For Immediate Release
Chicago, IL – October 27, 2010 – Zacks.com Analyst Blog features: Valero Energy Corporation (VLO), UBS AG (UBS), Credit Suisse Group (CS), Deutsche Bank AG (DB) and Banco Santander SA (STD ).
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Here are highlights from Tuesday’s Analyst Blog:
Back to Back Rise for Valero
Valero Energy Corporation (VLO) posted third quarter earnings from continuing operations of 51 cents per share, significantly better than the Zacks Consensus Estimate of 47 cents and year-earlier loss of 61 cents. Total revenue in the quarter increased more than 19% year over year to $22.2 billion from the Zacks Consensus Estimate of $20.2 billion.
The improvement was mainly attributable to an improving refining margins environment and better feedstock discounts. Importantly, this is the second consecutive quarterly profit following four consecutive quarters of loss.
Throughput Volumes
During the quarter, throughput volumes were 2.36 million barrels per day, up approximately 6.0% year over year. By feedstock composition, sweet crude, medium/light sour crude and heavy sour crude accounted for a respective 31%, 22% and 19% of the total. The remaining volumes came from acidic sweet crude, residuals, blend-stocks and other feedstocks.
The Gulf Coast accounted for approximately 57% of total volume. The Mid-Continent, Northeast and West Coast regions accounted for 18%, 15% and 11%, respectively, of the total.
Throughput Margins
Company-wide throughput margins jumped 55% year over year in the reported quarter to $7.87 per barrel, owing to higher margins for diesel and better discounts for low-quality feedstocks. Margins increased significantly across all regions. Average throughput margin realized was $8.34 per barrel (up from $4.66 per barrel in the year-earlier period) in the Gulf Coast, $8.06 per barrel (versus $5.38) in the Mid-Continent, 5.26 per barrel (versus $3.39) in the Northeast and $8.66 per barrel (up from $8.51) in the West Coast.
Total operating cost per barrel was $5.24 during the quarter, down nearly 2% from the year-earlier quarter. Refining operating expenses per barrel remain flat with the year-earlier quarter level at $3.76. The unit depreciation and amortization expenses decreased about 5% to $1.48 per barrel from the year-ago quarter.
Capital Expenditure & Balance Sheet
Third-quarter capital spending totaled $508 million, of which $67 million was for turnarounds and catalyst expenditures. For full-year 2010, Valero expects capital expenditure to be around $2.3 billion. At the end of the quarter, the company had cash and cash equivalents of approximately $2.4 billion. Moreover, Valero expects capital spending of $2.6 billion for 2011, which includes a decline in regulatory spending and an increase in expenditure for economic growth projects.
Outlook
The company remains enthusiastic for the fourth quarter based on better refining margins on products and wider discounts. The company is consistently reviewing its refining portfolio, and upgrading the asset base by selling refinery assets that do not fit the business mix. We appreciate the company’s cost-saving initiatives that are running ahead of schedules.
We remain optimistic on the company’s business for the coming quarters on the back of improving U.S. and global economies and maintain our long-term recommendation at Neutral. Valero is rated Hold over the short term with a Zacks #3 Rank.
UBS Profits, Reports Inflow
UBS AG (UBS) has posted a profit in the third quarter of 2010 and has reported positive client money flows after reporting outflows for the past several quarters. The company reported a net profit of CHF 1.7 billion ($1.7 billion) compared with CHF 2.0 billion in the prior quarter and a loss of CHF 0.6 billion in the year-ago quarter.
Operating income was CHF 6.7 billion compared with CHF 9.2 billion in the prior quarter and CHF 5.8 billion in the year-ago quarter. However, the results included a CHF 825 million net tax credit and an own credit charge of CHF 387 million.
Reduced client activity levels impacted the UBS AG business divisions’ performance. The Investment Bank division reported a pre-tax loss of CHF 406 million compared with a pre-tax profit of CHF 1.3 billion in the prior quarter. The decrease was driven by reduced flows in equities, primarily in cash and derivatives, and a decline in fixed income, currencies and commodities revenues from a decrease in average client activity in foreign exchange and rates businesses.
At the Global Asset Management division, lower management fees due to the strengthening of the Swiss franc were partially offset by lower personnel expenses; profits, therefore, were somewhat stable. Wealth Management revenues also reported a drop based on lower client activity and the strengthening of the Swiss franc against major currencies.
However, UBS AG continued with its cost controlling initiatives, resulting in a drop of CHF 731 million in expenses from the prior quarter to CHF 5.8 billion. The decline primarily stemmed from reduced personnel expenses and currency effects.
Outlook
UBS AG is optimistic of an improved environment in the fourth quarter. The company expects an increase in client activity levels subsequent to the abnormally low client activity levels in the third quarter and thereby expects all its business divisions to benefit from it. The company projects an increase in the transaction-based revenue in its wealth management businesses and in the flow businesses of the Investment Bank.
Additionally, UBS AG anticipates a growth in corporate transactions prior to the year-end benefiting its investment banking business and expects its wealth management units’ return on invested assets to progress to some extent.
Client Detail Sharing Deal
The US Department of Justice has moved to dismiss all the prior filed charges following UBS AG meeting the terms of the Deferred Prosecution Agreement. Following the Swiss government’s promise to hand over the client details of the remaining US accounts, the US Internal Revenue Service will now withdraw the remaining portion of the John Doe summons on November 15, 2010.
Competitor Performance
Last week, UBS AG’s rival Credit Suisse Group (CS) reported third quarter profit of 609 million Swiss francs ($633 million), compared with CHF 2.35 billion in the year ago quarter. Similar to UBS AG, Credit Suisse results reflected a drop in Investment banking revenues as a result of lower client activity. This keeps the market worrying about the other biggies which are yet to report. These include Deutsche Bank AG (DB) and Banco Santander SA (STD ).
Our Take
The global economic turmoil had a severe impact on the Swiss banking major’s balance sheet when the subprime crisis led to record losses. Additionally, the issues emanating from alleged tax evasion investigation and the dilution of Swiss banking secrecy significantly impacted UBS AG’s performance in the past several quarters, as worried clients looked for a safer refuge.
However, with the Swiss parliament’s approval to the data sharing deal, we believe the uncertainties have somewhat been tackled. Increasing profitability and inflows remain UBS AG’stop priorities. The company has taken several restructuring initiatives, which should support its results in the upcoming quarters. Yet, we believe the volatile capital market conditions to restrict the top line growth to some extent in the near term.
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