Zacks_Analysts' Blog : Valero Misses EPS, Tops on Rev - Analyst Blog

Valero Energy Corporation (VLO) has posted second quarter 2011 earnings from continuing operations of $1.30 per share. The quarter’s results missed the Zacks Consensus Estimate of $1.47 but climbed more than 39% from last year's earnings from continuing operations of 93 cents.

The year-over-year improvement can be traced back to a better refining margins environment and higher feedstock discounts.

Total revenue in the quarter increased more than 52% year over year to $31,293 million, beating the Zacks Consensus Estimate of $29,306 million.

Throughput Volumes

During the quarter, throughput volumes were 2.32 million barrels per day, up approximately 6.2% year over year. By feedstock composition, sweet crude, medium/light sour crude and heavy sour crude accounted for 33%, 20% and 22%, respectively, of the total. The remaining volumes came from residuals, blend-stocks and other feedstock.

The Gulf Coast accounted for approximately 62% of the total volume. The Mid-Continent, Northeast and West Coast regions accounted for 17%, 9% and 12%, respectively.

Throughput Margins

Company-wide throughput margins jumped $1.84 per barrel year over year in the reported quarter, owing to higher margins for gasoline, diesel and jet fuel, associated with better discounts for heavy-sour feedstocks on the Gulf Coast and light-sweet crude oils in the Mid-Continent. Margins increased significantly across all regions except in the Northeast.

Average throughput margin realized was $11.30 per barrel in the Gulf Coast (up from $10.28 per barrel in the year-earlier period), $16.50 per barrel in the Mid-Continent (up from $9.13), $3.36 per barrel in the Northeast (down from $4.40) and $10.65 per barrel in the West Coast (up from $10.55).

Total operating cost per barrel was $5.47 during the quarter, up more than 9% from the year-earlier quarter. Refining operating expenses per barrel increased more than 10% year over year to $3.86. Unit depreciation and amortization expenses upped nearly 6% to $1.61 per barrel from the year-ago quarter.

Capital Expenditure & Balance Sheet

Second quarter capital spending totaled $664 million, of which $133 million was for turnarounds and catalyst expenditures. At the end of the quarter, the company had cash and temporary cash investments of approximately $4.1 billion. Valero also rewarded shareholders $29 million in dividends and paid back $208 million in debt.

Our Take

Valero remains upbeat on 2011 and 2012, and expects wider discounts in the medium term. It also foresees attractive opportunities to export products from the Gulf Coast refineries. We also appreciate Valero’s endeavor of consistently review its refining portfolio, and upgrade its asset base by selling refinery properties that do not fit the business mix.

However, being the largest independent refiner, Valero remains particularly exposed to the unfavorable macro backdrop, along with other refiners like NGL Energy Partners LP (NGL) and Able Energy Inc. (ABLE).

The company holds a Zacks #2 Rank, which translates to a short-term Buy rating. We maintain our long-term Neutral recommendation on Valero.