Tesoro’s 2Q16 Earnings Are Expected to Rise Sequentially



1Q16 estimated and actual performance

Tesoro (TSO) is expected to post its 2Q16 results on August 3, 2016. Before we look at its 2Q16 estimates, let’s recap TSO’s 1Q16 performance compared to estimates.

In 1Q16, Tesoro’s revenue of $5.1 billion missed Wall Street analysts’ consensus estimate. However, the company’s adjusted EPS (earnings per share) stood at $1.2, around 15% higher than its estimated EPS of $1. Its 1Q16 EPS were also 21% higher than its 1Q15 adjusted EPS. TSO’s refining margins fell in 1Q16 compared to 1Q15.

In 1Q16, Tesoro’s net income of $58 million fell by 60% compared to 1Q15. This was on account of an inventory charge of $147 million due to lower costs and market valuations.

The company’s 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 (TLLP)—and Marketing segments.

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Tesoro’s 2Q16 estimates

According to Wall Street analysts’ consensus estimate, TSO is expected to post EPS of $1.8 in 2Q16. Although this estimated EPS is 50% higher than TSO’s 1Q16 adjusted EPS, it’s 61% lower than TSO’s 2Q15 adjusted EPS. TSO’s revenue is estimated to be around $5.9 billion in 2Q16, 28% lower than its 2Q15 revenue.

In 2Q16, Tesoro’s refining index values have surged in its operating areas in California, the Pacific Northwest, and midcontinent compared to 1Q16. This points to strength in the company’s refining margins in 2Q16 compared to 1Q16. We’ll take a closer look at this in the next part of the series.

Year-over-year, however, Tesoro is expected to post a fall in earnings. TSO’s peers Marathon Petroleum (MPC), Valero Energy (VLO), and HollyFrontier (HFC) are expected to post EPS falls of 36%, 60%, and 76%, respectively, in 2Q16 compared to 2Q15. Delek US Holdings (DK) is also expected to post a loss in 2Q16.

The PowerShares Dynamic Large Cap Value ETF (PWV) has ~5% exposure to energy sector stocks.


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