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Apr-29-2008UPDATE: Valero Energy's Quarterly Net Plunges 85%; Margins Pinched(topic overview)
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The average price of West Texas Intermediate (WTI) crude oil increased nearly $40 per barrel, whereas the average wholesale price of Gulf Coast conventional gasoline increased by about $34 per barrel, causing benchmark Gulf Coast gasoline margins to narrow by $6 per barrel, or 59 percent, in the first quarter of 2008 versus the first quarter of 2007. Partially offsetting these weaker margins were substantially higher margins on diesel and jet fuel as global demand for these products remained high. Other factors also contributed to the decline in operating income in the first quarter of 2008. [1] The decline in operating income was primarily attributable to lower margins for many of the company ' s products in the first quarter of 2008 compared to the same quarter last year. Refined product margins decreased as the cost of crude oil and other feedstocks increased more rapidly than the prices of gasoline and other products, such as asphalt, fuel oils, petroleum coke and petrochemical feedstocks.[1] Valero officials blame the decline in net income on lower margins for many of the company's products as the cost of crude oil increased more rapidly than the prices of gasoline and other refined products.[2]
Valero says refined product margins fell as the cost of crude oil and other feedstocks outpaced prices of gasoline and other products.[3]
BERLIN (AP) - Deutsche Bank AG (nyse: DB - news - people ) said Tuesday that it wrote down $4.2 billion during the first quarter, pushing Germany's biggest bank to its first quarterly loss since 2003 amid trading losses, lower revenue and global market jitters. HOUSTON (AP) - Oil refiner Valero Energy Corp. (nyse: VLO - news - people ) said Tuesday its first-quarter profit tumbled 77 percent as higher oil prices cut into its margins for gasoline and other refined products. NEW YORK (AP) - Dice Holdings Inc., which operates career Web site Dice.com, said Tuesday its first-quarter profit declined 46 percent on higher expenses and a charge that weighed down results.[4] NEW YORK (Reuters) - Valero Energy Corp (VLO.N: Quote, Profile, Research ), the largest U.S. oil refiner, said on Tuesday its first-quarter earnings tumbled 77 percent due to weak profits from gasoline production and unplanned outages at its refineries. Companies that refine oil to produce gasoline and other fuels had a very difficult quarter as they struggled to pass through to their customers crude oil price increases of nearly 70 percent over the past year.[5]
After the warning, analysts' average forecast fell to 26 cents a share from 98 cents. Valero said benchmark margins on the U.S. Gulf Coast shrank by 59 percent from a year earlier as a jump in crude oil prices of $40 a barrel outpaced the rise in its selling price of gasoline.[5] The costs it pays for the crude it refines are growing faster than the prices it can charge consumers due to what it says is weak demand. Firms like Valero that don't have crude oil-producing operations are expected to fare poorly due to their inability to raise gasoline prices even more. Valero, also one of the largest U.S. gas retailers, cited weak margins, with its Gulf Coast gasoline margin down 59% from a year earlier. Margins also fell on secondary products such as asphalt and fuel oil. How will Valero relieve its suffering? It's planning to reduce the output of its West Coast refineries so it can raise gasoline prices more. Valero has said it is considering an overhaul of its refineries that could result in the sale of one or more facilities.[6]
Benchmark Gulf Coast gasoline margins narrowed by $6 a barrel, or 59%, in the first quarter versus the first quarter of 2007. Partially offsetting these weaker margins were substantially higher margins on diesel and jet fuel as global demand for these products remained high, the company said.[7] The company noted the average price of the benchmark West Texas Intermediate crude increased nearly $40 a barrel in the quarter, while the average wholesale price of Gulf Coast conventional gasoline rose by about $34 a barrel. Partially offsetting those weaker margins were substantially higher margins on diesel and jet fuel, whose global demand remained high.[8]
Klesse says Valero ended the quarter with a healthy balance sheet, noting that the debt-to-capitalization ratio "stood at a relatively low 22 percent when adjusted for our $1.4 billion cash balance." Klesse predicts that average throughput rates for its Gulf Coast refineries should increase by 100,000 barrels per day as the company completes repairs at its Port Arthur and Aruba plants.[2] The sharp drop in gasoline profit was slightly offset by better profit margins for diesel and jet fuel, it said. Average throughput rates for its Gulf Coast plants should increase by about 100,000 barrels per day in the second quarter as repairs at its Port Arthur and Aruba refineries are likely to be completed in May.[5] " For the second quarter, average throughput rates for the Gulf Coast should increase by approximately 100,000 barrels per day as we complete the repairs on the coker drums at our Port Arthur refinery and the vacuum tower at our Aruba refinery in May. These refineries specialize in running heavy, sour feedstocks, so there should be noticeable improvement in our Gulf Coast performance.[1]
