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Oil refiner and marketer Western Refining Inc. (WNR - Analyst Report) reported better-than-expected fourth quarter profits due to higher refining margins and strong product values in the Southwest U.S.

The company reported earnings per share (excluding special items) of $1.45, much higher than prior-year quarter’s earnings of 50 cents. Earnings were also above the Zacks Consensus Estimate of $1.37 per share.

Quarterly net sales of $2.25 billion also surpassed the Zacks Consensus Estimate of $2.15 billion. However, the results were lower than the year-ago level of $2.28 billion.

Refining Segment: Analysis

Throughput: Total refining throughput averaged 152,280 barrels per day (Bbl/d), compared with 144,643 Bbl/d in the year-ago quarter. Overall, throughput volumes at the El Paso refinery were up 8.2 % year over year to 130,785 Bbl/d, while those in the Gallup unit were down 9.6% from the year-ago quarter at 21,495 Bbl/d.

Refining Margins: Gross refining margin (excluding unrealized losses on hedging) was up 49.7% year over year to $30.75 per barrel. In terms of different regions, refining margin was up 48.6% at El Paso to $30.77 per barrel and 55.4% at Gallup to $30.26 per
barrel.

Operating Expenses: Direct operating expenses at El Paso during the quarter averaged $4.36 per barrel, down 9.9% year over year. Costs at Gallup were up 38.2% from the year-ago period to $11.43 per barrel. Hence, direct operating expenses at the company’s units were $5.93 per barrel for the three months ended December 31, 2012, down from $6.59 per barrel in the year-ago period. The cost decrease was due to lesser crude oil expenses.

Capital Expenditure & Balance Sheet

El Paso, Texas-headquartered Western’s total capital spending during the quarter was $71.4 million, much higher than $39.2 million in the fourth quarter of 2011. As of Dec 31, 2012, Western had cash and cash equivalents of $454.0 million and total debt of approximately $499.9 million, representing a debt-to-capitalization ratio of 35.5%.

Guidance

For the first quarter of 2013, total refinery throughput is anticipated to be approximately 105,000–110,000 Bbl/d at the El Paso refinery and 23,000–26,000 Bbl/d at the Gallup refinery. The company expects capital spending for 2013 to $206 million.

Zacks Rating

The company currently retains a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next 1 to 3 months.

Western Refining is one the largest independent oil refiners in the U.S. with a combined crude oil processing capacity of approximately 151,000 Bbl/d. A major advantage for the company is its proprietary access to pipelines, which inhibits lower-cost competitors from supplying Western Refining's key markets.

In particular, Western Refining’s easy access to the lower-priced West Texas Intermediate (WTI) crude gives a cost advantage that is reflected in the company’s high gross margins vis-à-vis its peers.  

There are other oil refiners in the energy sector that offer value and are worth buying now. These include Calumet Specialty Products Partners LP (CLMT - Snapshot Report), Global Partners LP (GLP - Snapshot Report) and NGL Energy Partners LP (NGL - Snapshot Report). All of these stocks sport a Zacks Rank #1 (Strong Buy).
 

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