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Valero Energy Reports 2019 Fourth Quarter and Full Year Results

Valero Energy Reports 2019 Fourth Quarter and Full Year Results
  • Reported net income attributable to Valero stockholders of $1.1 billion, or $2.58 per share, for the fourth quarter and $2.4 billion, or $5.84 per share, for the year.
  • Reported adjusted net income attributable to Valero stockholders of $873 million, or $2.13 per share, for the fourth quarter and $2.4 billion, or $5.70 per share, for the year.
  • Returned $591 million in cash to stockholders through dividends and stock buybacks in the fourth quarter and $2.3 billion in the year.
  • Increased quarterly common stock dividend by nine percent to $0.98 per share on January 23.

SAN ANTONIO, Jan. 30, 2020 (GLOBE NEWSWIRE) -- Valero Energy Corporation (NYSE: VLO, “Valero”) today reported net income attributable to Valero stockholders of $1.1 billion, or $2.58 per share, for the fourth quarter of 2019 compared to $952 million, or $2.24 per share, for the fourth quarter of 2018. Excluding adjustments shown in the accompanying earnings release tables, adjusted net income attributable to Valero stockholders was $873 million, or $2.13 per share, for the fourth quarter of 2019 and $932 million, or $2.19 per share, for the fourth quarter of 2018. The adjustment for the fourth quarter of 2019 is associated with the retroactive blender’s tax credit.

For the year ended December 31, 2019, net income attributable to Valero stockholders was $2.4 billion, or $5.84 per share, compared to $3.1 billion, or $7.29 per share, for 2018. Excluding the adjustments shown in the accompanying earnings release tables, adjusted net income attributable to Valero stockholders was $2.4 billion, or $5.70 per share, for 2019 compared to $3.2 billion, or $7.55 per share, for 2018.  

“We delivered another year of steady earnings despite a challenging environment for the refining business during 2019,” said Joe Gorder, Valero Chairman and Chief Executive Officer. “We ran our business well by delivering the best year ever on employee safety performance along with the lowest number of environmental events in company history.”

Refining
The refining segment reported $1.4 billion of operating income for the fourth quarter of 2019 compared to $1.5 billion for the fourth quarter of 2018.

“Our refineries operated well at 96% utilization, allowing us to take advantage of wider sour crude oil differentials and weakness in high sulfur residual feedstocks in the fourth quarter,” Gorder said.

Refinery throughput volumes averaged 3.0 million barrels per day in the fourth quarter of 2019, which is in line with the fourth quarter of 2018. For the full year 2019, the company processed record volumes of approximately 180 thousand barrels per day of Canadian heavy crude oil and 1.4 million barrels per day of North American sweet crude oil. The company exported an average of 343,000 barrels per day of gasoline and distillate in 2019.

Ethanol
The ethanol segment reported $36 million of operating income for the fourth quarter of 2019, compared to a $27 million operating loss for the fourth quarter of 2018. The increase in operating income was attributed primarily to higher ethanol prices. Ethanol production volumes averaged 4.3 million gallons per day in the fourth quarter of 2019, which is in line with the fourth quarter of 2018.

Renewable Diesel
The renewable diesel segment reported $541 million of operating income for the fourth quarter of 2019, compared to $101 million for the fourth quarter of 2018. After adjusting for the retroactive blender’s tax credit recorded in the fourth quarter of 2019, adjusted renewable diesel operating income was $187 million in the fourth quarter of 2019, compared to $167 million in the fourth quarter of 2018. Renewable diesel sales volumes averaged 844 thousand gallons per day in the fourth quarter of 2019, an increase of 124 thousand gallons per day versus the fourth quarter of 2018.

Corporate and Other
General and administrative expenses were $243 million in the fourth quarter of 2019 compared to $230 million in the fourth quarter of 2018.  For 2019, general and administrative expenses of $868 million were $57 million lower than in 2018 mainly due to adjustments to our environmental liabilities in 2018.  The effective tax rate for 2019 was 20 percent.