Valero was also impacted by a $180 million jump in refinery operating expenses due to high energy costs and maintenance expenses while throughput volumes decreased by an average of 138,000 barrels per day.[2] Refinery operating expenses increased by $180 million from the first quarter of 2007 to the first quarter of 2008, primarily due to higher energy costs and maintenance expenses.[1]
SAN ANTONIO--( BUSINESS WIRE )--Valero Energy Corporation (NYSE: VLO) today reported first quarter 2008 income from continuing operations of $261 million, or $0.48 per share, which includes a pre-tax benefit of $101 million, or $0.12 per share, of business interruption insurance recovery related to the fire at the company ' s McKee refinery in the first quarter of 2007.[1] The San Antonio, Texas-headquartered company reported net income from continuing operations for the first quarter of $261 million, or $0.48 per diluted share, sharply lower than net income from continuing operations of $1.1 billion, or $1.77 per diluted share, reported for the corresponding quarter last year.[9]
Operating income for the first quarter, including the pre-tax benefit, declined sharply to $472 million from $1.77 billion reported in the corresponding quarter last year.[9] On a regional analysis, operating income from the Gulf region declined to $437 million in the first quarter of fiscal 2008 from $1.08 billion in the same period last year.[9]
Valero's operating income was squeezed by other factors in the first quarter, including higher operating expenses from a year ago. Its shares fell 22 cents to $52.71 in morning trading. AP Business Writer Bree Fowler in New York contributed to this story.[8] The first quarter 2008 figures include a pre-tax benefit of $101 million, or 12 cents per share, from business interruption insurance recovery related to the fire at the company's McKee refinery in the first quarter of 2007.[2] Profit in the latest period included a pre-tax benefit of $101 million, or 12 cents per share, from a business interruption recovery related to a fire at the company's McKee refinery.[5]
BOSTON (Thomson Financial) - Valero Energy Corp. Tuesday reported first-quarter earnings from continuing operations of $261 million, or 48 cents a share, including a pretax benefit of $101 million, or 12 cents a share, for business interruption insurance recovery related to the fire at the company's McKee refinery.[10] Included in the net income from continuing operations is a sum of $101 million, or $0.12 per diluted share, towards pre-tax benefit of business interruption insurance recovery related to the fire at the company's McKee refinery.[9]
Quarterly operating income fell to $472 million, including a pre-tax benefit of $101 million, or 12 cents a share, for an insurance payment, down from the prior year's $1.7 billion.[11] The nation's largest oil refiner reported net income of $261 million, or 48 cents a share, compared with $1.14 billion, or $1.86 a share, a year earlier.[12] Valero, whose shares were down 3 percent, said quarterly net income fell to $261 million, or 48 cents a share, from $1.14 billion, or $1.86 a share, a year earlier.[5] Valero Energy Corp. (VLO) Tuesday said first-quarter net income fell 77% to $261 million, or 48 cents a share, from $1.14 billion, or $1.86 a share, in the year-ago period.[7]
Valero Energy Corp. (NYSE:VLO) has reported 2008 first quarter income of $261 million, or $0.48 EPS, compared with income of $1.1 billion and $1.77 EPS for the first quarter of 2007.[13] First quarter 2008 operating income was $472 million, or $371 million without the previously mentioned insurance recovery, versus $1.7 billion reported in the first quarter of 2007.[1]
Operating income from the Mid-Continent region reported a marginal increase in operating income for the period at $115 million from $91 million, while throughput margin per barrel declined to $8.74 from $9.31 registered in the year-ago quarter.[9] Throughput margin per barrel declined to $9.51 from $12.35 a year ago, while operating costs per barrel increased to $6.03 from $4.46 reported in the corresponding period last year.[9] Throughput margin per barrel was $7.89 in the first quarter, sharply lower than $17.56 a barrel in the corresponding period last year.[9] The company reported that, in the refining segment, throughput margin per barrel declined to $8.48 from $12.15 a barrel in the corresponding quarter last year.[9]
Total operating cost per barrel from the region declined to $5.47 from $6.41 last year, primarily due to rise in throughput volumes.[9]
The average price of West Texas Intermediate crude oil rose nearly $40 per barrel since last year while the price of conventional gasoline that was produced from that same barrel increased by just $34.[2] We continue to benefit from a very solid on-road diesel market, with margins over $25 per barrel across our system. Concerning refinery inputs, differentials continue to be wide for the heavy and sour feedstocks that we can process, such as Maya crude oil, which has averaged $20 per barrel under WTI in April[1]
Cost of crude oil as well as other feedstocks rose more rapidly than the prices of gasoline, fuel oils, petroleum coke, petrochemical feedstocks and asphalt, which resulted in narrower margins, especially in the refining segment.[9] As expected -- and as the company predicted a month ago -- refining margins fell markedly in the first three months of 2008 as the cost of crude and other feedstocks grew more rapidly than the prices of gasoline, asphalt, fuel oil and other products.[8]
