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Tesoro Corporation (TSO) Q3 Earnings Beat; Revenues Miss

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Independent refiner, Tesoro Corporation reported third-quarter 2016 adjusted earnings from continuing operations of $1.43 per share, which surpassed the Zacks Consensus Estimate of $1.42. Significant contribution from the logistics segment supported the results. The bottom line, however, deteriorated from the year-ago quarter figure of $6.48 per share due to lower income from the refining and the marketing units.


Tesoro Corporation reported quarterly revenues of $6,544 million as against $7,743 million in the comparable quarter last year. Also, the top line missed the Zacks Consensus Estimate of $6,898 million.   

Segmental Analysis

Refining: The segment posted an operating income of $52 million, considerably lower than $899 million earned in the year-earlier quarter. Decrease in refining margins hurt the quarterly results. 

Logistics: During the third quarter, the ‘logistics’ segment generated operating profit of $133 million, up from $106 million in the year-ago quarter. The improvement can be attributed to growth in the volume of the unit’s crude oil gathering and natural gas gathering and processing businesses as well as contributions from the LA Storage and Pipeline Assets last year and the Alaska Storage and Terminalling Assets completed during the quarter.

Marketing: The segment earned $273 million compared with $379 million in the third quarter of 2015. The poor performance of the segment can be attributed to a decline in fuel margins.


Total refining throughput averaged 873 thousand barrels per day (MBbl/d) as against 861 MBbl/d in the prior-year quarter.

Overall, throughput volumes in California (consisting of Martinez and Los Angeles refineries) dipped 0.2% year over year to 533 MBbl/d. Throughput in Tesoro Corporation's Pacific Northwest (Alaska and Washington) operations decreased to 191 MBbl/d from 192 MBbl/d in the year-ago comparable quarter. Moreover, throughput volumes in the Mid-Continent (North Dakota and Utah) grew 10.4% year over year to 149 MBbl/d.

Refining Margins

Gross refining margin declined 53.3% year over year to $9.08 per barrel.   

Region-wise, refining margin decreased almost 55.3% to $9.24 per barrel in California, was down 52.3% to $10.94 per barrel in the Mid-Continent and plunged more than 46.8% to $7.17 per barrel in Pacific Northwest, all on a year-over-year basis.   

TESORO CORP Price, Consensus and EPS Surprise

Realized Costs & Prices

Manufacturing costs before depreciation and amortization increased 5.6% from the year-earlier level to $5.11 per barrel.

Total refined product sales averaged 1,016 Mbbl/d as against 992 Mbbl/d in the third quarter of 2015.

Operating Cost

Tesoro Corporation's operating costs in the reported quarter was $652 million compared with $640 million in the third quarter of 2015.

Capital Expenditure & Balance Sheet

Tesoro Corporation's total capital spending in the reported quarter (including TLLP) totaled $227 million (67.4% directed toward refining segment).

As of Sep 30, 2016, the company had $1,387 million of cash and cash equivalents and long-term debt of $1,012 million, representing a debt-to-capitalization ratio of 11%.  


Tesoro Corporation expects throughput margin for the fourth quarter between 805 MBbl/d and 855 MBbl/d.

Zacks Rank

Tesoro Corporation currently carries a Zacks Rank #3 (Hold).

Some better-ranked players from the broader energy sector include North Atlantic Drilling Limited , Ultra Petroleum Corp. and Baker Hughes Incorporated . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last four quarters, North Atlantic Drilling posted an average positive earnings surprise of 148.4%.

Ultra Petroleum, on the other hand, posted an average positive earnings surprise of 65.91% in the last four quarters.

In the last four quarters, Baker Hughes posted an average positive earnings surprise of 65.12%.

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