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Valero Energy Reports 2018 Fourth Quarter and Full Year Results

Valero Energy Reports 2018 Fourth Quarter and Full Year Results
  • 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.

SAN ANTONIO, Texas, Jan. 31, 2019 (GLOBE NEWSWIRE) -- 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.

About Valero
Valero Energy Corporation, through its subsidiaries (collectively, “Valero”), is an international manufacturer and marketer of transportation fuels and petrochemical products. Valero is a Fortune 50 company based in San Antonio, Texas, and it operates 15 petroleum refineries with a combined throughput capacity of approximately 3.1 million barrels per day and 14 ethanol plants with a combined production capacity of 1.73 billion gallons per year. The petroleum refineries are located in the United States, Canada and the United Kingdom, and the ethanol plants are located in the Mid-Continent region of the U.S. Valero also is a joint venture partner in Diamond Green Diesel, which operates a renewable diesel plant in Norco, Louisiana. Diamond Green Diesel is North America’s largest biomass-based diesel plant. Valero sells its products in the wholesale rack or bulk markets in the U.S., Canada, the U.K., Ireland and Latin America. Approximately 7,400 outlets carry Valero’s brand names. Please visit www.valero.com for more information.

Valero Contacts
Investors:
Homer Bhullar, Vice President – Investor Relations, 210-345-1982
Karen Ngo, Senior Manager – Investor Relations, 210-345-4574
Tom Mahrer, Manager – Investor Relations, 210-345-1953

Media:
Lillian Riojas, Executive Director – Media Relations and Communications, 210-345-5002

Safe-Harbor Statement
Statements contained in this release that state the company’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.  The words “believe,” “expect,” “should,” “estimates,” “intend,” “target,” “will,” “plans,” and other similar expressions identify forward-looking statements.  It is important to note that actual results could differ materially from those projected in such forward-looking statements based on numerous factors, including those outside of the company’s control, such as delays in construction timing and other factors.  For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero’s annual reports on Form 10-K, quarterly reports on Form 10-Q, and our other reports filed with the Securities and Exchange Commission and on Valero’s website at www.valero.com

Use of Non-GAAP Financial Information
This earnings release and the accompanying earnings release tables include references to financial measures that are not defined under U.S. generally accepted accounting principles (GAAP).  These non-GAAP measures include adjusted net income attributable to Valero stockholders, adjusted earnings per common share – assuming dilution, adjusted refining operating income, refining margin, ethanol margin, adjusted VLP operating income, and adjusted net cash provided by operating activities.  We have included these non-GAAP financial measures to help facilitate the comparison of operating results between periods.  See the accompanying earnings release tables for a reconciliation of non-GAAP measures to their most directly comparable U.S. GAAP measures.  In note (g) to the earnings release tables, we disclose the reasons why we believe our use of these non-GAAP financial measures provides useful information.




VALERO ENERGY CORPORATION
EARNINGS RELEASE TABLES
FINANCIAL HIGHLIGHTS
(millions of dollars, except per share amounts)
(unaudited)


    Three Months Ended
December 31,
  Year Ended
December 31,
    2018   2017   2018   2017
Statement of income data                
Revenues   $ 28,730     $ 26,392     $ 117,033     $ 93,980  
Cost of sales:                
Cost of materials and other (a)   25,415     23,671     104,732     83,037  
Operating expenses (excluding depreciation and
amortization expense reflected below)
  1,251     1,134     4,690     4,504  
Depreciation and amortization expense   518     477     2,017     1,934  
Total cost of sales   27,184     25,282     111,439     89,475  
Other operating expenses   4     17     45     61  
General and administrative expenses (excluding
depreciation and amortization expense reflected below) (b)
  230     237     925     829  
Depreciation and amortization expense   13     13     52     52  
Operating income   1,299     843     4,572     3,563  
Other income, net (c)   42     36     130     112  
Interest and debt expense, net of capitalized interest   (114 )   (114 )   (470 )   (468 )
Income before income tax expense   1,227     765     4,232     3,207  
Income tax expense (benefit) (d) (e) (f)   205     (1,635 )   879     (949 )
Net income   1,022     2,400     3,353     4,156  
Less: Net income attributable to noncontrolling interests (a)   70     29     231     91  
Net income attributable to Valero Energy Corporation
stockholders
  $ 952     $ 2,371     $ 3,122     $ 4,065  
                 
Earnings per common share   $ 2.26     $ 5.43     $ 7.30     $ 9.17  
Weighted-average common shares outstanding (in millions)   421     435     426     442  
                 
Earnings per common share – assuming dilution   $ 2.24     $ 5.42     $ 7.29     $ 9.16  
Weighted-average common shares outstanding – assuming dilution (in millions)   422     437     428     444  

See Notes to Earnings Release Tables.