Industry observers fear higher gas prices and a souring economy could crimp demand, although the ability of retailers to continue to push gas prices higher in recent weeks has given investors cause for hope. "While margins were weak during the first quarter, we have begun to see margins rebound part-way into the second quarter," Citi Investment Research analyst Doug Leggate said in a note to clients earlier this month. Valero's earnings will be followed by those of Sunoco Inc. on Wednesday and Marathon Oil Corp. _ an integrated company with large refining operations _ on Thursday.[14] Operating expenses also increased and refinery throughput decreased by about $138,000 b/d. As we've already noted today, both BP plc (NYSE: BP) and Shell (NYSE: RDS) have reported big earnings and revenue increases for the first quarter of 2008. These increases did not come from the companies' refining operations.[13] Effective July 1, 2007, Valero Energy Corporation sold its Lima Refinery to Husky Refining Company, a wholly owned subsidiary of Husky Energy Inc. The results of operations of the Lima Refinery prior to its sale are reported as discontinued operations in the Statement of Income Data for the three months ended March 31, 2007, and all refining operating highlights, both consolidated and for the Mid-Continent region, presented in this earnings release exclude the Lima Refinery.[1] Investors will closely watch results due Tuesday from Valero Energy Corp. because the company, the largest refiner in North America, is viewed as a bellwether for the rest of the refining sector. Late last month, Valero warned its refining margins on gasoline and other products would be significantly lower than a year earlier.[14]
Valero officials remain upbeat regardless. "Despite a difficult environment for gasoline margins, we reported positive results for the first quarter," says Bill Klesse, Valero's chairman and CEO. "More recently, gasoline margins have shown moderate improvement as inventories have fallen and demand has increased as it normally does this time of year."[2] Commenting on the results, Bill Klesse, Chairman of the Board and Chief Executive Officer of the company, said, 'Despite a difficult environment for gasoline margins, we reported positive results for the first quarter.[9]
The company ' s capital spending in the first quarter of 2008 was about $640 million, of which about $100 million was for turnaround expenditures. Regarding other uses of cash, the company spent $518 million to purchase 8.8 million shares of its common stock and used approximately $375 million to redeem high-coupon debt during the first quarter. [1] The San Antonio-based company, North America's largest refiner, said it earned $261 million, or 48 cents per share, in the quarter ended March 31 compared with $1.14 billion, or $1.86 per share, for the same quarter in 2007.[8] The San Antonio-based refiner predicted at the time it would earn just 10 cents to 35 cents per share during the quarter, far less than analysts expected and well below the $1.86 per share it earned during the same period a year earlier.[14]
The latest quarter's results include a pretax benefit of $101 million, or 12 cents per share.[8]
In the year-earlier quarter, Valero (nyse: VLO - news - people ) posted income from continuing operations of $1.1 billion, or $1.77 a share.[10]
The Wall Street Journal reports that Valero Energy (NYSE: VLO ), the U.S.'s largest oil refiner, experienced a 77% plunge in earnings in the first quarter.[6] Rising crude prices and weak gas margins are continuing to drag down Valero Energy's earnings from its record highs of a year ago.[2] SAN ANTONIO (AP) — Oil refiner Valero Energy says its first-quarter profit tumbled 77 percent, as higher oil prices cut into its margins.[3] Valero hopes any move would make it a more efficient refiner in a time of high and volatile oil prices and rising global competition.[6]
Independent refiners have been unable to pass on to customers the sharp rise in the price of crude, the main ingredient in the gasoline, diesel, heating oil and other products.[14] NEW YORK (Associated Press) - Surging crude prices have been a boon for many oil sector companies. One group that has been left out of the party in recent months is the independent refiners, which are due to begin reporting first-quarter earnings this week.[14]
Shares of the San Antonio-based crude oil refiner closed Monday at $52.93.[10] The share price of the company, which was trading in the broad range of $44.94 to $78.68 in the past 52-week period, has closed the regular trading session on Monday at $52.93.[9] The fat profits of the past two years have raised expectations for refining margins. This quarter brings a dose of reality. The company's stock is trading up about 1.4% at $53.70 before market open this morning; its 52-week trading range is $44.94 to $78.68.[13]
VLO reported a cost of $96.62/b for crude and a margin of $7.89/b. That's about 8.2%, which is historically the average margin for refining operations.[13] According to the announcement, the cost for a barrel of WTI rose about $40/barrel, while the wholesale price of gasoline rose by only $34/barrel, a 59% drop in margin.[13] Valero attributed the drop to lower margins for refined products due to higher feedstock costs coupled with lower prices.[13] The company attributed sharp drop in margins for the refined products as the primary reason for the sharp drop in operating income.[9]
