Monday, May 12, 2008

Holly vs Western

HOC and WNR are both refiners within my MFI portfolio. But the similarity ends there. They both announced their earnings today and they were as different as night and day.

HOC - made 17 cents per share, which was pretty darned good given the market environment (Holly Corporation Reports First Quarter Results). They have $438m in cash with no debt. They will be financing all their projects from their own cash. They were asked about recent fire at one of their refineries. It looks like damage was minimal and they had the parts on hand to get fired back up quickly. That is good management. Result? HOC went up 8% today.

WNR - I am really starting to hate this stock (must not get emotional). First, they didn't issue a press release about their earnings, but they did file a 10Q. I went and read the 10Q at (WESTERN REFINING, INC. Files SEC form 10-Q, Quarterly Report) and let us say it wasn't pretty. They lost 40 million which works out to 60 cents per share. The Q comments on their debt covenants (recall they went way in debt to buy Giant Industries (big big mistake). They have to maintain a 250% income to debt coverage ratio. I expect that means over a year as their earnings are lumpy. Their annual debt cost is about $100m, that means they need to make $250m to not run a foul of the covenants. Can they do that? hmmm... here are their past 4 quarters before interest expense and taxes: -60m, -8m, +67m and + 241m. I'll tell you, that doesn't seem a slam dunk. I assume they are not running full tilt yet, I think the Giant refineries were in worse shape than they realized and then of course the high price of oil and the fact that pump prices haven't increased as much is really squeezing WNR. The stock is down 5% after hours, but I fear it will be down much more, though expectations have to be low.

I do wonder if down the not to distant road whether some one will be buying some or all of WNR. It could even be FTO. There were a lot questions about FTO's appetite for buying distressed assets.

In other news, I saw where HP has made an offer to buy EDS (HP in talks to buy EDS to compete with IBM), a large cap MFI stock. EDS jumped 27% in late afternoon. Maybe that'll be good news for ACN.

No comments: