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Valero Energy (VLO) Q1 Earnings & Revenues Beat Estimates

Zacks Equity Research

Valero Energy Corporation VLO reported first-quarter 2020 earnings of 34 cents per share against the Zacks Consensus Estimate of a loss of 15 cents. However, quarterly earnings decreased from the year-ago earnings of 43 cents per share.

Total revenues fell from $24,263 million in the prior-year period to $22,102 million in the quarter under review. However, the top line surpassed the Zacks Consensus Estimate of $21,617 million.

The better-than-expected results can be attributed to a rise in renewable diesel sales volumes and lower operating expenses. This was partially offset by lower ethanol prices and refining margin, as well as increased corn prices.

In first-quarter 2020, the company completed the Pasadena terminal project, which will likely expand the product logistics portfolio, enhance capacity for biofuels blending and boost export flexibility.

Valero Energy Corporation Price, Consensus and EPS Surprise

Valero Energy Corporation Price, Consensus and EPS Surprise

Valero Energy Corporation price-consensus-eps-surprise-chart | Valero Energy Corporation Quote

Segmental Performance

Operating loss from the Refining segment was reported at $2,087 million against operating income of $479 million in the year-ago quarter. The Zacks Consensus Estimate for the same was pegged at a profit of $813 million. Refining throughput volumes marginally declined from first-quarter 2019.

In the Ethanol segment, the company reported operating loss of $197 million against a profit of $3 million in the year-ago quarter. Moreover, the reported figure was wider than the Zacks Consensus Estimate of a loss of $55 million. The downside was caused by lower ethanol prices and increased corn prices. Ethanol production volumes in the quarter were reported at 4.1 million gallons per day.

Valero created a new segment in first-quarter 2019, namely Renewable Diesel, which incorporated the operations of a consolidated joint venture, Diamond Green Diesel. Operating income from the segment was $198 million compared with $49 million in the year-ago period. The figure surpassed the Zacks Consensus Estimate of $104 million. The increase was attributed to a rise in renewable diesel sales volumes.

Expenses & Operating Income

General and administrative expenses in the Corporate and other segment totaled $177 million compared with the prior-year level of $209 million. Operating expenses fell to $1,124 million from the year-ago figure of $1,215 million. Total cost of sales rose to $24,187 million in the quarter from the year-ago period’s $23,730 million.

Quarterly operating loss in the quarter was $2,277 million against operating income of $308 million in the year-ago period.

Throughput Volumes

During the quarter, refining throughput volumes were 2,824 thousand barrels per day (Mbpd), marginally down from the prior-year quarter’s 2,865 Mbpd.

In terms of feedstock composition, sweet crude, medium/light sour crude and heavy sour crude accounted for 54.5%, 8.9% and 12.8%, respectively, of its total volume. The remaining volumes came from residuals, other feedstock blendstocks and others.

The Gulf Coast contributed approximately 59.1% to total throughput volume. Mid-Continent, North Atlantic and West Coast regions accounted for 15.3%, 17.2% and 8.4%, respectively, of the total throughput volume.

Throughput Margins

Refining margin per barrel of throughput decreased to $7.24 from the year-ago level of $8.00. Refining operating expense per barrel was $3.87 compared with $4.15 in the year-ago quarter. Depreciation and amortization expenses increased to $2.09 a barrel from $1.96 in the prior-year quarter. As such, adjusted refining operating income was recorded at $1.28 per barrel of throughput, lower than the year-ago level of $1.89.

Share Repurchase

Valero returned $548 million to shareholders, of which $147 million was used to repurchase 2.1 million shares of common stock and $401 million was paid as dividends to shareholders.

Capital Expenditure & Balance Sheet

First-quarter capital expenditure totaled $705 million, of which $468 million was allotted for sustaining the business.

At the end of the quarter, the company had cash and cash equivalents of $1.5 billion, reflecting a decline from the fourth-quarter 2019 level of $2.6 billion. As of Mar 31, 2020, it had a total debt of $11.5 billion, depicting a rise from $9.7 billion in fourth-quarter 2019. Its debt-to-capitalization ratio was 34%. The company entered into a revolving credit facility worth $875 million on Apr 13.

Outlook

Valero expects capital expenditure for 2020 to be $2.1 billion, which is $400 million lower than the original guidance. The St. Charles alkylation unit is expected to come online in 2020. Moreover, the company’s Diamond Green Diesel expansion project and Diamond Pipeline expansion are scheduled to be completed in 2021.

The current market uncertainty caused by coronavirus-induced lockdowns and travel bans has reduced demand for the company’s products like gasoline and jet fuel. Weak energy demand environment affected the company’s first-quarter results and will continue to do so until the economies go into a recovery mode.

Zacks Rank & Stocks to Consider

Currently, Valero has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include RGC Resources Inc. RGCO, Murphy USA Inc. MUSA and Comstock Resources, Inc. CRK, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RGC Resources’ 2020 earnings per share are expected to rise 14.8% year over year.

Murphy USA’s 2020 earnings per share are expected to rise 22.6% year over year.

Comstock Resources’ 2020 sales are expected to gain 33.1% year over year.

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