Well, I declare-o, Valero
Valero's move to dilute shareholder equity by almost 8%, announced in the same breath as a massive reduction in second-quarter profit guidance -- from a $0.59-per-share gain to a $0.50 loss -- pains investors like a one-two punch from Mike Tyson. Come on, Valero, you might as well bite our ear off, too!
Raising capital from shareholders is all the rage on Wall Street these days. The banks have made a withdrawal to the tune of $65 billion. DryShips
Fellow refiners Holly
On the other hand, while the banks are likely to shovel raised capital into their bottomless pits of toxic derivatives exposure, at least Valero is trying to refine wine from sour grapes by investing in assets which the company believes will fuel long-term growth prospects.
Valero purchased seven ethanol plants from bankrupt VeraSun Energy for $477 million in March, and recently agreed to buy a 45% stake in a 190,000-barrels-per-day Dutch refinery from Dow Chemical
Meanwhile, Valero's $640 million disappointment -- from analyst expectations of $0.74 per share earnings in the second quarter to the new guidance for a $0.50 loss -- certainly warrants a closer look at the operational aspects of the business. The company cited extended maintenance-related downtime at two refineries as a major factor, which implies a merely temporary hit, since both facilities are now back online or in the process of coming online.
More troubling for operations going forward, however, is the report of weak discounts for sour crude ... a primary source of Valero's competitive advantage.
I swear-o, Valero, you may have chewed off our ears, but we still have our eyes on you.