There are more to numbers and figures than what meets the eye. Despite the announcement of yet another loss for fiscal 2010, Western Refining (NYSE: WNR) has actually made substantial progress compared to 2009.
In my previous article, I appeared quite optimistic about Western's overall business model along with some of its business moves. These, I believe, are the reasons for the turnaround in its earnings that were released last week. It's true that the company failed to replicate the success of its second- and third-quarter results in the fourth quarter and lost a bit of momentum. However, it also managed to trim its net loss sharply to $17 million in 2010 from $350.6 million the previous year. Keep in mind that the effect of a relatively substantial loss takes time to wear off. And this is largely true for a small-cap company like Western (market cap $1.49 billion).
A comparison
From September, production has dropped by 21% as the company has shuttered its Yorkshire refinery because of weak refining margins. Now, Western is in talks to sell off the facility -- a move that is likely to improve its cash position and bring down debt.
During the quarter, total revenue climbed 17% while gross profit rose 4.3%. Earnings before interest, taxes, depreciation, and amortization rose by 3.2% to $257 million. Compare that with Alon USA Energy (NYSE: ALJ) -- another CAPS four-star stock -- which took on substantial losses for itself, including a negative EBITDA of $138 million as of Sept. 30, 2010.
The reason I am stressing on EBITDA is because this value shows the operational earnings of a company, rather than reflects any non-cash or other benefits the company might have had.
Another encouraging signal is the return on equity showing healthy signs of recovery -- from -46.8% to -2.5%. Again, I am talking about just the past two years because the earnings were dragged down by excess capacity, which was attributed to low demand following the oil price rise in 2008. As a refinery, Western is recovering steadily, and that is why I'm optimistic on this business.
The Foolish bottom line
I believe refineries like Western will crawl back to the pre-crisis days and be better prepared to face hikes in oil prices. What are your views on this company? Let us know in the comments box below.
