Tesoro Corporation Reports First Quarter Results
Tesoro Corporation (NYSE:TSO) today reported a first quarter 2010 net loss of $155 million, or $1.11 per diluted share compared to net earnings of $51 million, or $0.37 per diluted share for the first quarter of 2009. The 2010 results include an after-tax write-off of $12 million, associated with the deferral of a capital project at the Los Angeles refinery. There was an additional $7 million tax charge in the quarter as a result of the passage of the Patient Protection and Affordable Care Act and Heath Care and Education Reconciliation Act of 2010. The total after-tax impact for the charges in the quarter is $0.14 per diluted share.
First quarter segment operating loss was $125 million excluding the write-off, compared to segment operating income of $162 million in the first quarter a year ago. The decrease in operating income was primarily due to lower West Coast gasoline and diesel margins as a result of excess product inventories and narrow heavy to light crude price differentials.
For the quarter, the Tesoro Index of $5.30 per barrel (/bbl) was roughly half of the first quarter average a year ago. As a result, the first quarter gross margin of $6.36/bbl was about half of the $12.14/bbl from a year ago. West Coast benchmark gasoline and diesel margins fell by 35% and 25% versus the first quarter of 2009, respectively. Additionally, discounts for California domestic heavy crude versus Alaska North Slope crude also declined 45% from a year ago. As a result of deteriorating margins and planned turnarounds, throughput decreased by approximately 65 thousand barrels per day (mbpd) versus the first quarter a year ago, primarily in the California region. The system capture rate, measured by the gross margin as a percentage of the Tesoro Index, improved to 120% versus 110% a year ago as a result of improved performance in our marketing channels. Direct manufacturing costs in the first quarter were $252 million, a decrease of $9 million from the 2009 fourth quarter, primarily as a result of lower repair and maintenance costs in the Los Angeles and Hawaii refineries. “The combination of excess gasoline inventories and seasonally weak product demand on the West Coast significantly impacted our first quarter financial results,” said Bruce Smith, Chairman, President and CEO of Tesoro. “Although we aren’t pleased with these results, we did see signs of improving gasoline demand and subsequently margins during the quarter. In January, the Department of Energy reported positive year over year gasoline and diesel demand growth on the West Coast. Additionally, we saw West Coast gasoline demand increase from January to March, a pattern that has been typical during the first quarter in years past. While we are taking a conservative approach to our summer plans, these are good indicators of the continuing stability we are seeing in our markets.”
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