Investing and Financing Activities
Capital investments totaled $722 million in the fourth quarter of 2019, of which $445 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance.

Valero returned $591 million to stockholders in the fourth quarter of 2019, of which $369 million was paid as dividends and $222 million was for the purchase of approximately 2.3 million shares of common stock. In 2019, Valero returned $2.3 billion to stockholders, or 47 percent of adjusted net cash provided by operating activities, consisting of $777 million in stock buybacks and $1.5 billion in dividends.

Net cash provided by operating activities in 2019 was $5.5 billion. Included in this amount is a $294 million favorable impact from working capital and our joint venture partner’s share of Diamond Green Diesel’s (DGD) net cash provided by operating activities, excluding changes in its working capital. Excluding these items, adjusted net cash provided by operating activities was $4.8 billion.

Valero continues to target a total payout ratio between 40 and 50 percent of adjusted net cash provided by operating activities for 2020. 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 and DGD’s net cash provided by operating activities, excluding changes in its working capital, attributable to our joint venture partner’s ownership interest in DGD.

On January 23, the company announced a nine percent increase in its quarterly common stock dividend from $0.90 per share to $0.98 per share, payable on March 4, 2020, to holders of record on February 12, 2020.

Liquidity and Financial Position
Valero ended the fourth quarter of 2019 with $9.7 billion of total debt and $2.6 billion of cash and cash equivalents. The debt to capital ratio, net of $2 billion in cash, was 26 percent.

Strategic Update
In 2019, Valero successfully started up the Houston Alkylation Unit, which upgrades lower value natural gas liquids and refinery olefins to a premium, high octane alkylate product. Valero also completed the Central Texas Pipelines and Terminals project, which reduces secondary costs and extends the supply chain from the U.S. Gulf Coast to a growing inland market.

Several growth projects, including the Pasadena Terminal, St. Charles Alkylation Unit and Pembroke Cogeneration Unit, are on track to be completed in 2020. The Diamond Pipeline expansion should be completed in 2021. The company expects the DGD expansion and Port Arthur Coker to be completed in 2021 and 2022, respectively.

Valero, with its ethanol and renewable diesel businesses, is already the largest renewable fuels producer in North America and it continues to explore growth opportunities in renewable fuels. As previously announced, Valero and its joint venture partner in DGD have initiated an advanced engineering and development cost review for a new renewable diesel plant at Valero’s Port Arthur, Texas facility. If the project is approved, operations would commence in 2024, resulting in DGD production capacity increasing to over 1.1 billion gallons annually.

Valero continues to expect to invest approximately $2.5 billion of capital in 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 approximately 1.73 billion gallons per year. The petroleum refineries are located in the United States (U.S.), Canada and the United Kingdom (U.K.), 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 7,000 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
Eric Herbort, Senior Manager – Investor Relations, 210-345-3331
Gautam Srivastava, Manager – Investor Relations, 210-345-3992

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 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, refining margin, ethanol margin, renewable diesel margin, adjusted refining operating income, adjusted ethanol operating income, adjusted renewable diesel operating income, and adjusted net cash provided by operating activities.  These non-GAAP financial measures have been included 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.  Note (h) to the earnings release tables provides reasons for the use of these non-GAAP financial measures.

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,
  2019   2018   2019   2018
Statement of income data              
Revenues $ 27,879     $ 28,730     $ 108,324     $ 117,033  
Cost of sales:              
Cost of materials and other (a) 24,080     25,415     96,476     104,732  
Operating expenses (excluding depreciation and
amortization expense reflected below)
1,239     1,251     4,868     4,690  
Depreciation and amortization expense 557     518     2,202     2,017  
Total cost of sales 25,876     27,184     103,546     111,439  
Other operating expenses (b) 7     4     21     45  
General and administrative expenses (excluding
depreciation and amortization expense reflected below) (c)
243     230     868     925  
Depreciation and amortization expense 14     13     53     52  
Operating income 1,739     1,299     3,836     4,572  
Other income, net (d) 36     42     104     130  
Interest and debt expense, net of capitalized interest (119 )   (114 )   (454 )   (470 )
Income before income tax expense 1,656     1,227     3,486     4,232  
Income tax expense (e) (f) 326     205     702     879  
Net income 1,330     1,022     2,784     3,353  
Less: Net income attributable to noncontrolling interests (a) 270     70     362     231  
Net income attributable to Valero Energy Corporation stockholders $ 1,060     $ 952     $ 2,422     $ 3,122  
               
