10-QPeriod: Q2 FY2013

VALERO ENERGY CORP/TX Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 7, 2013For Securities:VLO

Summary

Valero Energy Corporation (VLO) reported a decrease in net income attributable to stockholders to $466 million for the second quarter of 2013, down from $831 million in the same period of 2012. This decline was primarily driven by lower refining margins, impacted by narrower discounts on heavy sour crude oils and higher costs for biofuel credits and natural gas. The company also completed the separation of its retail business on May 1, 2013, creating CST Brands, Inc., which impacted segment reporting for the retail segment. For the first six months of 2013, net income was $1.1 billion, a significant increase from $399 million in the first six months of 2012. This improvement was largely due to the absence of significant asset impairment losses ($611 million in H1 2012) and improved refining margins, although this was partially offset by higher biofuel credit costs and natural gas prices. The company generated strong operating cash flow of $2.8 billion in the first six months of 2013, which was used to fund capital expenditures, stock repurchases, and dividends, while also increasing cash on hand.

Financial Highlights

49 data points
Beta

Net Income

$466.00M

EPS (Diluted)

$0.85

Total Assets

$44.18B

Cash & Equivalents

$2.40B

Free Cash Flow

$631.00M

Financial Statements
Beta
Operating Expenses$33.23B
Operating Income$805.00M
Interest Expense$78.00M
Net Income$466.00M
EPS (Basic)$0.86
EPS (Diluted)$0.85
Shares Outstanding (Basic)543.00M
Shares Outstanding (Diluted)548.00M

Key Highlights

  • 1Net income for Q2 2013 decreased to $466 million from $831 million in Q2 2012, primarily due to lower refining margins.
  • 2For the first six months of 2013, net income significantly increased to $1.1 billion from $399 million in the prior year period, largely due to the absence of asset impairment charges from 2012.
  • 3Valero completed the separation of its retail business (CST Brands, Inc.) on May 1, 2013, impacting segment reporting and generating cash proceeds.
  • 4Refining segment operating income decreased by $443 million in Q2 2013 compared to Q2 2012, driven by lower refining margins due to reduced crude oil discounts and higher biofuel credit and natural gas costs.
  • 5Ethanol segment operating income saw a substantial increase in Q2 2013 ($90 million) and the first six months of 2013 ($95 million) due to higher gross margins and improved ethanol prices.
  • 6The company maintained a strong liquidity position with $2.8 billion in net cash provided by operating activities for the first six months of 2013.
  • 7Valero continues to repurchase its common stock, with $560 million spent in the first six months of 2013, and has significant authorization remaining for future repurchases.

Frequently Asked Questions

The primary driver was a decrease in refining segment operating income, which fell by $443 million. This was mainly due to lower refining margins resulting from narrower discounts on heavy sour crude oils and increased costs associated with biofuel credits (RINs) and natural gas. Additionally, the separation of the retail business in May 2013 meant that the Q2 2013 retail segment results only reflect one month of operations, contributing to a $133 million decrease in retail operating income compared to the prior year.

The separation of the retail business, which formed CST Brands, Inc., was completed on May 1, 2013. This event led to the de-consolidation of the retail segment's operating results from May onwards. While this significantly reduced the reported operating income for the retail segment in Q2 and the first six months of 2013 compared to the prior year, it also generated cash proceeds for Valero and led to a significant portion of the company's assets and liabilities being removed from the balance sheet. Valero retained a 20% equity interest in CST Brands.

Valero faces significant exposure to the volatility in the market price of biofuel credits (primarily RINs in the U.S.) due to regulatory blending obligations. Costs for these credits increased substantially in the first six months of 2013, reaching $267 million. The company estimates full-year 2013 costs for meeting these obligations to be between $600 million and $800 million, based on current prices and expected purchase requirements, highlighting this as a key factor impacting profitability.

As of June 30, 2013, Valero reported total assets of $44.2 billion and total liabilities of $26.1 billion, with equity of $18.0 billion. The company had $2.4 billion in cash and temporary cash investments. Debt levels have decreased compared to the end of 2012, with total debt (excluding current portion) at $6.26 billion compared to $6.46 billion at year-end 2012. The company generated strong operating cash flow and utilized it for capital expenditures, share repurchases, and dividends. Valero also has a $3 billion revolving credit facility, under which no borrowings were outstanding as of June 30, 2013, indicating a solid liquidity position.