Will the Good Times Keep Rolling for Valero Energy Corporation?

In addition to peer-leading margins at its midcontinent refineries, Valero’s Gulf Coast refineries are ideally positioned to benefit from the surge in inland oil production.

Feb 4, 2014 at 11:01AM

Valero Energy (NYSE:VLO), the nation's largest independent oil refiner, reported strong financial results that handily beat analyst expectations. The company's fourth-quarter earnings jumped 28%, fueled largely by the spinoff of its CST Brands unit, continued strength in refining, and exceptionally strong performance from its ethanol segment.

Highlights from the quarter
Valero reported a 28% rise in fourth-quarter net income, to $1.3 billion, or $2.38 per share. That was up from $1 billion, or $1.82 per share, a year earlier. Meanwhile, revenue came in at $34.43 billion, down 1% from $34.7 billion.

The company's refining segment continued to benefit from favorable crude oil discounts at most locations. However, the segment's operating income declined 12% from the year-earlier quarter, due mainly to an increase in operating expenses resulting from higher energy costs and a decrease in throughput margins due to lower gasoline and diesel margins.

Valero's ethanol segment, though, delivered some truly exceptional improvement thanks to record-high production volumes and a sharp improvement in gross margins per gallon as a result of lower corn prices and low ethanol inventories. The segment generated operating income of $269 million in the fourth quarter, up from just $12 million in the year-earlier period, and swung from an operating loss of $47 million for full-year 2012 to an operating profit of $491 million in full-year 2013.

Refined product exports were another bright spot for the company, with its gasoline exports surging 33% year over year to 133,000 barrels per day. In recent years, U.S. refiners with refining capacity along the Gulf Coast have significantly increased their exports of gasoline and diesel to Europe and Latin America, where demand for fuel is much higher due to limited local refining capacity.

For instance, Phillips 66 (NYSE:PSX) boosted its refined product exports by 32% to 197,000 barrels per day during the fourth quarter, while Marathon Petroleum (NYSE:MPC) more than doubled its exports to 298,000 barrels per day. Like Valero, both companies maintain significant refining capacity in the Gulf Coast region, positioning them well for continued export-led growth.

Valero's competitive advantages
Valero's strong fourth-quarter performance highlights the company's numerous advantages over its peers, including unparalleled size and scale and location-related edges stemming from significant refining capacity in the midcontinent and the Gulf Coast.

Over the past few years, the company's three midcontinent refineries -- Ardmore, McKee, and Memphis – have benefited heavily from their access to discounted inland crude, enjoying throughput margins as high as $20 per barrel of oil. With the Brent-West Texas Intermediate crude spread expected to remain above historical norms this year, this advantage is likely to continue.

Furthermore, Valero's Gulf Coast refineries are now extremely well positioned to benefit from the growing supply of discounted inland crudes to the region. Over the past few years, the company has increased throughput volumes of cheap oil from the nearby Eagle Ford shale at its Three Rivers and Corpus Christi refineries, resulting in higher margins due to lower transport costs.

With production from the Eagle Ford expected to continue growing at a rapid clip in the next few years, Valero plans to invest heavily to further boost light oil processing capacity at its Gulf Coast refineries. It is evaluating adding a 90,000 barrel-per-day topping unit at its Houston refinery and a 70,000 bpd topping unit at a refinery in Corpus Christi by late 2015.

Location, location, location 
Valero's locational advantages should continue to be a major competitive strength for the company going forward. With growing volumes of inland crude expected to make their way to the Gulf Coast this year, Valero's refineries in the region could see even heavier discounts on light crude, while its midcontinent refineries should also continue to enjoy peer-leading margins. As such, investors can expect the company to continue returning a ton of cash to shareholders.

Valero is just one of many companies benefiting from the record oil and natural gas production that's revolutionizing the United States' energy position. That's why the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.

Arjun Sreekumar owns shares of Marathon Petroleum. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers