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Tesoro expects earnings levels not seen since bumper years

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Trends that lead to net earnings

We’ve analyzed Tesoro Corporation’s (TSO) performance over the years. Let’s now move further down its income statement to see how the trends it exhibited earlier flow down to its net earnings.

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Tesoro’s pretax income

To arrive at Tesoro’s pretax income, or taxable income, we need to add and deduct various items to and from the company’s operating income.

The main item that deserves mention is Tesoro’s interest expenses. They’ve have been rising over the last few years, which means Tesoro has been loading up on debt. To find out if this is true, we’ll analyze Tesoro Corporation’s (TSO) financial statements in greater detail in a following series.

Double net earnings expected

Driven by volatile operating profits, Tesoro has also seen its net earnings experience quite a bit of volatility. Despite this, the expected numbers for 2014 and 2015 should clearly explain the company’s performance lately on the stock market.

Tesoro is expected to post double the net earnings and earnings per share than it posted in 2013, 2014, and 2015. This also means that its net profit margin will hit 2.4% next year. Again, these are levels not seen since the bumper years of 2012 and 2007.

Key peers and ETF

For context, Tesoro posted a net income margin of 3.55% in 3Q14. Its independent refiner peers, Valero Energy (VLO), HollyFrontier Corporation (HFC), and PBF Energy (PBF), posted returns on equity (or ROEs) of 3.08%, 3.29%, and 2.68%, respectively, for the same quarter.

Exchange-traded funds (or ETFs) are a great way to gain diversified exposure to various sectors and broad markets. Tesoro Corporation (TSO) is part of the American independent refining sector, which can be tracked through the Standard & Poors depositary receipt (or SPDR) S&P Oil & Gas Exploration & Production ETF (XOP). Tesoro is currently the fund’s top holding.

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