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Valero Energy Corp. Reports Operating Results (10-Q)

November 03, 2010 | About:
10qk

10qk

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Valero Energy Corp. (VLO) filed Quarterly Report for the period ended 2010-09-30.

Valero Energy Corp. has a market cap of $10.12 billion; its shares were traded at around $18 with a P/E ratio of 198.6 and P/S ratio of 0.2. The dividend yield of Valero Energy Corp. stocks is 1.1%. Valero Energy Corp. had an annual average earning growth of 11.9% over the past 10 years.VLO is in the portfolios of Richard Snow of Snow Capital Management, L.P., Arnold Van Den Berg of Century Management, Charles Brandes of Brandes Investment, David Tepper of APPALOOSA MANAGEMENT LP, Richard Pzena of Pzena Investment Management LLC, Jeff Auxier of Auxier Focus Fund, David Dreman of Dreman Value Management, Pioneer Investments, Jeremy Grantham of GMO LLC, Bruce Kovner of Caxton Associates, Louis Moore Bacon of Moore Capital Management, LP, George Soros of Soros Fund Management LLC, Steven Cohen of SAC Capital Advisors, Kenneth Fisher of Fisher Asset Management, LLC.

Highlight of Business Operations:

For the third quarter of 2010, we reported income from continuing operations of $292 million, or $0.51 per share, compared to a loss from continuing operations of $343 million, or $0.61 per share, for the third quarter of 2009. For the first nine months of 2010, we reported income from continuing operations of $721 million, or $1.27 per share, compared to a loss from continuing operations of $170 million, or $0.32 per share, for the first nine months of 2009. These results were primarily due to our refining segment operations, which generated operating income of $571 million in the third quarter of 2010 compared to an operating loss of $219 million in the third quarter of 2009. Refining segment operating income was $1.4 billion for the first nine months of 2010 and $331 million for the first nine months of 2009. The increase in refining operating income for both comparable periods (2010 vs. 2009) was primarily due to improved margins for the distillate products we produce and wider sour crude oil differentials. The sour crude oil differential is the difference between the price of sweet crude oil and the price of sour crude oil. We believe that the improved distillate margins are primarily due to an increase in the demand for diesel in South America and Europe. Refinery shutdowns and other factors have contributed to the increase in demand from South America, and declining inventories due to an improving economy has contributed to the demand from Europe. In addition, there has been an increase in the demand for diesel in the U.S. due to the improving economy. The demand for refined products, however, has not returned to levels experienced prior to the economic slowdown that began in 2008. Excess worldwide refinery capacity and high levels of refined product inventories continue to constrain margins for refined products.

On September 24, 2010, we signed an agreement to sell our Paulsboro Refinery for $363 million plus net working capital, and our board of directors approved the sale on October 5, 2010. However, before the sale can close, we must obtain a modified emissions permit related to a certain processing unit at the refinery and meet other conditions on or before December 1, 2010, or the agreement to sell the refinery will automatically terminate unless these conditions are waived by the parties. We believe that it is unlikely that we will obtain the modified permit by December 1, 2010. However, if we eventually sell the refinery in accordance with the terms of the sale agreement, we will recognize a loss of approximately $920 million (see Note 5 of Condensed Notes to Consolidated Financial Statements for our discussion of the potential sale of our Paulsboro Refinery).

In the second quarter of 2009, we entered the ethanol business through the acquisition of seven ethanol plants, and we acquired three additional plants in the first quarter of 2010. We believe that ethanol is a natural fit for us because we manufacture transportation fuels. During the third quarter and first nine months of 2010, our ethanol segment generated operating income of $47 million and $139 million, respectively, compared to $49 million and $71 million for the third quarter and first nine months of 2009, respectively. The increase in ethanol operating income for the first nine months of 2010 compared to the

Our retail segment generated operating income of $105 million for the third quarter of 2010 compared to operating income of $111 million for the third quarter of 2009. Retail operating income was $285 million for the first nine months of 2010, compared to $232 million for the comparable period in 2009. The 2010 results benefited from the blending of ethanol with the gasoline sold by our retail segment. Throughout most of 2010, ethanol was a lower cost product than gasoline, and blending the lower cost ethanol resulted in an increase in retail fuel margins. In September 2010, the price of ethanol exceeded the cost of gasoline; therefore, the benefit to retail fuel margins from blending ethanol may not occur for the fourth quarter of 2010.

To support our financial strength and liquidity, we issued $1.25 billion in debt during the first quarter of 2010 at interest rates favorable to those on our existing debt. We used a portion of the proceeds to redeem our 7.50% senior notes for $294 million in March 2010, and our 6.75% senior notes for $190 million in May 2010; the remainder was used for general corporate purposes.

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