Valero ethanol segment reports record Q3 earnings

By Susanne Retka Schill | November 04, 2014

Valero Energy Corp.’s ethanol segment reported a record third quarter operating income of $198 million, compared to $113 million recorded in the third quarter of 2013. The $85 million increase in operating income was mainly due to higher gross margin per gallon driven by lower corn costs and increased volumes with the start-up of Valero's eleventh ethanol plant in Mount Vernon, Indiana, in August 2014.

"Our ethanol business continues to generate impressive returns for Valero, delivering a record $628 million in operating income in the first three quarters of 2014," CEO Joe Gorder said in a statement accompanying the release of the financials.  "We are also pleased with our Mount Vernon ethanol plant's safe and timely start-up." 

In the Nov. 4 investor call, John Locke, executive director of investor relations, said the good segment results were the result of a 27 cent per gallon increase in margins. Ethanol production averaged 3.6 million gallons per day in the third quarter, and he said is forecast to average 3.7 million gallons per day in the fourth, at an operating expense of 41 cents per gallon, which includes amortization and depreciation.

In the tables accompanying the earnings release, Valero reported a gross margin per ethanol gallon for the third quarter of $1 per gallon, compared to 73 cents per gallon in the same quarter last year. The gross margin for the nine months was reported at $1.13. Total operating costs for Q3 were 40 cents per gallon of ethanol produced and 44 cents for the nine months, leaving a Q3 operating income per gallon of 60 cents and 69 cents per gallon for the nine months of the current year.

Overall, Valero reported net income of $1.1 billion, or $2 per share, for the third quarter of 2014, compared to $312 million, or 57 cents per share, in the same period last year. Operating income in the third quarter of 2014 was approximately $1.7 billion versus $532 million in the third quarter of 2013.  The $1.1 billion increase in operating income resulted mainly from wider discounts for sweet and sour crude oils relative to Brent crude oil, stronger gasoline margins in most regions, and higher refining throughput volumes, as well as the strong ethanol returns.

Third quarter 2014 refining throughput volumes averaged 2.8 million barrels per day, an increase of 42,000 barrels per day from the third quarter of 2013.  The increase in volumes was due primarily to less turnaround activity and higher throughput capacity utilization, which approached 98 percent utilization.

Valero operates 15 petroleum refineries with a combined throughput capacity of approximately 2.9 million barrels per day, 11 ethanol plants with a combined production capacity of 1.3 billion gallons per year, a 50 MW wind farm and renewable diesel production from a joint venture. Ethanol operating income for the nine months ending Sept. 3 totaled $628 million, compared to the refining segments operating income for the same period of $4 billion.