Earnings per common share $ 2.58     $ 2.26     $ 5.84     $ 7.30  
Weighted-average common shares outstanding (in millions) 409     421     413     426  
               
Earnings per common share – assuming dilution $ 2.58     $ 2.24     $ 5.84     $ 7.29  
Weighted-average common shares outstanding –
assuming dilution (in millions)
410     422     414     428  
                       

See Notes to Earnings Release Tables.

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

  Refining   Ethanol   Renewable 
Diesel
  Corporate 
and 
Eliminations
  Total
Three months ended December 31, 2019                  
Revenues:                  
Revenues from external customers $ 26,637     $ 958     $ 284     $     $ 27,879  
Intersegment revenues 6     69     73     (148 )    
Total revenues 26,643     1,027     357     (148 )   27,879  
Cost of sales:                  
Cost of materials and other (a) 23,602     843     (217 )   (148 )   24,080  
Operating expenses (excluding depreciation and
amortization expense reflected below)
1,092     126     21         1,239  
Depreciation and amortization expense 523     22     12         557  
Total cost of sales 25,217     991     (184 )   (148 )   25,876  
Other operating expenses (b) 7                 7  
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
            243     243  
Depreciation and amortization expense             14     14  
Operating income by segment $ 1,419     $ 36     $ 541     $ (257 )   $ 1,739  
                   
Three months ended December 31, 2018                  
Revenues:                  
Revenues from external customers $ 27,722     $ 803     $ 204     $ 1     $ 28,730  
Intersegment revenues 5     54     67     (126 )    
Total revenues 27,727     857     271     (125 )   28,730  
Cost of sales:                  
Cost of materials and other 24,671     729     140     (125 )   25,415  
Operating expenses (excluding depreciation and
amortization expense reflected below)
1,097     134     20         1,251  
Depreciation and amortization expense 487     21     10         518  
Total cost of sales 26,255     884     170     (125 )   27,184  
Other operating expenses (b) 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 $ 1,468     $ (27 )   $ 101     $ (243 )   $ 1,299  
                                       

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

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

  Refining   Ethanol   Renewable 
Diesel
  Corporate 
and 
Eliminations
  Total
Year ended December 31, 2019                  
Revenues:                  
Revenues from external customers $ 103,746     $ 3,606     $ 970     $ 2     $ 108,324  
Intersegment revenues 18     231     247     (496 )    
Total revenues 103,764     3,837     1,217     (494 )   108,324  
Cost of sales:                  
Cost of materials and other (a) 93,371     3,239     360     (494 )   96,476  
Operating expenses (excluding depreciation and
amortization expense reflected below)
4,289     504     75         4,868  
Depreciation and amortization expense 2,062     90     50         2,202  
Total cost of sales 99,722     3,833     485     (494 )   103,546  
Other operating expenses (b) 20     1             21  
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
            868     868  
Depreciation and amortization expense             53     53  
Operating income by segment $ 4,022     $ 3     $ 732     $ (921 )   $ 3,836  
                   
Year ended December 31, 2018                  
Revenues:                  
Revenues from external customers $ 113,093     $ 3,428     $ 508     $ 4     $ 117,033  
Intersegment revenues 25     210     170     (405 )    
Total revenues 113,118     3,638     678     (401 )   117,033  
Cost of sales:                  
Cost of materials and other (a) 101,866     3,008     262     (404 )   104,732  
Operating expenses (excluding depreciation and
amortization expense reflected below)
4,154     470     66         4,690  
Depreciation and amortization expense 1,910     78     29         2,017  
Total cost of sales 107,930     3,556     357     (404 )   111,439  
Other operating expenses (b) 45                 45  
General and administrative expenses (excluding
depreciation and amortization expense reflected
below) (c)
            925     925  
Depreciation and amortization expense             52     52  
Operating income by segment $ 5,143     $ 82     $ 321     $ (974 )   $ 4,572  
                                       