VALERO ENERGY CORPORATION
EARNINGS RELEASE TABLES
FINANCIAL HIGHLIGHTS BY SEGMENT
(millions of dollars)
(unaudited)

    Refining   Ethanol   VLP   Corporate
and
Eliminations
  Total
Three months ended December 31, 2018                    
Revenues:                    
Revenues from external customers   $ 27,926     $ 803     $     $ 1     $ 28,730  
Intersegment revenues   4     54     139     (197 )    
Total revenues   27,930     857     139     (196 )   28,730  
Cost of sales:                    
Cost of materials and other   24,881     729         (195 )   25,415  
Operating expenses (excluding depreciation and amortization expense reflected below)   1,086     134     32     (1 )   1,251  
Depreciation and amortization expense   478     21     19         518  
Total cost of sales   26,445     884     51     (196 )   27,184  
Other operating expenses   4                 4  
General and administrative expenses (excluding depreciation and amortization expense reflected below)               230     230  
Depreciation and amortization expense               13     13  
Operating income (loss) by segment   $ 1,481     $ (27 )   $ 88     $ (243 )   $ 1,299  
                     
Three months ended December 31, 2017                    
Revenues:                    
Revenues from external customers   $ 25,621     $ 766     $     $ 5     $ 26,392  
Intersegment revenues   5     40     126     (171 )    
Total revenues   25,626     806     126     (166 )   26,392  
Cost of sales:                    
Cost of materials and other   23,203     638         (170 )   23,671  
Operating expenses (excluding depreciation and amortization expense reflected below)   993     113     29     (1 )   1,134  
Depreciation and amortization expense   442     18     17         477  
Total cost of sales   24,638     769     46     (171 )   25,282  
Other operating expenses   17                 17  
General and administrative expenses (excluding depreciation and amortization expense reflected below)               237     237  
Depreciation and amortization expense               13     13  
Operating income by segment   $ 971     $ 37     $ 80     $ (245 )   $ 843  

See Operating Highlights by Segment.
See Notes to Earnings Release Tables.



VALERO ENERGY CORPORATION
EARNINGS RELEASE TABLES
FINANCIAL HIGHLIGHTS BY SEGMENT
(millions of dollars)
(unaudited)

    Refining   Ethanol   VLP   Corporate
and
Eliminations
  Total
Year ended December 31, 2018                    
Revenues:                    
Revenues from external customers   $ 113,601     $ 3,428     $     $ 4     $ 117,033  
Intersegment revenues   14     210     546     (770 )    
Total revenues   113,615     3,638     546     (766 )   117,033  
Cost of sales:                    
Cost of materials and other (a)   102,489     3,008         (765 )   104,732  
Operating expenses (excluding depreciation and amortization expense reflected below)   4,099     470     125     (4 )   4,690  
Depreciation and amortization expense   1,863     78     76         2,017  
Total cost of sales   108,451     3,556     201     (769 )   111,439  
Other operating expenses   45                 45  
General and administrative expenses (excluding depreciation and amortization expense reflected below) (b)               925     925  
Depreciation and amortization expense               52     52  
Operating income by segment   $ 5,119     $ 82     $ 345     $ (974 )   $ 4,572  
                     
Year ended December 31, 2017                    
Revenues:                    
Revenues from external customers   $ 90,651     $ 3,324     $     $ 5     $ 93,980  
Intersegment revenues   6     176     452     (634 )    
Total revenues   90,657     3,500     452     (629 )   93,980  
Cost of sales:                    
Cost of materials and other   80,865     2,804         (632 )   83,037  
Operating expenses (excluding depreciation and amortization expense reflected below)   3,959     443     104     (2 )   4,504  
Depreciation and amortization expense   1,800     81     53         1,934  
Total cost of sales   86,624     3,328     157     (634 )   89,475  
Other operating expenses   58         3         61  
General and administrative expenses (excluding depreciation and amortization expense reflected below)               829     829  
Depreciation and amortization expense               52     52  
Operating income by segment   $ 3,975     $ 172     $ 292     $ (876 )   $ 3,563  

See Operating Highlights by Segment.
See Notes to Earnings Release Tables.



VALERO ENERGY CORPORATION
EARNINGS RELEASE TABLES
RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS
REPORTED UNDER U.S. GAAP (g)
(millions of dollars, except per share amounts)
(unaudited)

    Three Months Ended
December 31,
  Year Ended
December 31,
    2018   2017   2018   2017
Reconciliation of net income attributable to Valero Energy Corporation stockholders to adjusted net income attributable to Valero Energy Corporation stockholders                
Net income attributable to Valero Energy Corporation stockholders   $ 952     $ 2,371   $ 3,122     $ 4,065
Exclude adjustments:                
Blender’s tax credit attributable to Valero Energy Corporation stockholders (a)         90    
Income tax expense related to blender’s tax credit         (11 )  
Blender’s tax credit attributable to Valero Energy Corporation stockholders, net of taxes         79    
Texas City Refinery fire expenses   (3 )     (17 )  
Income tax benefit related to Texas City Refinery fire expenses   1       4    
Texas City Refinery fire expenses, net of taxes   (2 )     (13 )  
Environmental reserve adjustments (b)         (108 )  
Income tax benefit related to environmental reserve adjustments         24    
Environmental reserve adjustments, net of taxes         (84 )  
Loss on early redemption of debt (c)         (38 )  
Income tax benefit related to loss on early redemption of debt         9    
Loss on early redemption of debt, net of taxes         (29 )  
Income tax benefit from Tax Reform (d)   12     1,862   12     1,862
Foreign tax credit (e)   42          
Total adjustments   52     1,862   (35 )   1,862
Adjusted net income attributable to Valero Energy Corporation stockholders   $ 900     $ 509   $ 3,157     $ 2,203
                 
