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Tesoro Profit Leaps 54 Percent for Quarter

Posted on: Thursday, 4 May 2006, 21:03 CDT

By Vicki Vaughan, San Antonio Express-News

May 5--Higher output and lower interest expenses helped boost Tesoro Corp.'s profit 54 percent in the first quarter of 2006, the company said Thursday.

Profit for the San Antonio-based independent refiner rose to $43 million, or 61 cents a share, compared with profit of $28 million, or 40 cents a share, for the same period a year earlier. The company's earnings fell below a survey of analysts by Thomson Financial that estimated Tesoro would earn 69 cents a share.

The company's results also included an after-tax charge of $4 million, or 6 cents a share, related to a previously announced sale of 13 retail stores in western Washington.

Tesoro CEO Bruce Smith said the company's first-quarter showing "was a significant achievement" considering that its California refinery was down for maintenance for a time in the quarter and its Alaska plant's output was reduced because of heavy ice in the Cook Inlet early in the year.

When profit margins were relatively low in January and February, Smith said, Tesoro used that time to prepare its California plant to produce ultra-low-sulfur diesel, a fuel that refiners must start producing this year to meet more stringent clear-air requirements. Tesoro also performed additional maintenance early in the quarter, which "enabled us to optimize throughput and yields in March when margins improved," Smith said.

The company's total throughput rose to an average of 497,000 barrels a day in the quarter, compared with 477,000 barrels in the year-earlier period.

Interest expenses fell because the company reduced its debt.

"Our balance sheet has never been stronger," Smith told analysts in a conference call. "The outlook for the year remains positive." Smith updated analysts on two new vessels it has ordered that will boost yields and help Tesoro process more heavy crude oil. The vessels will cost 50 percent more than anticipated -- about $260 million more -- because of higher labor and steel costs and because Tesoro has opted for a better design.

"We're disappointed, but think our competitive position will be enhanced" when the units are added at the company's Alaska and California plants in late 2007.

Smith said the company continues to consider acquisitions, including retail sites in some markets.

On April 13, Tesoro had warned that its first-quarter earnings would be hurt because of losses related to hedging during a time of rapidly rising crude prices. Hedging is a strategy used to offset risk in a volatile price environment. The company told analysts Thursday that the hedging losses took about $8 million away from the bottom line.

Tesoro's results were released before the market opened. Its stock rose 51 cents a share to close at $72.66 in trading on the New York Stock Exchange.

Also Thursday, Tesoro said its board approved a quarterly cash dividend of 10 cents a share payable June 15 to shareholders of record June 1.

Tesoro is a Fortune 200 company with six refineries in the Western United States that have a combined capacity of about 560,000 barrels a day. The company also has a retail system with 475 branded stations, more than 200 of them company-owned.

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Source: San Antonio Express-News

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