10-QPeriod: Q2 FY2019

VALERO ENERGY CORP/TX Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 6, 2019For Securities:VLO

Summary

Valero Energy Corporation (VLO) reported financial results for the second quarter and first six months ended June 30, 2019. The company experienced a decrease in net income attributable to stockholders compared to the prior year, largely driven by lower operating income across its segments, particularly the refining segment. Despite a challenging refining environment characterized by narrower crude oil discounts and weaker gasoline margins, Valero's renewable diesel segment showed strong growth in operating income and margins due to increased sales volumes from its expanded facility. The ethanol segment faced headwinds from higher corn prices and lower co-product values. The company's outlook anticipates improving distillate margins and potential benefits from evolving crude oil discounts, though ethanol margins are expected to remain weak. Valero maintained a strong liquidity position with significant available borrowing capacity and cash. The company continued its capital allocation strategy, including share repurchases and dividend payments, alongside ongoing capital investments in sustaining and growth projects.

Financial Highlights

46 data points
Beta

Revenue

$28.93B

3.9% Gross Margin

Net Income

$612.00M

2.1% Net Margin

EPS (Diluted)

$1.47

Total Assets

$52.02B

Cash & Equivalents

$2.03B

Free Cash Flow

$1.52B

Financial Statements
Beta
Revenue$28.93B
Cost of Revenue$27.81B
Gross Profit$1.12B
Operating Income$908.00M
Interest Expense$112.00M
Net Income$612.00M
EPS (Basic)$1.47
EPS (Diluted)$1.47
Shares Outstanding (Basic)415.00M
Shares Outstanding (Diluted)417.00M

Key Highlights

  • 1Net income attributable to Valero stockholders decreased to $612 million for Q2 2019 from $845 million in Q2 2018, and to $753 million for the first six months of 2019 from $1,314 million in the comparable 2018 period.
  • 2Operating income for Q2 2019 was $908 million, down from $1,253 million in Q2 2018, with adjusted operating income decreasing by $420 million year-over-year.
  • 3The Refining segment's adjusted operating income decreased by $423 million in Q2 2019 primarily due to weaker discounts on crude oil and other feedstocks, despite improved gasoline and distillate margins.
  • 4The Renewable Diesel segment demonstrated significant strength, with operating income increasing by $47 million in Q2 2019, driven by higher sales volumes.
  • 5The Ethanol segment's adjusted operating income decreased by $35 million in Q2 2019 due to higher corn prices and lower co-product prices, partially offset by increased production volumes.
  • 6Valero completed the acquisition of Valero Energy Partners LP (VLP) on January 10, 2019, which is now fully integrated into the refining segment.
  • 7The company maintained robust liquidity, with $7.244 billion in total liquidity (cash and cash equivalents plus available borrowing capacity) as of June 30, 2019.

Frequently Asked Questions

The decrease in net income was primarily driven by a decline in operating income, particularly within the Refining segment. This was largely due to narrower discounts on crude oil and other feedstocks, which increased the cost of materials, and weaker gasoline margins, outweighing improvements in distillate margins and lower costs for biofuel credits.

The Refining segment experienced a significant decrease in operating income due to margin pressures. The Ethanol segment also saw a decline, impacted by higher corn prices and lower co-product prices. In contrast, the Renewable Diesel segment showed strong performance with increased operating income and margins, benefiting from higher sales volumes.

Valero anticipates improving distillate margins due to anticipated higher global demand in preparation for IMO 2020 sulfur specifications. Gasoline margins are expected to remain stable. Discounts for medium and heavy sour crude oils are expected to improve, potentially benefiting refining margins, while sweet crude oil discounts may narrow. Ethanol margins are projected to remain weak due to persistent high corn prices.

The acquisition of VLP, completed in January 2019, resulted in VLP becoming a wholly owned subsidiary. This led to the discontinuation of reporting noncontrolling interests related to VLP and the integration of its operations into the Refining segment. The acquisition was accounted for as an equity transaction and did not result in a gain or loss.