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Understanding Tesoro’s 1Q16 Earnings versus Expectations

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Tesoro’s 1Q16 estimated and actual performance

Tesoro Corporation (TSO) posted its 1Q16 earnings on May 4, 2016, reporting revenues of $5.1 billion, which missed Wall Street analyst estimates. The company’s adjusted EPS (earnings per share) stood at $1.2, around 15% higher than its estimated EPS of $1. This EPS was 21% higher than 1Q15 adjusted EPS. TSO’s refining margins also fell in 1Q16 from 1Q15 levels.

Understanding Tesoro's 1Q16 Earnings versus Expectations

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Tesoro’s 1Q16 earnings versus expected

In 1Q16, Tesoro’s net income of $58 million fell by 60% compared to 1Q15. This was on account of the inventory charge of $145 million due to lower costs and market valuation. The Refining segment also saw a fall in its operating income, but this was partially offset by a rise in operating income from its Logistics, or Tesoro Logistics LP (TLLP), and Marketing segments.

Income from the Refining segment fell to -$100 million in 1Q16, as compared to $187 million in 1Q15. This was due to lower refining margin coupled with the inventory charge.

TSO’s marketing segment’s operating income rose by 71% over 1Q15 to $227 million in 1Q16. This was due to a rise in branded retail stations and higher consumer demand in 1Q16 than in 1Q15. Tesoro’s retail stations rose by 178 in 1Q16 YoY (year-over-year). TLLP’s operating income grew by 21% YoY to $126 million in 1Q16 due to higher volumes.

By comparison, Valero Energy’s (VLO), Marathon Petroleum’s (MPC), and Phillips 66’s (PSX) 1Q16 adjusted EPS were 96%, 68%, and 56% lower than their 1Q15 adjusted EPS, respectively. PBF Energy (PBF) posted a YoY loss in 1Q16. If you’re looking for exposure to high dividend yield stocks, you might consider the Vanguard High Dividend Yield ETF (VYM), which has ~10% exposure to energy sector stocks.

Now let’s analyze Tesoro’s refining margin.

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