Reconciliation of earnings per common share – assuming dilution to adjusted earnings per common share – assuming dilution                
Earnings per common share – assuming dilution   $ 2.24     $ 5.42   $ 7.29     $ 9.16
Exclude adjustments:                
Blender’s tax credit attributable to Valero Energy Corporation stockholders (a)         0.18    
Texas City Refinery fire expenses   (0.01 )     (0.02 )  
Environmental reserve adjustments (b)         (0.20 )  
Loss on early redemption of debt (c)         (0.07 )  
Income tax benefit from Tax Reform (d)   0.03     4.26   0.03     4.20
Foreign tax credit (e)   0.10          
Total adjustments   0.12     4.26   (0.08 )   4.20
Adjusted earnings per common share – assuming dilution   $ 2.12     $ 1.16   $ 7.37     $ 4.96

See Notes to Earnings Release Tables.




VALERO ENERGY CORPORATION
EARNINGS RELEASE TABLES
RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS
REPORTED UNDER U.S. GAAP (g)
(millions of dollars)
(unaudited)

    Three Months Ended
December 31,
  Year Ended
December 31,
    2018   2017   2018   2017
Reconciliation of operating income by segment to segment margin, and reconciliation of operating income by segment to adjusted operating income by segment                
Refining segment                
Refining operating income   $ 1,481     $ 971     $ 5,119     $ 3,975  
Exclude:                
Blender’s tax credit (a)           170      
Operating expenses (excluding depreciation and amortization expense reflected below)   (1,086 )   (993 )   (4,099 )   (3,959 )
Depreciation and amortization expense   (478 )   (442 )   (1,863 )   (1,800 )
Other operating expenses   (4 )   (17 )   (45 )   (58 )
Refining margin   $ 3,049     $ 2,423     $ 10,956     $ 9,792  
                 
Refining operating income   $ 1,481     $ 971     $ 5,119     $ 3,975  
Exclude:                
Blender’s tax credit (a)           170      
Other operating expenses   (4 )   (17 )   (45 )   (58 )
Adjusted refining operating income   $ 1,485     $ 988     $ 4,994     $ 4,033  
                 
Ethanol segment                
Ethanol operating income (loss)   $ (27 )   $ 37     $ 82     $ 172  
Exclude:                
Operating expenses (excluding depreciation and amortization expense reflected below)   (134 )   (113 )   (470 )   (443 )
Depreciation and amortization expense   (21 )   (18 )   (78 )   (81 )
Ethanol margin   $ 128     $ 168     $ 630     $ 696  
                 
VLP segment                
VLP operating income   $ 88     $ 80     $ 345     $ 292  
Exclude: Other operating expenses               (3 )
Adjusted VLP operating income   $ 88     $ 80     $ 345     $ 295  

See Notes to Earnings Release Tables.




VALERO ENERGY CORPORATION
EARNINGS RELEASE TABLES
RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS
REPORTED UNDER U.S. GAAP (g)
(millions of dollars)
(unaudited)

    Three Months Ended
December 31,
  Year Ended
December 31,
    2018   2017   2018   2017
Reconciliation of refining segment operating income to refining margin (by region), and reconciliation of refining segment operating income to adjusted refining segment operating income (by region) (h)                
U.S. Gulf Coast region                
Refining operating income   $ 532     $ 577     $ 2,388     $ 2,022  
Exclude:                
Blender’s tax credit (a)           167      
Operating expenses (excluding depreciation and amortization expense reflected below)   (613 )   (566 )   (2,300 )   (2,281 )
Depreciation and amortization expense   (286 )   (270 )   (1,125 )   (1,109 )
Other operating expenses   (3 )   (16 )   (42 )   (57 )
Refining margin   $ 1,434     $ 1,429     $ 5,688     $ 5,469  
                 
Refining operating income   $ 532     $ 577     $ 2,388     $ 2,022  
Exclude:                
Blender’s tax credit (a)           167      
Other operating expenses   (3 )   (16 )   (42 )   (57 )
Adjusted refining operating income   $ 535     $ 593     $ 2,263     $ 2,079  
                 
U.S. Mid-Continent region                
Refining operating income   $ 396     $ 233     $ 1,404     $ 874  
Exclude:                
Blender’s tax credit (a)           2      
Operating expenses (excluding depreciation and amortization expense reflected below)   (156 )   (132 )   (603 )   (574 )
Depreciation and amortization expense   (75 )   (65 )   (276 )   (261 )
Refining margin   $ 627     $ 430     $ 2,281     $ 1,709  
                 
Refining operating income   $ 396     $ 233     $ 1,404     $ 874  
Exclude: blender’s tax credit (a)           2      
Adjusted refining operating income   $ 396     $ 233  null