Tuesday, October 27, 2009

Valero Q309

Valero Energy, the worlds largest independent oil refiner, missed earnings as it posted a second consecutive quarterly loss amid shrinking margins and low demand. Valero reported a Q3 loss of $489M or $0.87 a share, versus a prior year loss of $1.5B or $2.18 a share. Excluding the asset impairment loss, created by the permanent shutdown of the gas supplier complex at the Delaware City refinery, the company reported a net loss of $219M or $0.39 a share. The main reason for this shutdown was to help simplify the refinery's operations, in an effort to make it more cost effective and to improve reliability.

Valero reported a third quarter 2009 operating loss of $579M versus $1.8B of operating income in the third quarter of 2008. Excluding the asset impairment loss, the operating loss for the quarter was $162M. Valero's balance sheet remains similar to last quarter, with total debt of $7.4B and a cash balance of $1.6B. They also have an additional $4.5B in liquidity. Daily throughput remains 208,000 barrels less a day than the third quarter of 2008.

Although Valero is being hurt by lower margins on diesel and jet fuel, its retail segment reported the highest income ever at $111M, due to lower selling expenses and strong business in the U.S. and Canada.

Looking forward Valero expects a fourth quarter loss of at least as large as the third quarter's, mainly due to weakened margins. With the loss incurred in the current quarter, and the expected loss in the fourth quarter, management has mentioned that it may have to reevaluate its dividend-to-payout level. "If industry conditions do not improve measurably, the dividend level will have to be reevaluated"

Although Valero is suffering from weakened margins, it still remains competitive and its business strategy has not been affected. They look to maintain their strong balance sheet and sufficient liquidity. Management has also stated that they will focus on matters within their control, by optimizing operations.

-Thomas Boeje

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