10-QPeriod: Q3 FY2016

VALERO ENERGY CORP/TX Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 8, 2016For Securities:VLO

Summary

Valero Energy Corporation (VLO) reported a decrease in net income attributable to stockholders for the nine months ended September 30, 2016, down to $1.92 billion from $3.70 billion in the prior year period. This decline was primarily driven by a significant reduction in operating income, particularly within the Refining segment, which saw a $2.82 billion decrease. Factors contributing to this were lower refining margins on products and less favorable crude oil discounts. The company also recorded a substantial non-cash benefit of $747 million related to the reversal of its lower of cost or market inventory valuation reserve, which positively impacted net income, but the core operational performance saw a decline. Despite the lower profitability, Valero maintained a strong operational stance. The company generated $3.82 billion in cash flow from operations during the first nine months of 2016. Significant capital investments were made, including growth strategies like the Diamond Pipeline project. Valero also continued its commitment to shareholder returns, repurchasing $1.17 billion in common stock and paying $840 million in dividends for the nine-month period. The company's liquidity remains robust, with substantial cash on hand and strong credit ratings, positioning it to navigate market volatility.

Financial Highlights

48 data points
Beta

Net Income

$613.00M

EPS (Diluted)

$1.33

Total Assets

$46.27B

Cash & Equivalents

$5.95B

Free Cash Flow

$561.00M

Financial Statements
Beta
Cost of Revenue$18.55B
Gross Profit$1.10B
Operating Expenses$18.76B
Operating Income$892.00M
Interest Expense$115.00M
Net Income$613.00M
EPS (Basic)$1.33
EPS (Diluted)$1.33
Shares Outstanding (Basic)458.00M
Shares Outstanding (Diluted)460.00M

Key Highlights

  • 1Net income attributable to Valero stockholders decreased by $1.77 billion to $1.92 billion for the nine months ended September 30, 2016, compared to the same period in 2015.
  • 2Refining segment operating income saw a significant decline of $2.82 billion, primarily due to lower product margins and reduced crude oil discounts.
  • 3The company recorded a $747 million non-cash benefit from the reversal of its lower of cost or market inventory valuation reserve during the nine months ended September 30, 2016.
  • 4Valero generated $3.82 billion in cash flow from operating activities for the nine months ended September 30, 2016.
  • 5The company repurchased $1.17 billion of its common stock for treasury and paid $840 million in dividends during the nine-month period.
  • 6As of September 30, 2016, Valero had $5.95 billion in cash and temporary cash investments.
  • 7The company entered into agreements to lease storage tanks for approximately $490 million, to be accounted for as capital leases.

Frequently Asked Questions

The primary driver for the decrease in net income was a substantial decline in operating income, largely due to lower refining margins and less favorable crude oil differentials. While a significant non-cash benefit from the reversal of the lower of cost or market inventory valuation reserve partially offset this, the underlying operational performance weakened compared to the prior year.

Valero generated strong operating cash flow of $3.82 billion for the first nine months of 2016. The company is deploying capital for strategic growth projects, such as the Diamond Pipeline, and returning capital to shareholders through share repurchases ($1.17 billion) and dividends ($840 million). The company also maintains a healthy cash balance of $5.95 billion and has access to significant credit facilities.

The Aruba Disposition, which was effective October 1, 2016, did not have a significant financial impact on Valero's results of operations for the nine months ended September 30, 2016, beyond an asset impairment loss of $56 million recognized in June 2016. However, the company recognized an income tax benefit of $42 million in the U.S. related to uncollectible debt from its Aruba subsidiaries in connection with the disposition.

The Refining segment experienced a significant decrease in operating income due to lower margins on refined products and narrower crude oil discounts. Conversely, the Ethanol segment saw an increase in operating income, primarily driven by lower corn prices which improved ethanol margins.