Valero posted first quarter net income of $309 million, or $0.59 per share, compared to last year's 1Q net income of $261 million, or $0.48 per share. Management reported that the increase was mainly due to higher refining margins on gasoline and secondary products, such as fuel oil, asphalt, and petroleum coke. They also cited lower refinery operating expense as a contributing factor.
"We reported positive earnings despite weaker demand,” said Bill Klesse, Valero’s Chairman of the Board and Chief Executive Officer. “In fact, our first quarter 2009 earnings per share were 23% higher than the first quarter of 2008, and 64% higher if you exclude last year’s insurance recovery. In all our regions, gasoline margins were unseasonably strong and nearly double the level in the same quarter last year. Diesel and jet fuel margins were also good in the first quarter despite being down from last year’s high levels.
Also worth mentioning is Valero's acquisition of seven ethanol plants previously owned by now bankrupt VeraSun. This further vertically integrates their business, as ethanol is a neccessary additive in many of their products.
Going forward, management acknowledges continued volatility and difficulty in the energy business, but remains committed to finanacial strength and long term viability. Nothing has changed with this stock and in fact it has only become stronger in the past two months. Valero has improved upon many of the competitive advantages that make it so attractive as a refiner, as well as maintained the financial strength to see it through these tough times. Although we are up nearly 20% on Valero, it still remains undervalued and should hit the price target in due time.