10-QPeriod: Q2 FY2012

VALERO ENERGY CORP/TX Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 8, 2012For Securities:VLO

Summary

Valero Energy Corporation (VLO) reported solid financial results for the second quarter of 2012, demonstrating a recovery in profitability compared to the previous year. Net income attributable to stockholders from continuing operations increased by 11.5% to $831 million, or $1.50 per diluted share, up from $745 million, or $1.30 per diluted share, in the second quarter of 2011. This improvement was primarily driven by a significant increase in operating income within the refining segment, largely due to the contributions from recently acquired Meraux and Pembroke refineries. However, the first six months of 2012 saw a notable decline in net income to $399 million ($0.72 per diluted share) compared to $849 million ($1.48 per diluted share) in the same period of 2011. This year-over-year decrease was significantly influenced by a substantial asset impairment loss of $595 million related to the Aruba Refinery, coupled with reduced operating income in the refining and ethanol segments, the latter affected by lower margins due to excess ethanol supply and higher corn prices.

Financial Highlights

46 data points
Beta

Net Income

$831.00M

EPS (Diluted)

$1.50

Total Assets

$41.19B

Cash & Equivalents

$1.29B

Free Cash Flow

$1.29B

Financial Statements
Beta
Operating Expenses$33.30B
Operating Income$1.36B
Interest Expense$74.00M
Net Income$831.00M
EPS (Basic)$1.50
EPS (Diluted)$1.50
Shares Outstanding (Basic)550.00M
Shares Outstanding (Diluted)555.00M

Key Highlights

  • 1Second quarter 2012 net income attributable to Valero stockholders from continuing operations rose to $831 million ($1.50 per diluted share), an increase from $745 million ($1.30 per diluted share) in Q2 2011, driven by strong refining segment performance.
  • 2The refining segment's operating income increased by $111 million in Q2 2012 compared to Q2 2011, largely due to the operational contributions of the Meraux and Pembroke refineries acquired in late 2011.
  • 3The ethanol segment experienced a significant decline in operating income, falling by $59 million in Q2 2012 year-over-year, attributed to lower margins caused by excess ethanol supply and higher corn prices.
  • 4Valero recognized a significant asset impairment loss of $595 million in March 2012 related to the Aruba Refinery, which led to a substantial decrease in net income for the first six months of 2012 compared to the prior year.
  • 5The company announced plans to separate its retail business as part of a strategy to maximize shareholder value, with several potential separation transactions under review.
  • 6Valero's Board of Directors increased the quarterly cash dividend to $0.175 per share in July 2012, signaling confidence in the company's financial position.
  • 7Total assets decreased to $41.2 billion as of June 30, 2012, from $42.8 billion as of December 31, 2011, largely due to a reduction in current assets, including accounts payable and receivables.

Frequently Asked Questions

The primary driver for the increase in net income attributable to Valero stockholders from continuing operations in the second quarter of 2012 was the significant improvement in the refining segment's operating income. This was largely due to the contributions from the Meraux and Pembroke refineries, which were acquired in the latter half of 2011 and were fully operational during the second quarter of 2012.

The Aruba Refinery impairment resulted in a significant asset impairment loss of $595 million recognized in the first quarter of 2012. This loss substantially impacted the net income for the first six months of 2012, contributing to a year-over-year decrease in profitability, although it did not materially affect the second-quarter results as it was recognized earlier in the year.

Valero announced in July 2012 its intention to pursue a plan to separate its retail business from the company to maximize shareholder value, with various separation transactions being considered. Additionally, in July 2012, the company's board of directors increased the quarterly cash dividend from $0.15 to $0.175 per common share, indicating a positive outlook on its financial stability and commitment to returning value to shareholders.

Valero faces ongoing scrutiny and evolving regulations related to environmental matters, particularly concerning greenhouse gas emissions. While specific compliance costs are difficult to predict, the company notes that new regulations from the EPA and state initiatives like California's AB 32 could lead to material increased compliance costs, capital expenditures, and operating restrictions, potentially affecting profitability and product costs. The company is also navigating permitting uncertainties in Texas due to EPA actions.