Valero Energy Corporation (VLO) posted first quarter 2011 earnings from continuing operations of 79 cents per share (excluding non-recurring items). The quarter’s results breezed past the Zacks Consensus Estimate of 43 cents and reversed last year's loss from continuing operations of 18 cents. Positive results can be traced back to an improved refining margins environment and better feedstock discounts.
Total revenue in the quarter increased more than 42% year over year to $26,308 million, beating the Zacks Consensus Estimate of $21,369 million by a mile.
Throughput Volumes
During the quarter, throughput volumes were 2.11 million barrels per day, up approximately 8.6% year over year. By feedstock composition, sweet crude, medium/light sour crude and heavy sour crude accounted for 35%, 18% and 18%, respectively, of the total. The remaining volumes came from residuals, blend-stocks and other feedstock.
The Gulf Coast accounted for approximately 62% of the total volume. The Mid-Continent, Northeast and West Coast regions accounted for 19%, 10% and 9%, respectively.
Throughput Margins
Companywide, throughput margins jumped $3.93 per barrel year over year in the reported quarter, owing to higher margins for diesel and jet fuel, associated with better discounts for heavy-sour feedstocks on the Gulf Coast and light-sweet crude oils in the Mid-Continent. Margins increased significantly across all regions except in the Northeast.
Average throughput margin realized was $6.45 per barrel in the Gulf Coast (up from $6.08 per barrel in the year-earlier period), $9.68 per barrel in the Mid-Continent (up from $5.34), $7.02 per barrel in the Northeast (down from $7.77) and $5.62 per barrel in the West Coast (up from $5.20).
Total operating cost per barrel was $5.59 during the quarter, down nearly 8% from the year-earlier quarter. Refining operating expenses per barrel decreased more than 10% year over year to $3.93. Unit depreciation and amortization expenses dipped 1% to $1.66 per barrel from the year-ago quarter.
Capital Expenditure & Balance Sheet
First-quarter capital spending totaled $737 million, of which $299 million was for turnarounds and catalyst expenditures. At the end of the quarter, the company had cash and temporary cash investments of approximately $4.13 billion. Valero also paid $28 million in dividends and paid back $510 million in debt.
Our Take
The company remains upbeat on 2011 and expects wider discounts in the medium term. We also appreciate Valero’s endeavor of consistently reviewing its refining portfolio, and upgrading its asset base by selling refinery properties that do not fit the business mix.
However, being the largest independent refiner, Valeroremains particularly exposed to the unfavorable macro backdrop, along with other refiners like Sunoco Inc. (SUN) and Tesoro (TSO).
The company holds a Zacks #2 Rank, which translates to a short-term Buy rating. We maintain our long-term Neutral recommendation on Valero.
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