Valero execs call quarterly results "constructive on all segments"

Joe Gorder wasn’t prepared to fully agree with an analyst’s confident assertion that Valero Energy Corp. is on track to top its record for profits set in the middle of last decade. But his caveat also was a minor one.

Speaking on a conference call after Valero, San Antonio, reported first-quarter results that comfortably beat analysts’ consensus estimates for both the top and bottom lines, Valero’s chairman and chief executive officer said the company is well positioned to deliver on its three main financial targets for 2022: Grow its cash on hand, lower its leverage and return cash to shareholders. In the first 3 months of this year, Valero booked a net profit of $967 million on $38.5 billion in revenues compared to a $704 million loss on $20.8 billion in sales early last year.

“We live one day at a time in this business,” Gorder said, before adding that “things look constructive on all segments of our business right now. We’re optimistic but we don’t count our chickens until they’re hatched.”

Valero’s refining business churned out a first-quarter operating profit of $1.45 billion on $36.8 billion, helped by a margin per bbl of $12.74, which was up 84% from the $6.91 of early 2021. Total throughput rose to 2.8 million b/d from 2.4 million b/d a year earlier. Its largest operating region, the Gulf Coast, produced a refining margin of $13.13 (compared to $6.48 in the prior-year period) on the average of nearly 1.7 million b/d it handled in the first quarter.

Gorder and his executive team told analysts and investors they see continued solid demand and margins in the coming months helped by a rebound in the travel sector and refinery utilization rates that can’t go much higher if they go higher at all. (Valero’s utilization was 89% in the first quarter versus 77% in early 2021.) Margins in April, they said, have been even better than those from March.

Valero’s second-quarter throughput is expected to be down slightly in three of its four regions. Only on the West Coast will volume grow—from 202,000 b/d in the first quarter to 224,000-245,000 b/d—while its Gulf Coast, Mid-Continent and North Atlantic units are forecast to have throughput drop slightly.

The Valero team and its partners in the Diamond Green Diesel joint venture have pulled forward into this year's fourth quarter (from early 2023), the projected opening of their project adjacent to Valero’s Port Arthur refinery. The facility will have a renewable diesel production capacity of 470 million gal/year.

On the M&A front, Gorder said his team would be interested if assets come to market that fit their plans. But asked specifically about the LyondellBasell Industries NV announcement last week that it would shut down its Houston refinery after not finding a buyer, he said Valero has other priorities  (OGJ Online, Apr. 22, 2022).

“We feel we’ve got higher-return, better uses of the capital we want to deploy than buying a refinery that’s on the market at this time," he said. 

Riggs added that the dynamic Gorder laid out has the Valero team thinking a number of refineries, particularly smaller ones, will be closed rather than sold in the next few years.

Shares of Valero (Ticker: VLO) were up more than 4% to about $105 in afternoon trading Apr. 26. Year to date, they have climbed nearly 40%, growing the company’s market capitalization to more than $43 billion.

Citi analyst Prashant Rao sees the stock climbing further: In the wake of the earnings report, he lifted his price target for Valero to $120 from $94. His call comes about a week after his peers at Morgan Stanley and Piper Sandler made similar moves.