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.
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