Western Refining Shows Steady Improvement in 2010 as Margins Strengthen

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Researched by Industrial Info Resources (Sugar Land, Texas)--Higher refining margins and cost savings initiatives improved the bottom line for independent refining and marketing company Western Refining Incorporated (NYSE:WNR) (El Paso, Texas) in fourth-quarter and full-year 2010. The company reported net losses using the standard GAAP method, but these were mostly due to depreciation and amortization costs and interest expenses. The net losses were reported to be $7.57 million for the quarter, compared with a loss of $97.45 million in fourth-quarter 2009, and $17.05 million for the year, compared with a loss of $350.62 million for 2009.

Western officials said that the company's operational performance is better reflected when excluding the effects of depreciation, amortization and interest expenses, as well as income taxes and benefits, maintenance turnaround expenses, and goodwill and other impairment losses. Using this method, which is called "adjusted EBITDA," Western saw a net income gain of $63.48 million for the quarter, compared to a loss of $24.66 million in fourth-quarter 2009, and a gain of $288.11 million for the year, compared with a gain of $191.44 million in 2009.

Total net sales stood at $1.87 billion for the quarter, a 4.76% decline from the same period in 2009, and $7.97 billion for the year, a 17.01% increase from 2009. In addition to the strong refining margins, the company achieved its goal of $50 million in annual cost savings and reduced total debt by $47.1 million. A higher demand for transportation fuels in the Southwestern U.S. benefited the Wholesale segment.

"The fourth quarter marked a strong end to 2010," said Jeff Stevens, the president and chief executive officer of Western, in a conference call. "Our quarterly and full-year results were significantly improved compared to 2009, due in large part to higher refinery margins in the Southwest region, reduced exposure to the East Coast refining market, and continued savings from our cost-reduction initiatives. Crude oil differentials have also had a positive effect on our results."

All three of Western's major segments saw improved results in net sales and operating income for the quarter and the year, except for a slight decline in quarterly operating income in the Retail segment:

• The Refining segment reported net sales of $1.97 billion for the quarter, a 0.6% increase from fourth-quarter 2009, and an operating income gain of $22.99 million, compared with a loss of $92.89 million in the same period in 2009. Net sales stood at $8.07 billion for the year, a 22.13% increase from 2009, while operating income was reported to be a gain of $119.49 million, compared with a loss of $140.26 million in 2009.
• The Wholesale segment reported net sales of $688.4 million for the quarter, a 44.04% increase from fourth-quarter 2009, and an operating income gain of $3.96 million, a 4.9% increase from the same period in 2009. Net sales stood at $2.47 billion for the year, a 48.44% increase from 2009, while operating income was reported to be a gain of $20.73 million, compared with a loss of $30.7 million in 2009.
• The Retail segment reported net sales of $180.44 million for the quarter, a 10.36% increase from fourth-quarter 2009, and an operating income gain of $2.48 million, a 17.19% decrease from the same period in 2009. Net sales stood at $718.37 million for the year, a 14.04% increase from 2009, while operating income was reported to be a gain of $16.36 million, compared with a loss of $12.17 million in 2009.

Stevens said that Western is encouraged by the surprisingly strong refining margins the company is seeing in first-quarter 2011, a traditionally weak time for margins.

"We are encouraged by this very strong margin environment that we're seeing thus far in 2011, and we are optimistic that Western is well-positioned for the future," Stevens said in the conference call.

Industrial Info is tracking 14 active Western projects in the U.S. that are worth a total of about $55 million, including the $15 million expansion of the Ciniza Refinery wastewater treatment plant in Jamestown, New Mexico. The project involves expanding the existing 270-gallon-per-minute plant by installing a new train to include a Macro Porous Polymer Extraction Unit and Poseidon DAF Technology Unit to increase the storm water throughput capacity to as much as 500 gallons per minute. For more information, visit Industrial Info's North American Petroleum Refining Project Database.

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