01—Abstract
Summary
Summary of the 10-K filed February 23, 2017. Cited figures are marked; the original filing is the authoritative source.
Valero Energy Corporation's 2016 10-K filing reveals a challenging year for the refining segment, with adjusted operating income decreasing significantly due to lower refining margins on gasoline and distillates, and reduced discounts on certain crude oil feedstocks.
This was partially offset by improved performance in the ethanol segment, driven by lower corn prices and higher ethanol margins. Despite the decline in profitability compared to 2015, the company maintained a strong operational footprint with 15 refineries and 11 ethanol plants, processing approximately 2.9 million barrels per day of feedstocks across its refining system. Financially, Valero generated substantial operating cash flow, though it was lower than the prior year.
The company continued to invest in its assets, repay debt, and return capital to shareholders through dividends and share repurchases. Management highlighted the impact of volatile refining margins and feedstock costs as key factors influencing results, alongside regulatory environments and global economic conditions. The company's outlook suggests continued pressure on margins in the near term.
02—Key points
Key Highlights
- Valero operates 15 refineries with a combined throughput capacity of approximately 3.1 million barrels per day, spread across the U.S., Canada, and the U.K.
- The company also owns 11 ethanol plants with a capacity of approximately 1.4 billion gallons per year.
- Refining segment adjusted operating income saw a significant year-over-year decrease of $4.4 billion, primarily due to lower refining margins and reduced crude oil discounts.
- The ethanol segment experienced an increase in adjusted operating income of $98 million, driven by lower corn prices and higher ethanol margins.
- Total operating revenues decreased by approximately 14% in 2016 compared to 2015, largely due to lower product prices and feedstock costs.
- Valero's stock price showed strong performance over the five-year period from 2011 to 2016, outperforming the S&P 500 and its peer group.
- The company returned significant capital to shareholders through dividends and share repurchases, totaling $1.1 billion and $1.3 billion respectively in 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Valero Energy kept $0.03.
- Revenue$75.66B100.0%
- Cost of revenue−$71.31B94.3%
- Gross profit$4.35B5.7%
- Operating costs−$813.0M1.1%
- Operating income$3.53B4.7%
- Interest, other & tax−$1.25B1.6%
- Net income$2.29B3.0%
Where FY2016 revenue went
$75.66B- Cost of revenue: $71.31B, 94% of revenue
- Net income: $2.29B, 3.0% of revenue
- Operating costs: $813.0M, 1.1% of revenue
- Interest, other & tax: $1.25B, 1.6% of revenue
Kept 3.0% as net incomeNet income $2.29B · 3.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $75.66B— | — |
| Cost of Revenue | $71.31B$80.69B | −11.6% |
| Gross Profit | $4.35B— | — |
| Operating Expenses | $72.09B$81.45B | −11.5% |
| Operating Income | $3.53B$6.36B | −44.4% |
| Interest Expense | $446.00M$433.00M | +3.0% |
| Net Income | $2.29B$3.99B | −42.6% |
| EPS (Basic) | $4.94$8.00 | −38.2% |
| EPS (Diluted) | $4.94$7.99 | −38.2% |
| Shares Outstanding (Basic) | 461.00M497.00M | −7.2% |
| Shares Outstanding (Diluted) | 464.00M500.00M | −7.2% |
05—Questions
Frequently Asked Questions
What were the primary drivers of Valero's financial performance in 2016?
The primary drivers were the significant decrease in refining margins and reduced discounts on crude oil feedstocks, which negatively impacted the refining segment's profitability. This was partially offset by improvements in the ethanol segment, which benefited from lower corn prices and higher ethanol margins.
How diversified is Valero's refining and product portfolio?
Valero operates a geographically diverse refining system across the U.S., Canada, and the U.K., processing a mix of sour and sweet crude oils. Its product yield is balanced, with approximately 49% gasoline and blendstocks and 37% distillates, catering to a wide range of fuel and petrochemical markets.
What is Valero's strategy regarding capital allocation and shareholder returns?
Valero's strategy includes investing in capital expenditures for asset maintenance and growth, managing its debt, and returning capital to shareholders through dividends and share repurchases. In 2016, the company paid $1.1 billion in dividends and repurchased $1.3 billion of its common stock.
What are the key risks Valero faces as disclosed in the report?
Key risks include the volatility of refining margins dependent on crude oil prices and refined product demand, compliance with environmental laws and regulations (including climate change initiatives), potential disruptions in crude oil supply or transportation, and competition from other energy sources and producers.
06—Continue