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 (h)
(millions of dollars, except per share amounts)
(unaudited)

  Three Months Ended
December 31,
  Year Ended
December 31,
  2019   2018   2019   2018
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
$ 1,060     $ 952     $ 2,422     $ 3,122  
Exclude adjustments:              
Blender’s tax credit attributable to Valero Energy
Corporation stockholders (a)
192     (33 )   80     10  
Income tax (expense) benefit related to blender’s tax credit (5 )   1     (2 )   (9 )
Blender’s tax credit attributable to Valero Energy
Corporation stockholders, net of taxes
187     (32 )   78     1  
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 (c)             (108 )
Income tax benefit related to environmental reserve
adjustments
            24  
Environmental reserve adjustments, net of taxes             (84 )
Loss on early redemption of debt (d)         (22 )   (38 )
Income tax benefit related to loss on early
redemption of debt
        5     9  
Loss on early redemption of debt, net of taxes         (17 )   (29 )
Income tax benefit from Tax Reform (e)     12         12  
Foreign tax credit (f)     42          
Total adjustments 187     20     61     (113 )
Adjusted net income attributable to
Valero Energy Corporation stockholders
$ 873     $ 932     $ 2,361     $ 3,235  
               
Reconciliation of earnings per common share – assuming
dilution to adjusted earnings per common share –
assuming dilution
             
Earnings per common share – assuming dilution $ 2.58     $ 2.24     $ 5.84     $ 7.29  
Exclude adjustments:              
Blender’s tax credit attributable to Valero Energy
Corporation stockholders (a)
0.45     (0.07 )   0.18      
Texas City Refinery fire expenses     (0.01 )       (0.02 )
Environmental reserve adjustments (c)             (0.20 )
Loss on early redemption of debt (d)         (0.04 )   (0.07 )
Income tax benefit from Tax Reform (e)     0.03         0.03  
Foreign tax credit (f)     0.10          
Total adjustments 0.45     0.05     0.14     (0.26 )
Adjusted earnings per common share – assuming dilution
$ 2.13     $ 2.19     $ 5.70     $ 7.55  
                               

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 (h)
(millions of dollars)
(unaudited)

  Three Months Ended
December 31,
  Year Ended
December 31,
  2019   2018   2019   2018
Reconciliation of operating income by segment to segment
margin, and reconciliation of operating income by
segment to adjusted operating income by segment
             
Refining segment (g)              
Refining operating income $ 1,419     $ 1,468     $ 4,022     $ 5,143  
Exclude:              
Blender’s tax credit (a) 15         2     8  
Operating expenses (excluding depreciation and
amortization expense reflected below)
(1,092 )   (1,097 )   (4,289 )   (4,154 )
Depreciation and amortization expense (523 )   (487 )   (2,062 )   (1,910 )
Other operating expenses (b) (7 )   (4 )   (20 )   (45 )
Refining margin $ 3,026     $ 3,056     $ 10,391     $ 11,244  
               
Refining operating income $ 1,419     $ 1,468     $ 4,022     $ 5,143  
Exclude:              
Blender’s tax credit (a) 15         2     8  
Other operating expenses (b) (7 )   (4 )   (20 )   (45 )
Adjusted refining operating income $ 1,411     $ 1,472     $ 4,040     $ 5,180  
               
Ethanol segment              
Ethanol operating income (loss) $ 36     $ (27 )   $ 3     $ 82  
Exclude:              
Operating expenses (excluding depreciation and
amortization expense reflected below)
(126 )   (134 )   (504 )   (470 )
Depreciation and amortization expense (22 )   (21 )   (90 )   (78 )
Other operating expenses (b)         (1 )    
Ethanol margin $ 184     $ 128     $ 598     $ 630  
               
