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Valero Marches Ahead of Consensus

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Valero Energy Corporation (VLO - Free Report) has posted first quarter 2012 adjusted income from continuing operations of 31 cents per share, higher than the Zacks Consensus Estimate of 29 cents but worse than last year's earnings from continuing operations of 80 cents. The year-over-year decline could be due to unfavorable refining margins, particularly in the Gulf Coast and West Coast regions.

Total revenue in the quarter shot up nearly 34% year over year to $35,167 million, and outpaced the Zacks Consensus Estimate of $29,407 million.

Throughput Volumes

During the quarter, refining throughput volumes were approximately 2.56 million barrels per day, up 21% year over year. By feedstock composition, sweet crude, medium/light sour crude and heavy sour crude accounted for 35%, 22% and 18%, respectively. The remaining volumes came from residuals, blend-stocks and other feedstock.

The Gulf Coast accounted for approximately 58% of the total volume. The Mid-Continent, North Atlantic and West Coast regions accounted for 16%, 18% and 8%, respectively.

Throughput Margins

Company-wide throughput margins decreased $2.20 per barrel year over year in the reported quarter, due to poor margins for petrochemical feedstocks and petroleum coke as well as low discounts for crude oils and feedstocks. Margins also decreased significantly across all regions, except the Mid Continent.

Average throughput margin realized was $6.92 per barrel in the U.S. Gulf Coast (down from $9.63 per barrel in the year-earlier period), $13.80 per barrel in the U.S. Mid-Continent (up from $13.04), $5.64 per barrel in the North Atlantic (down from $7.02) and $6.32 per barrel in the U.S. West Coast (down from $8.33).

Total operating cost per barrel was $5.60 during the quarter, up 0.2% from the year-earlier quarter. Refining operating expenses per barrel were $4.15 versus $3.93 in the year-ago quarter. Unit depreciation and amortization expenses dropped nearly 13% year over year to $1.45 per barrel.

Capital Expenditure & Balance Sheet

First quarter capital expenditure totaled $884 million, including $158 million for turnarounds and catalyst expenditures. At the end of the quarter, the company had cash and temporary cash investments of $1,600 million. Valero also rewarded shareholders $83 million in dividends and repurchased shares worth $106 million.


Management maintained its total capital spending, including turnaround and catalyst expenditures, at $3.5 billion for 2012. For 2013, Valero expects total capital spending between $2 million and $2.5 billion.

Our Take

We remain upbeat on Valero for 2012 as well as the next year and foresee attractive opportunities that will position it uniquely among refiners to grow earnings and cash flow per share going forward. We also appreciate Valero’s endeavor of consistently reviewing its refining portfolio, and upgrading its asset base by selling or acquiring refinery properties that do not fit into the business mix.

Again, Valero remains optimistic about the ongoing economic growth projects. These include the hydrocrackers at Port Arthur, the Montreal products pipeline, and the Diamond Green Diesel joint venture. The hydrogen plants at Memphis and McKee commenced operations during the reported quarter.

The company has a Zacks #3 Rank, which translates to a short-term Hold rating. We are maintaining our long-term Neutral recommendation on Valero. The company faces competition from BP Plc (BP - Free Report) .

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