Operating income from the Westcoast region declined to $11 million from $313 million in the same period last year.[9] Operating income fell to $472 million, including a pretax benefit of $101 million for an insurance payment, from $1.7 billion.[7]
Operating revenue for the quarter increased sharply to $27.945 billion from $18.755 billion reported in the same quarter last year.[9] After VLO's March 24th earnings warning, analyst estimates had dropped to $0.29 EPS. Operating revenue for the quarter totaled $27.95 billion, well above estimates of $18.23 billion.[13]
Operating revenue rose to $27.9 billion from $18.8 billion, while costs and expenses rose to $26 billion from $16 billion.[7] Refinery operating expenses increased by $180 million, primarily due to higher energy costs and maintenance expenses.[11] Higher energy costs and maintenance expenses also negatively impacted the operating margins in the refining segment.[9]
Revenue rose to $27.95 billion from $18.76 billion, while costs and expenses rose to $26 billion from $16 billion.[11] Valero Energy Corporation is a Fortune 500 company based in San Antonio, with approximately 22,000 employees and 2007 annual revenues of $95 billion.[1] Valero Energy Corp. posted a 77% plunge in first-quarter net income as tight margins and outages at several plants hit its bottom line.[12]
In March, Valero projected earnings of 10 cents to 35 cents, well below then-expectations, on tight margins and outages at several plants.[12] In late March, Valero said it expected earnings of 10 cents to 35 cents a share.[5] The consensus of estimates from analysts surveyed by FactSet Research called for earnings of 37 cents a share for Valero, which issued a profit warning about three weeks ago.[11]
Analysts now expect Valero to earn 29 cents per share, on average, according to a survey by Thomson Financial.[14]
Throughput volumes decreased from the first quarter of 2007 to the first quarter of 2008 by an average of 138,000 barrels per day in large part due to operating issues at the Aruba, Port Arthur, and Delaware City refineries.[1] San Antonio-based Valero (NYSE: VLO) owns and operates 17 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of 3.1 million barrels of oil per day.[2] The company owns and operates 17 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately 3.1 million barrels per day, making it the largest refiner in North America.[1]
Analysts say that will leave the sector with sharply lower profits, with some companies possibly posting losses. "This group is expected to report the sharpest decline in earnings in the (oil) sector at more than 90 percent compared with the year-ago period," Oppenheimer oil analyst Fadel Gheit said of independent refiners in a recent note to clients. [14] Earnings in Shell's Oil Products segment, which includes refining, are off 20% from a year ago; after adjusting for one-time gains and losses, BP's refining segment earnings are off by 61%.[13]
As prices on refined products jumped in late February and early March, consumers pulled back, the Energy Department reported last month.[14]
" More recently, gasoline margins have shown moderate improvement as inventories have fallen and demand has increased as it normally does this time of year. [1] Revenue for the three-month period ended March 31 rose to $27.95 billion from $18.76 billion a year ago.[10] Wall Street analysts were, on average, forecasting revenue of $18.23 billion.[10]
" At the end of March, our debt-to-capitalization ratio stood at a relatively low 22 percent when adjusted for our $1.4 billion cash balance[1]
Includes excise taxes on sales by Valero's U.S. retail system of $194 million and $196 million for the three months ended March 31, 2008 and 2007, respectively.[1] Everyday, we are very focused on improving long-term returns and creating value for our shareholders, " Klesse said. Valero ' s senior management will hold a conference call at 11 a.m. ET (10 a.m. CT) today to discuss this earnings release and provide an update on company operations.[1] The mean estimate of analysts polled by Thomson Reuters was for earnings of 29 cents a share.[10]
SOURCES
1. Valero Energy Corporation Reports First Quarter Earnings
2. Valero earnings fall as crude oil prices rise - San Antonio Business Journal:
3. The Associated Press: Valero 1Q profit drops on lower margins
4. Earnings roundup: Deutsche Bank, Valero Energy - Forbes.com
5. Valero profit tumbles | Reuters
6. Valero's earnings plunge 77%, gas prices to rise faster - BloggingStocks
7. Valero Energy 1Q Net $261 Million Vs Net $1.14 Billion, -77%
8. Valero 1Q profit drops on lower margins
9. Valero Energy Q1 Net Declines Sharply, Despite Higher Revenues, On Lower Margins, Higher Costs - Update [VLO] - RTTNews, Today's Top Stories, Global Newswires, ToDay's Top News,Global Business news .
10. Valero Energy 1Q ongoing profit tumbles vs. year-ago; revenue rises to $27.95B - Forbes.com
11. UPDATE: Valero Energys Quarterly Net Plunges 85%; Margins Pinched
12. Free Preview - WSJ.com
13. 24/7 Wall St.: Valero Jumps Over Lowered Hurdles (VLO, BP, RDS, COP)
14. Sector Preview: Refiners 1Q profits likely to tumble
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