Valero Energy Q2 earnings strong overall, weaker on ethanol

By Susanne Retka Schill | July 30, 2015

Valero Energy Corp. reported strong second quarter earnings for the company on July 30, reporting net income from continuing operations attributable to Valero stockholders of $1.4 billion, or $2.66 per share, compared to $1.22 in Q2 2014. 

Ethanol earnings, however, were down, with the ethanol segment reported second quarter 2015 operating income of $108 million versus $187 million in the second quarter of 2014. The $79 million decrease in operating income was mainly due to lower gross margin per gallon, the company reported in its quarterly earnings release, driven by a decline in gasoline and ethanol prices, which more than offset a decrease in corn prices. 

Even as ethanol segment operating income was down for the company, average ethanol production volumes were 3.8 million gallons per day in the second quarter of 2015, an increase of 517,000 gallons per day versus the second quarter of 2014. Valero’s 11 ethanol plants have a combined annual capacity of 1.3 billion gallons. The company said its production increase was partly due to less weather-related rail disruptions and incremental production volumes from the Mount Vernon, Indiana, plant, which was acquired in March 2014 but did not begin operating until August 2014.

The company reported its gross margin per gallon of ethanol production in Q2 at 64 cents, down substantially from Q2 in 2014, which was $1.40, but higher than the six month gross margin of 53 cents per gallon for the first half of 2015. Operating costs per gallons, including depreciation and amortization, were 33 cents per gallon in Q2 2015 compared with 41 cents in the same quarter the year before.

In the investor call, John Locke, executive director of investor relations, said the company expects Q3 ethanol production to average 3.8 million gallons per day, at an operating cost of 37 cents per gallon which includes 4 cents per gallon for depreciation and amortization. Based on U.S. EPA announcements earlier this year, Lock said the company expects the cost of procuring the renewable identification numbers needed to demonstrate compliance with the renewable fuel standard to range between $350 million and $450 million.

Valero’s refinery business saw strong performance in Q2, following a “heavy, planned maintenance period in the prior quarter,” said CEO Joe Gorder. Its refineries operated at 96 percent throughput capacity utilization. Second quarter 2015 refining throughput volumes averaged 2.8 million barrels per day, an increase of 87,000 barrels per day from the second quarter of 2014 primarily attributed to less maintenance activity during the second quarter of 2015. 

The refining segment, with its 15 petroleum refineries and a combined throughput capacity of approximately 2.9 million barrels per day, reported second quarter 2015 operating income of $2.2 billion versus $1.1 billion in the second quarter of 2014.  The $1.1 billion increase in operating income primarily resulted from a $3.87 increase in throughput margin per barrel from $9.84 in the second quarter of 2014 to $13.71 in the second quarter of 2015, driven mainly by stronger gasoline and other product margins per barrel relative to Brent crude oil and lower natural gas costs.  Lower discounts per barrel for most sweet and sour crude oils relative to Brent crude oil partially offset these factors.

Overall operating revenues for Valero Energy Corp. total $25 billion for Q2 2015, compared with $35 billion in Q2 2014, with a net income of $1.25 billion for Q2 2015, up from $588 in Q2 2014. Net income for the first half of 2015 totals $2.3 billion, compared with $1.4 billion in the same period a year ago. Capital spending was $530 million in the second quarter of 2015, of which $160 million was for turnarounds and catalyst.  Valero also repaid $75 million of debt during the second quarter of 2015. Valero returned a total of $870 million in cash to stockholders in the second quarter of 2015, of which $203 million was paid in dividends and $667 million was used to purchase 11.3 million shares of Valero common stock