Ethanol operating income (loss) $ 36     $ (27 )   $ 3     $ 82  
Exclude: Other operating expenses (b)         (1 )    
Adjusted ethanol operating income (loss) $ 36     $ (27 )   $ 4     $ 82  
               
Renewable diesel segment (g)              
Renewable diesel operating income $ 541     $ 101     $ 732     $ 321  
Exclude:              
Blender’s tax credit (a) 354     (66 )   156     4  
Operating expenses (excluding depreciation and
amortization expense reflected below)
(21 )   (20 )   (75 )   (66 )
Depreciation and amortization expense (12 )   (10 )   (50 )   (29 )
Renewable diesel margin $ 220     $ 197     $ 701     $ 412  
               
Renewable diesel operating income $ 541     $ 101     $ 732     $ 321  
Exclude: Blender’s tax credit (a) 354     (66 )   156     4  
Adjusted renewable diesel operating income $ 187     $ 167     $ 576     $ 317  
                               

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 (h)
(millions of dollars)
(unaudited)

  Three Months Ended
December 31,
  Year Ended
December 31,
  2019   2018   2019   2018
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) (i)
             
U.S. Gulf Coast region (g)              
Refining operating income $ 706     $ 499     $ 1,485     $ 2,328  
Exclude:              
Blender’s tax credit (a) 11         2     5  
Operating expenses (excluding depreciation and
amortization expense reflected below)
(610 )   (616 )   (2,436 )   (2,326 )
Depreciation and amortization expense (325 )   (292 )   (1,279 )   (1,157 )
Other operating expenses (b) (5 )   (3 )   (13 )   (42 )
Refining margin $ 1,635     $ 1,410     $ 5,211     $ 5,848  
               
Refining operating income $ 706     $ 499     $ 1,485     $ 2,328  
Exclude:              
Blender’s tax credit (a) 11         2     5  
Other operating expenses (b) (5 )   (3 )   (13 )   (42 )
Adjusted refining operating income $ 700     $ 502     $ 1,496     $ 2,365  
               
U.S. Mid-Continent region (g)              
Refining operating income $ 251     $ 416     $ 1,242     $ 1,488  
Exclude:              
Blender’s tax credit (a) 3             2  
Operating expenses (excluding depreciation and
amortization expense reflected below)
(164 )   (164 )   (632 )   (632 )
Depreciation and amortization expense (82 )   (78 )   (308 )   (291 )
Other operating expenses (b)         (2 )    
Refining margin $ 494     $ 658     $ 2,184     $ 2,409  
               
Refining operating income $ 251     $ 416     $ 1,242     $ 1,488  
Exclude:              
Blender’s tax credit (a) 3             2  
Other operating expenses (b)         (2 )    
Adjusted refining operating income $ 248     $ 416     $ 1,244     $ 1,486  
                               

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 (h)
(millions of dollars)
(unaudited)

null
  Three Months Ended
December 31,
  Year Ended
December 31,
  2019   2018   2019   2018
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) (i) (continued)
             
North Atlantic region              
Refining operating income $ 314     $ 516     $ 1,041     $ 1,136  
Exclude:              
Operating expenses (excluding depreciation and
amortization expense reflected below)
(154 )   (163 )   (593 )   (595 )
Depreciation and amortization expense (53 )   (53 )   (213 )   (220 )
Other operating expenses (b) (2 )       (4 )    
Refining margin $ 523     $ 732     $ 1,851     $ 1,951  
               
Refining operating income $ 314     $ 516     $ 1,041     $ 1,136  
Exclude: other operating expenses (b) (2 )       (4 )    
Adjusted refining operating income $ 316     $ 516     $ 1,045     $ 1,136  
               
U.S. West Coast region              
Refining operating income $ 148     $ 37     $ 254     $ 191