Why did Valero's earnings fall so sharply in Q4 2023 compared with Q4 2022?

The decline was driven mainly by the Refining segment, where operating income fell to $1.6 billion from $4.3 billion. Refining margin per barrel dropped to $12.89 from $22.58, reflecting weaker crack spreads, particularly for diesel and gasoline in the North Atlantic and U.S. Mid-Continent regions. Renewable Diesel margins also compressed, while Ethanol partially offset the weakness.

Is Valero's dividend and buyback program sustainable after the 2023 results?

Valero returned about 60% of adjusted operating cash flow to shareholders in 2023 and raised the quarterly dividend 5% to $1.07 per share. With $11.0 billion of adjusted operating cash flow in 2023, a net debt-to-capitalization ratio of 18%, and $5.4 billion of cash, the company has capacity to sustain these returns. However, payouts depend on refining margins, which were weak in late 2023, so cash generation could fluctuate.

What is the status of the Diamond Green Diesel Sustainable Aviation Fuel project?

The SAF project at the DGD Port Arthur plant is on schedule for completion in Q1 2025 at a total cost of $315 million, with Valero bearing half. It would allow roughly 50% of the plant's 470 million gallon annual renewable diesel capacity to be upgraded to SAF, potentially making DGD one of the largest SAF producers in the world.

Why does reported operating cash flow differ from adjusted operating cash flow?

Reported 2023 operating cash flow was $9.2 billion, but adjusted operating cash flow was $11.0 billion. The difference reflects a $2.3 billion unfavorable working capital impact, partly offset by $512 million attributable to the other joint venture member's share of DGD cash flow, which Valero excludes because it does not belong to Valero's ownership interest.

Are the EPS figures in this release audited, and should investors rely on the adjusted numbers?

The earnings release tables are unaudited, and the release is furnished rather than filed under Item 2.02 of Form 8-K. Adjusted figures are non-GAAP measures that exclude items such as the 2022 RVO modification, plant impairments, debt retirement gains, and a foreign withholding tax charge. Investors should review the GAAP reconciliations provided in the tables and compare them against the audited 10-K before relying on any single adjusted metric.

VLO 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed January 25, 2024. Cited figures are marked; the original filing is the authoritative source.

Valero Energy reported fourth-quarter 2023 net income attributable to stockholders of $1.2 billion^a, or $3.55 per diluted share, down sharply from $3.1 billion, or $8.15 per share, in the fourth quarter of 2022.

For the full year 2023, net income was $8.8 billion^b, or $24.92 per diluted share, versus $11.5 billion, or $29.04 per share, in 2022. Adjusted full-year EPS was $24.90, compared with $29.16 in 2022. The decline was driven primarily by weaker refining margins: Refining segment operating income fell to $1.6 billion in Q4 from $4.3 billion a year earlier, and Refining margin per barrel dropped to $12.89 from $22.58.

Renewable Diesel operating income also declined to $84 million^c from $261 million, while Ethanol improved to $190 million from $7 million on higher volumes and lower corn prices. Capital allocation remained shareholder-focused. Valero returned $1.3 billion to stockholders in Q4 and over $6.6 billion for the full year, equal to 60 percent of adjusted operating cash flow, including $5.2 billion in buybacks and $1.5 billion in dividends.

The board raised the quarterly dividend 5 percent to $1.07^d per share. Full-year adjusted net cash from operations was $11.0 billion, though reported operating cash flow of $9.2 billion was reduced by a $2.3 billion working capital headwind. The balance sheet remained solid, with a net debt-to-capitalization ratio of 18 percent and $5.4 billion of cash at year-end.

Looking ahead, the Sustainable Aviation Fuel project at the Diamond Green Diesel Port Arthur plant remains on schedule for completion in the first quarter of 2025, at a total cost of $315 million, of which Valero's share is half. Management views the project as positioning DGD to become one of the largest SAF producers globally. The release is furnished under Item 2.02 rather than filed, and it contains non-GAAP adjustments that investors should reconcile against GAAP results.

02—Key points

Key Highlights

Q4 2023 net income attributable to Valero stockholders was $1.2 billion ($3.55 per diluted share), down from $3.1 billion ($8.15 per share) in Q4 2022, reflecting weaker refining margins.
Full-year 2023 net income was $8.8 billion ($24.92 per diluted share) versus $11.5 billion ($29.04) in 2022; adjusted EPS was $24.90 versus $29.16.
Refining Q4 operating income fell to $1.6 billion from $4.3 billion, and Refining margin per barrel declined to $12.89 from $22.58.
Renewable Diesel operating income dropped to $84 million from $261 million despite sales volumes rising to 3.8 million gallons per day, which reflected the DGD Port Arthur startup.
Ethanol operating income rose to $190 million from $7 million, supported by higher production volumes and lower corn prices.
Valero returned over $6.6 billion to shareholders in 2023 (60% of adjusted operating cash flow) and raised its quarterly dividend 5% to $1.07 per share.
Balance sheet remained strong with an 18% net debt-to-capitalization ratio and $5.4 billion of cash at year-end 2023; the DGD SAF project is on schedule for Q1 2025 completion.

03—Questions

Frequently Asked Questions

Why did Valero's earnings fall so sharply in Q4 2023 compared with Q4 2022?
The decline was driven mainly by the Refining segment, where operating income fell to $1.6 billion from $4.3 billion. Refining margin per barrel dropped to $12.89 from $22.58, reflecting weaker crack spreads, particularly for diesel and gasoline in the North Atlantic and U.S. Mid-Continent regions. Renewable Diesel margins also compressed, while Ethanol partially offset the weakness.
Is Valero's dividend and buyback program sustainable after the 2023 results?
Valero returned about 60% of adjusted operating cash flow to shareholders in 2023 and raised the quarterly dividend 5% to $1.07 per share. With $11.0 billion of adjusted operating cash flow in 2023, a net debt-to-capitalization ratio of 18%, and $5.4 billion of cash, the company has capacity to sustain these returns. However, payouts depend on refining margins, which were weak in late 2023, so cash generation could fluctuate.
What is the status of the Diamond Green Diesel Sustainable Aviation Fuel project?
The SAF project at the DGD Port Arthur plant is on schedule for completion in Q1 2025 at a total cost of $315 million, with Valero bearing half. It would allow roughly 50% of the plant's 470 million gallon annual renewable diesel capacity to be upgraded to SAF, potentially making DGD one of the largest SAF producers in the world.
Why does reported operating cash flow differ from adjusted operating cash flow?
Reported 2023 operating cash flow was $9.2 billion, but adjusted operating cash flow was $11.0 billion. The difference reflects a $2.3 billion unfavorable working capital impact, partly offset by $512 million attributable to the other joint venture member's share of DGD cash flow, which Valero excludes because it does not belong to Valero's ownership interest.
Are the EPS figures in this release audited, and should investors rely on the adjusted numbers?
The earnings release tables are unaudited, and the release is furnished rather than filed under Item 2.02 of Form 8-K. Adjusted figures are non-GAAP measures that exclude items such as the 2022 RVO modification, plant impairments, debt retirement gains, and a foreign withholding tax charge. Investors should review the GAAP reconciliations provided in the tables and compare them against the audited 10-K before relying on any single adjusted metric.

04—Continue

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