It has been about a month since the last earnings report for Tesoro Corporation . Shares have added about 6.3% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Tesoro Beats on Q1 Earnings, Revenues Miss Estimates
Tesoro reported first-quarter 2017 adjusted earnings from continuing operations of $0.52 per share, which surpassed the Zacks Consensus Estimate of $0.36. Significant contribution from the logistics segment and improved performance of the refining segment drove the results. The operating income of the refining and logistics segment grew 136% and 26% year over year.
The bottom line, however, deteriorated from the year-ago quarter figure of $1.19 per share.
Tesoro reported quarterly revenues of $6,638 million as against $5,101 million in the comparable quarter last year, reflecting growth of 30.1%. However, the top line missed the Zacks Consensus Estimate of $7,813 million.
Refining:The segment posted operating income of $34 million against $93 million loss in the year-ago quarter. Increase in refining margins and throughput levels improved the quarterly result.
Logistics: During the fourth quarter, this segment generated operating profit of $150 million compared with $119 million in the year-ago quarter. The performance was driven by contributions from the acquisitions of the North Dakota gathering and processing assets, the Northern California terminalling and storage assets in fourth-quarter 2016 and the Alaska storage and terminalling assets in third-quarter 2016.
Marketing: The segment recorded $133 million compared with $227 million in the first quarter of 2016. Performance in the quarter was negatively impacted by increased cost of sales and lower margins. Further, lower fuel sales due to an abnormally rainy winter in California affected the results adversely.
Total refining throughput averaged 825 thousand barrels per day (MBbl/d) as against 782 MBbl/d in the prior-year quarter.
Overall, throughput volumes in California (consisting of Martinez and Los Angeles refineries) rose from 461 MBbl/d to 500 MBbl/d, on a year-over-year basis. Throughput in Tesoro Corporation's Pacific Northwest (Alaska and Washington) operations was 186 MBbl/d, on par with the year-ago quarter. Throughput volumes in the Mid-Continent (North Dakota and Utah) fell to 139 MBbl/d from 135 MBbl/d in the year-ago comparable quarter.
Gross refining margin increased 24.4% year over year to $9.44 per barrel.
Region-wise, refining margin moved up almost 10.7% to $10.53 per barrel in California, 90.3% to $7.65 in the Mid-Continent and about 33.2% to $7.91 in Pacific Northwest, on a year-over-year basis.
Realized Costs & Prices
Manufacturing costs before depreciation and amortization increased 2.1% from the year-earlier level to $5.67 per barrel. The improvement came on the back of higher energy costs.
Total refined product sales averaged 947 Mbbl/d in the reported quarter as against 952 Mbbl/d in first-quarter 2016.
Tesoro's operating costs in the reported quarter were $654 million compared with $611 million in first-quarter 2016.
Capital Expenditure & Balance Sheet
Tesoro's total capital spending in the reported quarter including Tesoro Logistics L.P. totaled $226 million.
As of Mar 31, 2017, the company had $2,298 million of cash and cash equivalents, including proceeds from the senior notes issued during the fourth quarter related to the announced acquisition of Western Refining Inc. This was down from $3,295 million at the end of 2016 primarily due to Tesoro Logistics’ $705 million acquisition of the North Dakota Gathering and Processing Assets. Excluding Tesoro Logistics’ debt and equity, total debt was $2.9 billion representing a debt-to-capitalization ratio of 34%.
The board of directors declared a quarterly cash dividend of $0.55 per share payable on Jun 15, to all holders of record as of May 19.
Tesoro expects throughput level for the second quarter between 775 MBbl/d and 830 MBbl/d. Region wise, California expects throughput volumes between 515 and 545 MBbl/d. Pacific Northwest and Mid Continent expects throughput levels within 160–170 MBbl/d and 100 –115 MBbl/d respectively.
The company now expects total capital expenditures for 2017 of approximately $1.1 billion.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 9% due to these changes.
Tesoro Corporation Price and Consensus
At this time, the stock has an average Growth Score of 'C', while its Momentum is lagging a lot with a 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.