currently retains a Zacks #3 Rank (short-term Hold rating).

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Read the full analyst report on TSO

Read the full analyst report on WNR