10-QPeriod: Q2 FY2011

VALERO ENERGY CORP/TX Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 9, 2011For Securities:VLO

Summary

Valero Energy Corporation (VLO) reported strong financial performance for the second quarter and first six months of 2011, demonstrating significant year-over-year improvements in net income and operating income. The company's profitability was primarily driven by a substantial increase in operating income from its refining segment, benefiting from wider crude oil differentials and improved product margins. The retail and ethanol segments also contributed positively, showing increased operating income due to higher margins and production volumes, respectively. Financially, VLO saw a healthy increase in cash from operating activities, which was utilized for capital expenditures, debt repayments, and dividends. The company also announced a significant strategic acquisition, the Pembroke Refinery in the UK, highlighting its focus on geographic diversification and growth. Despite ongoing volatility in financial markets, Valero maintained a positive outlook, supported by strong operational performance and strategic initiatives.

Financial Highlights

47 data points
Beta

Net Income

$744.00M

EPS (Diluted)

$1.30

Total Assets

$39.53B

Cash & Equivalents

$4.11B

Free Cash Flow

$896.00M

Financial Statements
Beta
Operating Expenses$30.00B
Operating Income$1.29B
Interest Expense$107.00M
Net Income$744.00M
EPS (Basic)$1.31
EPS (Diluted)$1.30
Shares Outstanding (Basic)567.00M
Shares Outstanding (Diluted)574.00M

Key Highlights

  • 1Valero reported a substantial increase in net income attributable to stockholders from continuing operations, reaching $745 million ($1.30 per share) for Q2 2011 and $849 million ($1.48 per share) for the first six months of 2011, compared to $520 million ($0.92 per share) and $440 million ($0.78 per share) in the respective prior-year periods.
  • 2Operating income significantly improved across all segments, with the refining segment showing the most substantial growth, up 39% for Q2 2011 and 72% for the first six months of 2011 year-over-year, driven by wider crude oil differentials and improved product margins.
  • 3The company successfully executed a major strategic acquisition of the Pembroke Refinery in the United Kingdom for $1.8 billion, expanding its international refining and marketing presence.
  • 4Cash provided by operating activities increased significantly, totaling $2.95 billion for the first six months of 2011, compared to $1.77 billion in the prior year, providing ample liquidity.
  • 5Valero announced a regular quarterly cash dividend of $0.05 per common share, demonstrating a commitment to returning value to shareholders.
  • 6Despite a $542 million loss on commodity derivative contracts in Q1 2011, the company's core operations showed robust performance, with operating income improving significantly when excluding this impact.
  • 7Capital expenditures for the first six months of 2011 were $969 million, with expectations for approximately $3.2 billion in total capital investments for the full year 2011, reflecting ongoing investment in the business.

Frequently Asked Questions

The primary driver for the increased net income was a substantial rise in operating income, particularly within the refining segment. This improvement was attributed to better refining margins, especially from wider sour crude oil differentials and favorable pricing between different types of sweet crude oils. Additionally, higher throughput volumes and improved distillate and gasoline margins also contributed to the strong performance.

The acquisition of the Pembroke Refinery in the United Kingdom for $1.8 billion is a key strategic move aimed at broadening Valero's geographic diversity in its refining and marketing network. This acquisition expands Valero's international footprint and is expected to enhance its global market position.

Valero utilizes various derivative instruments, including swaps, futures, and options, to manage its exposure to price volatility in commodities like crude oil, refined products, and natural gas. These are employed for fair value hedges, cash flow hedges, and economic hedges, as well as for trading purposes, with positions actively monitored by a risk control group.

Valero acknowledges the significant volatility in financial markets and expects energy markets and margins to remain volatile in the near to mid-term. However, the company's strong operational performance, strategic acquisition, and robust cash flow provide a solid foundation for navigating these conditions.