10-QPeriod: Q1 FY2020

VALERO ENERGY CORP/TX Quarterly Report for Q1 Ended Mar 31, 2020

Filed April 29, 2020For Securities:VLO

Summary

Valero Energy Corp.'s first quarter of 2020 filing reveals a significant impact from the early stages of the COVID-19 pandemic and volatile oil markets, resulting in a substantial net loss of $1.851 billion attributable to Valero Energy Corporation stockholders. This contrasts sharply with a net income of $141 million in the prior year's first quarter. The primary driver of this downturn was a significant $2.5 billion lower of cost or market (LCM) inventory valuation adjustment, largely impacting the refining segment. Despite the overall loss, the company's liquidity remained a focus, with $6.3 billion in total liquidity as of March 31, 2020. Management has implemented several measures to navigate the challenging environment, including reducing refinery throughput, idling certain production units, deferring capital expenditures, and securing additional credit facilities and completing a public debt offering in April 2020. While the company has taken proactive steps, significant uncertainties remain regarding the duration and ultimate economic impact of the pandemic.

Financial Highlights

46 data points
Beta

Revenue

$22.10B

-9.4% Gross Margin

Net Income

-$1.85B

-8.4% Net Margin

EPS (Diluted)

$-4.54

Total Assets

$47.75B

Cash & Equivalents

$1.51B

Free Cash Flow

-$49.00M

Financial Statements
Beta
Revenue$22.10B
Cost of Revenue$24.19B
Gross Profit-$2.08B
Operating Income-$2.28B
Interest Expense$125.00M
Net Income-$1.85B
EPS (Basic)$-4.54
EPS (Diluted)$-4.54
Shares Outstanding (Basic)408.00M
Shares Outstanding (Diluted)408.00M

Key Highlights

  • 1Reported a net loss of $1.851 billion for Q1 2020, a significant decline from a $141 million net income in Q1 2019.
  • 2Recorded a substantial $2.5 billion lower of cost or market (LCM) inventory valuation adjustment due to declining commodity prices.
  • 3Total assets decreased from $53.86 billion at the end of 2019 to $47.75 billion at the end of Q1 2020.
  • 4Total current assets saw a significant decrease, falling from $18.97 billion to $11.47 billion, primarily due to lower inventory values.
  • 5Total current liabilities also decreased from $13.16 billion to $8.73 billion, mainly driven by reduced accounts payable.
  • 6Company has taken proactive measures to manage liquidity and operational impacts, including reducing production and deferring capital expenditures.
  • 7Secured additional liquidity through a new $875 million 364-day revolving credit facility and a $1.5 billion public debt offering in April 2020.

Frequently Asked Questions

The primary reason for the significant net loss of $1.851 billion in the first quarter of 2020 was a $2.5 billion lower of cost or market (LCM) inventory valuation adjustment. This adjustment was necessary due to the sharp decline in commodity prices experienced in the latter half of March 2020, significantly impacting the carrying value of the company's inventories.

Liquidity was impacted by declining product prices, which reduced cash generated from sales relative to cash used for crude oil purchases. This led to a decrease in cash and cash equivalents by $1.1 billion during the quarter, from $2.6 billion to $1.5 billion. However, the company maintained $6.3 billion in total liquidity as of March 31, 2020, and took steps in April 2020 to strengthen it, including a new credit facility and a public debt offering.

Valero has implemented several measures, including reducing crude oil processing at refineries, temporarily idling gasoline-making units, reducing jet fuel production, idling most ethanol plants, deferring approximately $400 million in capital investments for 2020, and deferring certain tax payments. Additionally, the company secured new financing in April 2020.

The refining segment reported a significant operating loss of $2.087 billion, heavily impacted by the LCM inventory adjustment. The renewable diesel segment showed resilience with an operating income of $198 million, an increase from the prior year, benefiting from price risk management. The ethanol segment reported an operating loss of $197 million, negatively affected by higher corn prices and lower ethanol prices.