Valero Energy Reports 2018 Fourth Quarter and Full Year Results

Source Press Release
Company Valero Energy Corporation 
Tags Financing, Refining & Marketing Activities, Strategy - Downstream, Strategy - Corporate, Financial & Operating Data
Date January 31, 2019
  • Reported net income attributable to Valero stockholders of $952 million, or $2.24 per share, for the fourth quarter and $3.1 billion, or $7.29 per share, for the year.
  • Reported adjusted net income attributable to Valero stockholders of $900 million, or $2.12 per share, for the fourth quarter and $3.2 billion, or $7.37 per share, for the year. 
  • Returned $965 million in cash to stockholders through dividends and stock buybacks in the fourth quarter and $3.1 billion in the year.
  • Increased quarterly common stock dividend by 12.5 percent to $0.90 per share on 
    January 24.

Valero Energy Corporation (NYSE: VLO, “Valero”) today reported net income attributable to Valero stockholders of $952 million, or $2.24 per share, for the fourth quarter of 2018 compared to $2.4 billion, or $5.42 per share, for the fourth quarter of 2017.  Excluding adjustments shown in the accompanying earnings release tables of $52 million, or $0.12 per share, for the fourth quarter of 2018 and $1.9 billion, or $4.26 per share, for the fourth quarter of 2017, adjusted net income attributable to Valero stockholders was $900 million, or $2.12 per share, for the fourth quarter of 2018 and $509 million, or $1.16 per share, for the fourth quarter of 2017.  The adjustment for the fourth quarter of 2017 is associated with an income tax benefit that resulted from the Tax Cuts and Jobs Act of 2017.  

For the year ended December 31, 2018, net income attributable to Valero stockholders was $3.1 billion, or $7.29 per share, compared to $4.1 billion, or $9.16 per share, for 2017.  Excluding adjustments shown in the accompanying earnings release tables of $35 million, or $0.08 per share, for 2018 and $1.9 billion, or $4.20 per share, for 2017, adjusted net income attributable to Valero stockholders was $3.2 billion, or $7.37 per share, for 2018 compared to $2.2 billion, or $4.96 per share, for 2017.

“We delivered another year of solid financial results,” said Joe Gorder, Valero Chairman, President and Chief Executive Officer.  “We also set new operating records and matched 2017’s process safety performance record.”

Refining
The refining segment reported $1.5 billion of operating income for the fourth quarter of 2018 compared to $971 million for the fourth quarter of 2017.  The $510 million increase was primarily driven by wider discounts for North American sweet crude oils and certain sour crude oils relative to Brent crude oil, partly offset by weaker gasoline margins. 

“The logistics investments we made over the last several years are contributing significantly to earnings,” said Gorder. “The completion of the Sunrise Pipeline expansion and our prior investments, including Line 9B and Diamond Pipeline, provided us with greater access to discounted North American crudes in the fourth quarter of 2018.  And as evident in our results, the flexibility of our refining system enabled us to capture additional margin from processing these cost-advantaged grades.” 

Refinery throughput capacity utilization was 96 percent, with throughput volumes averaging 3.0 million barrels per day in the fourth quarter of 2018, which was in line with the fourth quarter of 2017.  The company exported a total of 404,000 barrels per day of gasoline and distillate during the fourth quarter of 2018. 

Biofuel blending costs were $105 million in the fourth quarter of 2018, which were $206 million lower than in the fourth quarter of 2017, and $536 million for the full year of 2018, which were $406 million lower than in 2017.  The lower cost was mainly due to lower Renewable Identification Number (RIN) prices.

“We’re starting 2019 with relatively low oil prices and an economy that is growing, which should support demand for refined products,” Gorder said.

Ethanol
The ethanol segment reported a $27 million operating loss for the fourth quarter of 2018 compared to $37 million of operating income for the fourth quarter of 2017.  The decrease in operating income was attributed primarily to margin pressure resulting from lower ethanol prices.  Ethanol production volumes averaged 4.3 million gallons per day in the fourth quarter of 2018, an increase of 211,000 gallons per day versus the fourth quarter of 2017, which was largely due to added production from the three ethanol plants acquired in November 2018. 

VLP
The VLP segment reported $88 million of operating income for the fourth quarter of 2018 compared to $80 million for the fourth quarter of 2017.  The increase in operating income was due mostly to contributions from the Port Arthur terminal assets and Parkway Pipeline, which were acquired in November 2017.  On January 10, 2019, the merger between Valero Energy Partners LP (VLP) and a wholly owned subsidiary of Valero was completed.  VLP became a wholly owned subsidiary of Valero and was delisted from the NYSE.  

Corporate and Other
General and administrative expenses were $230 million in the fourth quarter of 2018 compared to $237 million in the fourth quarter of 2017.  For 2018, general and administrative expenses of $925 million were $96 million higher than in 2017 mainly due to adjustments to our environmental liabilities.  Income tax expense for the fourth quarter was $205 million, which includes certain income tax benefits as reflected in the accompanying earnings release tables.  Excluding these benefits, our effective tax rate was 21 percent for the fourth quarter of 2018. 

Investing and Financing Activities
Capital investments totaled $771 million in the fourth quarter of 2018, of which $254 million was for turnarounds and catalyst.  For 2018, capital investments totaled $2.7 billion, in line with guidance.    

Valero returned $965 million to stockholders in the fourth quarter of 2018, of which $627 million was for the purchase of 7.7 million shares of its common stock and the balance was paid as dividends.  In 2018, Valero returned $3.1 billion to stockholders, or 54 percent of adjusted net cash provided by operating activities, consisting of $1.7 billion in stock buybacks and $1.4 billion in dividends.  Net cash provided by operating activities in 2018 was $4.4 billion.  Included in this amount is a $1.3 billion unfavorable impact from a decrease in working capital.  Excluding the change in working capital, net cash generated by operating activities was $5.7 billion. 

The company is targeting a total payout ratio between 40 and 50 percent of adjusted net cash provided by operating activities for 2019.  Valero defines total payout ratio as the sum of dividends and stock buybacks divided by net cash provided by operating activities adjusted for changes in working capital. 

On January 24, the company announced a 12.5 percent increase in its quarterly common stock dividend from $0.80 per share to $0.90 per share, payable on March 5, 2019, to holders of record on February 13, 2019. 

Liquidity and Financial Position
Valero ended the fourth quarter of 2018 with $9.1 billion of total debt and $3.0 billion of cash and cash equivalents.  The debt to capital ratio, net of $2.0 billion in cash, was 24 percent. 

Strategic Update
The Sunrise Pipeline expansion started up in November and is performing as expected, providing Valero’s Mid-Continent refineries with access to 100,000 barrels per day of Permian Basin crude oil.  Also in November, the Boards of Directors of Valero and Darling Ingredients Inc. approved an expansion of the Diamond Green Diesel plant to 675 million gallons per year of renewable diesel production capacity and the construction of a renewable naphtha finishing facility.  Other projects in execution remain on track, including the Houston alkylation unit and central Texas pipelines and terminals, which are scheduled for completion in 2019.  

Valero expects to invest approximately $2.5 billion of capital in both 2019 and 2020, of which approximately 60 percent is for sustaining the business and approximately 40 percent is for growth projects.    

Conference Call
Valero’s senior management will hold a conference call at 10 a.m. ET today to discuss this earnings release and to provide an update on operations and strategy.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd