Western Refining, Inc. (WNR)
Q2 2010 Earnings Conference Call
August 5, 2010 10:00 AM ET
Jeff Beyersdorfer – SVP, Treasurer, and Director, IR
Jeff Stevens – President and CEO
Gary Dalke – CFO
Jeff Dietert – Simmons
Edward Westlake – Credit Suisse
Evan Calio – Morgan Stanley
Paul Sankey – Deutsche Bank
Jacques Rousseau – RBC Capital Markets
Chi Chow – Macquarie Capital Markets
Sandy Liang – Cobalt Capital
Steven Karpel – Credit Suisse
Kelly Krenger – Bank of America
Previous Statements by WNR
» Western Refining, Inc. Q1 2010 Earnings Call Transcript
» Western Refining, Inc. Q4 2009 Earnings Call Transcript
» Western Refining Q3 2009 Earnings Call Transcript
Good morning and welcome to the second quarter 2010 Western Refining Earnings Conference Call. After the speakers’ opening remarks, there will a question-and-answer period.
As a reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you.
I would now like to turn the call over to Mr. Jeff Beyersdorfer, Treasurer and Director of Investor Relations of Western Refining. Mr. Beyersdorfer, please go ahead, sir.
Good morning. I would like to thank you for taking the time to listen in today and for your continued interest in Western Refining. My name is Jeff Beyersdorfer. I’m the company’s Treasurer and Director of Investor Relations.
Joining me for today’s call are Jeff Stevens, our President and CEO; Gary Dalke, our CFO; Mark Smith, our President, Refining and Marketing and other members of our senior management team. If you need a copy of the earnings release, you may obtain one from the IR section of our website at wnr.com.
Before we proceed, I need to make the following Safe Harbor statement. Today’s presentation will contain forward-looking statements and I incorporate and refer you to the forward-looking statements section of our earnings release and recent filings with the SEC.
We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release, which is posted on the IR section of our website.
I’ll now turn the call over to Jeff.
Thanks Jeff. Welcome to everyone on the call. Today we will discuss our Q2 performance, the success we are seeing as a result of our strategic initiatives and how Western continues to proactively address the current market environment.
After my opening remarks about the quarter, Gary will review our earnings in more detail and provide operating guidance for Q3 2010. After Gary’s comments we will open the call for your questions.
As stated in our press release, we reported Q2 2010 net earnings of $14.4 million or $0.16 per diluted share. This compares to a Q2 2009 net loss excluding special items of $28.5 million or $0.39 per diluted share. The year-over-year improvement reflects higher refining margins and the continued gains we have generated from our cost saving initiatives.
We also announced today that we have made the decision to suspend refining operations at Yorktown due to the financial performance of the facility and the poor outlook for East Coast refining and coking margins.
We will begin the safe and orderly shutdown immediately; expect the process to be completed during the third quarter. We will continue to operate Yorktown’s products terminal and supply the local market with fuel.
We are evaluating all strategic alternatives for the facility including restarting the refinery operations if the market conditions improve. Gary will discuss the financial impact in detail later in the call.
Decisions that impact employees are very difficult. We appreciate the dedication of our Yorktown employees and we are committed to treating the affected employees fairly and with respect as we work through this transition.
Turning to the details about the second quarter, industry refinery margins continued to improve. The Gulf Coast 321 benchmark crack in Q2 was up by more than $1.70 or 19% relative to Q2 2009.
Our southwest refineries showed significant margin improvement during the quarter, with El Paso improving by 27% and Gallup by 12% relative to Q2 2009. Also both El Paso and Gallup had good quarters operationally with both refineries running at full capacity.
The strong operational performance combined with our cost containment efforts enabled us to lower per barrel cost at our southwest refineries, with Gallup’s operating cost coming in at $6.20 per barrel for the quarter compared to $8.21 per barrel for the combined Gallup and Bloomfield Refineries prior to the consolidation. El Paso’s cost for the quarter was $3.44 per barrel down from the $3.71 per barrel for Q2 2009.
Moving to our other businesses; our wholesale group posted better results compared to the same quarter last year as the demand for transportation fields continued to improve in the southwest. Excluding last year’s non-cash goodwill impairment, operating income during Q2 was up by more than $3 million or 160% compared to Q2 2009.
The higher income was primarily due to continued fuel volume growth and a reduction of more than 12% in operating SG&A cost compared to Q2 2009.
Our retail business had a very strong quarter with operating income up by $1.2 million or 32% relative to Q2 2009 excluding the goodwill impairment in 2009.