Valero ethanol segment earns record 2014 income of $786M

By Susanne Retka Schill | January 29, 2015

Valero Energy Corp. showed strong earnings in its fourth quarter and year-end financial report. The oil refiner and ethanol producer showed adjusted net income of $952 million, or $1.83 per share in Q4. That compares to $963 million in the same period a year earlier. For the year ended Dec. 31, adjusted net income from continuing operations total $3.5 billion, or $6.68 per share, in 2014 compared to $2.4 billion in 2013.

The ethanol segment earned record annual operating income of $786 million in 2014 compared to $491 million in 2013.The segment reported Q4 2014 operating income of $158 million versus $269 million in the fourth quarter of 2013.  The $111 million decrease in operating income was mainly due to lower gross margin per gallon driven by a decline in gasoline and ethanol prices versus relatively stable corn prices, the company explained in its earnings statement. The accompanying tables showed ethanol operating expenses for Q4 14 were $129 million, compared to $106 million in the same period 2013. Total 2014 operating expenses were $724 million compared to 2013’s $748 million.

Production from the Mount Vernon, Indiana, plant purchased in Q1 contributed to record quarterly ethanol production volumes, which averaged 3.8 million gallons per day in the fourth quarter of 2014. In the earnings call, John Locke, executive director of investor relations, said ethanol production for Q1 2015 is expected to be 3.7 million gallons per day at an operating cost of 37 cents per gallon, which includes 4 cents per gallon for depreciation and other noncash expenses.

In 2014, Valero returned $1.9 billion to stockholders, or 50 percent of net income from continuing operations, with $554 million in dividends and $1.3 billion in stock buybacks.  Valero paid $143 million in dividends and purchased 10.3 million shares of its common stock with $497 million for total cash returned to stockholders of $640 million in the fourth quarter of 2014. 

A few days before the earnings call, Valero announced the board had approved an increase in the company’s regular quarterly cash dividend on common stock from 27.5 cents per share to 40 cents per share, effective with the quarterly dividend payable in early March. "This significant increase in our regular cash dividend shows our commitment to returning cash to stockholders," said Joe Gorder, Valero chairman and CEO.  "Our strong operating performance and financial strength have enabled us to continue to prudently invest capital to increase the competiveness of our business for the long term."

Valero’s ethanol segment is comprised of 11 corn ethanol plants with 1.3 billion gallons of annual capacity. Valero operates and owns 50 percent of Diamond Green Diesel which has a capacity of 10,500 barrels per day (bpd) of renewable diesel production. The renewables, however, are far out shadowed by the company’s 15 petroleum refineries with 2.9 million bpd capacity. Valero also has substantial infrastructure investments through its affiliate, Valero Energy Partners LP, which owns and operates pipelines, terminals, rail and marine facilities and fuels distribution.  Approximately 7,400 outlets carry the Valero, Diamond Shamrock, Shamrock, and Beacon brands in the United States and the Caribbean; Ultramar in Canada; and Texaco in the United Kingdom and Ireland.