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Has Valero turned the corner? (Q2, 2010)

July 27, 2010 | About:
Valero Energy Corp (VLO) operates as an independent petroleum refining and marketing company. VLO owns 15 refineries in N.America and 10 ethanol plants. VLO reported a profit of $583 million ($1.03 per share) compared to a loss of $254 million ($0.48 per share) in 2Q,2010. Operating income was 93 cents a share. Quarterly revenue increased to $21.77 billion, up from the prior year's $17.38 billion. Refining operating expenses for the June quarter fell to $3.55 per barrel, the company's lowest cost per barrel since the second quarter of 2009.

Company paid down debt, continued to pay dividends, sold a refinery and has been reducing costs. The company has $2 billion in cash and an additional $4 billion in liquidity and $8 billion in debt.

In the previous four quarters, VLO net income was -113 million, -1408 million, -629 million and -254 million. So, this is a welcome change to the positive territory. I suspect refinery companies in the US have turned the corner and should return to profitability on a sustainable basis. Continued improvement depends on improved demand for their products which depends a lot on the economy getting better. The company for its part is focused on cut savings and eking out better margins.

Read the call transcript here.

Related article: I posted an article on Valuing Cyclical stocks with an example of Valero Energy

Disclaimer: I have a long position in shares of Valero at the time of publishing this post. My position may change at any time without any further updates. Please conduct your own research before considering investments based on these or any ideas on this blog.


About the author:

Adib Motiwala
Adib Motiwala is a Portfolio Manager at Motiwala Capital LLC, an investment management firm that manages separate accounts for its clients.

Visit Adib Motiwala's Website


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